L’Oreal Cuts Outlook on Q3 Results

Forecast trimmed to 4 percent after 3.4 percent gain in quarterly sales.

PARIS — The recent softening of sales in North America and Western Europe, especially its home market of France, prompted L’Oréal Thursday to cut its full-year sales growth forecast to 4 percent from the 6 percent projection it made in August.

This story first appeared in the October 31, 2008 issue of WWD.  Subscribe Today.

The projection is for “like-for-like” sales, which exclude currency fluctuations as well as changes in corporate structure.

The global beauty leader, accustomed to reporting double-digit growth, posted a third-quarter sales increase of 3.4 percent at constant exchange to 4.27 billion euros, or $6.43 billion at average exchange for the period. On a like-for-like basis, the sales increase was reduced to 2.7 percent.

The showing took L’Oréal’s nine-month sales to 12.91 billion euros, or $19.66 billion, an increase of 2.2 percent, or 4.4 percent like-for-like. Excluding only currency fluctuations, growth for the period was 7.4 percent.

“In view of this tougher environment which remains uncertain, we now consider it more prudent to forecast 2008 like-for-like sales growth close to that reached at nine months — i.e. approximately plus-4 percent,” stated Jean-Paul Agon, L’Oréal’s chief executive officer.

“Since September, we have noted a clear slowdown in some markets in Western Europe and North America, and have been confronted with a contraction of purchasing by some distributors in view of the current economic crisis,” he continued.

“We were particularly handicapped by the challenging French market, which represents a significant percentage of our sales,” he added during a conference call.

During the quarter, sales in Western Europe rose 3.9 percent to 1.74 billion euros, or $2.65 billion at average exchange. On a like-for-like basis, business dipped 1.8 percent. France was particularly impacted in the pharmacy and mass market channels, Agon explained, leaving overall business for the country flat. North America, meanwhile, was hit by a slowdown in beauty salons and consumer products. Sales fell in that region by 10.8 percent to 925.7 million euros, or $1.39 billion, and by 5.7 percent like-for-like.

The “rest of the world” region continued to drive growth, generating 15.6 percent gains during the quarter to hit 1.31 billion euros, or $1.97 billion. Particularly strong showings came from Asia, which grew 13.9 percent, and Eastern Europe, which jumped 29.6 percent.

The Body Shop’s sales fell 2.2 percent in the quarter, to 176.2 million euros, or $265.5 million, and rose 8.1 percent on a like-for-like basis.

By division, consumer products, the firm’s largest division, dipped 0.9 percent to 2 billion euros, or $3 billion. Growth during the quarter was impacted by launch phasing and by early invoicing for its Maybelline and Garnier brands in the U.S. in the second quarter, which pulled third-quarter sales down 1.7 percent.

Luxury products, L’Oréal’s second-largest division, achieved a strong performance. Sales reached 1.1 billion euros, or $1.66 billion, a 15.3 percent leap. Professional products, meanwhile, slipped 2.7 percent to 599.4 million euros, or $903 million, while active cosmetics grew 5.1 percent to 281.9 million euros, or $423 million.

As they did in the third quarter, currency fluctuations dragged down year-to-date results, subtracting 5.2 percent from sales growth.

Analysts were disappointed by the performance. During the conference, some expressed doubt that L’Oréal would be able to hit its 4 percent year-end growth target, given that it hadn’t achieved that figure in the three months ended Sept. 30.

The company also announced it is to close an as-yet-unnamed factory in the U.K. Earlier this month, L’Oréal said it would shutter its Sofamo-Biotherm plant in Monaco in 2011, cutting 198 jobs.

Despite the grim outlook, Agon said L’Oréal would maintain its advertising and promotional spend for the rest of the year “in order to prepare for 2009 in the best possible conditions.”�