Currency, North America Weigh on L’Oréal

The French beauty giant registered its weakest quarterly sales gain in five years but vowed that it would return to the growth track in the second quarter.

PARIS — Currency fluctuations hit L’Oréal hard in the first quarter, as did dampened demand in North America.

This story first appeared in the April 15, 2014 issue of WWD.  Subscribe Today.

The French beauty giant registered its weakest quarterly sales gain in five years but vowed that it would return to the growth track in the second quarter. L’Oréal’s revenues in the three months ended March 31 dropped 2.2 percent to 5.64 billion euros, or $7.73 billion at average exchange. On a constant-exchange-rate basis, the company’s sales advanced 2.8 percent, while in like-for-like terms they were up 3.5 percent.

“The results were quite disappointing, some way below our expectations and consensus,” wrote Andrew Wood, a senior analyst at Sanford C. Bernstein & Co., in a research note. “It is tough to see how 3.5 percent like-for-like growth, the lowest quarterly growth since the depths of the global recession in 2009, can be described as ‘encouraging.’”

He was making reference to how Jean-Paul Agon, L’Oréal chairman and chief executive officer, described the start to 2014 in a conference call with financial analysts and journalists on Monday night.

Wood wrote that Bernstein would reassess its full-year expectations for L’Oréal.

On a like-for-like basis, the company’s Consumer Products Division, or CPD, advanced 1.2 percent, while North American sales for L’Oréal dipped 0.6 percent.

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Agon said CPD North America’s business was negatively impacted by two phenomena. First, there was a strong on-year comparison, since in the first quarter of 2013 L’Oréal Paris launched Advanced Haircare. He called it “the biggest launch ever in the L’Oréal company worldwide.”

Secondly, the mass-market business was flat — with “zero growth — in this first quarter, due to slow demand from consumers” and some difficult weather conditions, Agon added.

However, he said that in the second quarter L’Oréal believes that sales in North America “will be significantly better than in the first quarter” and reminded that the company had a long while back flagged that the first quarter would be difficult for “mechanical” reasons.

Currency fluctuations had a minus 5 percent impact on L’Oréal’s first-quarter sales.

Some particularly bright areas for L’Oréal included Western Europe, where revenues gained 2.8 percent on a like-for-like basis. There was a recovery noted in Southern Europe, which posted growth for the first time in six years. And sales for the Professional Products Division advanced 3.7 percent in like-for-like terms.

Also on a like-for-like basis, revenues for L’Oréal Luxe and Active Cosmetics rose 7.2 percent and 8.7 percent, respectively. Sales in New Markets increased 7.5 percent and for The Body Shop, they declined 3.4 percent.

Agon called the first quarter “encouraging even if contrasted” and with a lot of “good news.”

“Now we are pretty confident for the rest of the year, and we expect our growth to get back on a solid base as soon as the next quarter,” he said.

L’Oréal reiterated its expectation to outperform the market and achieve another year of sales and profit growth in 2014.

Agon said the company anticipates the global cosmetics market’s growth this year to be in the same order as 2013’s — between 3.5 percent and 4 percent — but with a different balance between the geographic zones.

The U.S. gains may be slower than in 2013, for instance, but he noted a “very positive evolution in Western Europe — that’s true for the mass market, but it’s also true for luxury.”