By  on February 17, 2010

PARIS — L’Oréal chief Jean-Paul Agon reiterated Tuesday the company’s plan to return to growth and lure a billion new consumers, particularly in emerging markets, to double its customer base by 2020. The market responded negatively, however, to the firm’s 2009 results, and L’Oréal stock closed down 4.7 percent to 73.18 euros, or $100.70 at current exchange.

The French beauty giant on Monday posted net profits of 1.79 billion euros, or $2.5 billion, in the 12 months ended Dec. 31, down 8 percent on the same prior-year period. L’Oréal registered a 0.4 percent revenue decline to 17.47 billion euros, or $24.37 billion. On a like-for-like basis, sales fell 1.1 percent last year. Dollar figures are at average exchange rates.

“L’Oréal’s full-year like-for-like sales were weaker than the consensus forecast, especially professional and luxury,” stated The Royal Bank of Scotland in a research note Tuesday. “Profitability was in line, despite higher A&P spend. We leave our forecasts [including a sell recommendation] unchanged.”

“Top-line growth in the last quarter of 2009 fell short of my estimates, mainly due to lower growth in the luxury division, while margin expansion was above my expectations on the back of efficiency gains and lower input costs,” said Susanne Seibel, a consumer analyst at Barclays Capital.

UBS, meanwhile, maintained its neutral recommendation on L’Oréal. “I like what I see, whether it’s new products, the new consumers, the more efficient industrial base or the step up in [advertising and promotion] and [research and development] at a time when some competitors have been a bit complacent. However, given the continued disappointment on the top-line front throughout 2009, it makes me want to see that this is resulting in a step-up in growth before changing my view on the stock,” said Eva Quiroga, an analyst at UBS.

Agon addressed financial analysts Tuesday in a meeting in L’Oréal’s headquarters in Clichy, a Paris suburb. He said the worldwide cosmetics business gradually improved last year and improved by an estimated 1 percent in sell-in terms. Agon added that trends not only varied by channel, but also by geographic market. Also on an estimated sell-in basis, Western Europe contracted 1.2 percent; North America was down 2.2 percent, and the “new markets” (including the rest of the world excluding Japan) grew 8.9 percent.

“This spectacular divide confirms that the cosmetics market is indeed shifting gradually toward the new markets,” said Agon. “Today, this group of regions, which accounts for 85 percent of the world population, already represents 50 percent of the global cosmetics market. Demand for cosmetics will follow population trends. This is a unique opportunity for growth for L’Oréal over the next 20 years.

“Our aim is to seek out, win over and secure the loyalty of one billion new consumers in these countries within the next 10 years and so double the number of women and men who use our brands and our products around the world,” continued Agon.

He said beauty consumers today “are more than ever sensitive to innovation, quality and efficacy in the products that they use. In terms of price, their buying behavior was not transformed totally by the crisis, as some had feared. The market did not depreciate in value. There was no spectacular trading down. The low-end brands and private labels did not see their market shares skyrocket. But there is no doubt, however, that consumers are paying closer attention than ever before to value for money.”

Agon said this is in line with L’Oréal’s “accessible innovation” strategy to help broaden the consumer base.

“In the current period of crisis, we realized that excessive value adding might narrow down our consumer target and result in niche products that would not drive the growth of our units and our sales,” said Agon, adding the company calls the strategy “accessible” innovation “because our aim is to position the prices of new products in such a way as to optimize volume and value, or in other words, to find each product’s right price. The term ‘right price’ is in no way a synonym for low price.”



Agon said entry-level products should remain marginal, in terms of revenues, for L’Oréal, “probably less than 5 percent of overall brand sales.” Another way to draw new consumers is through extensions into new categories, such as deodorants.

He explained that this year, geographic expansion is key. In North America, for example, “our market shares have expanded slightly, our positions are solid and we are poised to take advantage of the recovery in the American market as soon as it begins,” said Agon. “Here, too, we think that we will return to growth [this year].”

L’Oréal’s strategy also includes a transformation of the company to make it stronger and more flexible and an increase of investments in R&D and A&P to accelerate growth, according to Agon.

“L’Oréal has prepared itself well in 2009 to trigger a new dynamism in its sales and profit growth, and it is now ready to outperform its market in 2010,” he said, predicting the cosmetics business worldwide this year could gain 2 to 4 percent.

He said L’Oréal, which for more than two decades prior to the economic downturn delivered double-digit earnings-per-share gains, is not always setting similar annual goals going forward.

“We don’t want to commit to doing it every year,” explained Agon. “I think that this was a trap in the previous years.”

Looking at 2010, he said: “We have, in fact, gone off to a good start.”

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