By and  on July 18, 2008

PARIS — L'Oréal, the global beauty leader, cut its annual sales growth forecast Thursday to 6 percent on a like-for-like basis from 6 to 8 percent because of a slowdown in its second-quarter 2008 results.

For the quarter, the French beauty giant registered revenues of 4.29 billion euros, or $6.7 billion at average quarterly exchange, up 1 percent or 5.5 percent on a constant basis against second-quarter 2007. For the first half of 2008, L'Oréal posted sales of 8.65 billion euros, or $13.23 billion at average exchange in the period, a 1.6 percent rise or 5.3 percent gain in like-for-like terms versus first-half 2007. Excluding currency fluctuations, the revenues uptick came in at 7.1 percent in the period.

"In what everyone recognizes is a difficult economic environment, the cosmetics market is proving resilient, and L'Oréal is continuing to outperform the market while strengthening its worldwide positions," said Jean-Paul Agon, L'Oréal's chief executive officer. "We have several reasons for satisfaction after the second quarter: the upturn which has begun in North America, the confirmation of the strong growth rate in the new markets and the solid performance of our consumer-products businesses."

Changes in currency valuations, a longtime bugbear for European beauty manufacturers, had a negative 5.5 percent impact in the half.

L'Oréal's second-quarter and first-half sales results came in under those forecast on July 10 by J.P. Morgan Chase & Co. analyst Celine Pannuti, who had expected like-for-like sales growth in the quarter to reach 6.1 percent and come in up 5.6 percent in the half.

"L'Oréal's [second-quarter] sales were disappointing and the lowered guidance still assumes an improving environment from here," said Harold Thompson, research analyst at Deutsche Bank in a company alert Thursday.

"Headline [second-quarter like-for-like] of 5.5 percent was reasonable, but growth was boosted by trade-loading to the tune of 0.8 percent."

"Though some company specifics should help in [the second half], the market growth rate in our view is more important," Thompson continued. "On this issue we expect things to get slower, not better."

L'Oréal said by geographic region, sales in North America slumped 5.8 percent in the second quarter to 911 million euros, or $1.42 billion, and 6.5 percent in the half to 1.80 billion euros, or $2.76 billion. On a like-for-like basis those sales were up 3 percent and down 0.5 percent, respectively. Revenues also took a downturn in Western Europe, slipping 1.3 percent in the quarter to 1.86 billion euros, or $2.9 billion, and down 0.1 percent in the half to 3.80 billion euros, or $5.8 billion. On a constant basis, sales were up 0.4 percent and 1.3 percent, respectively. The firm's "rest of the world" zone boasted a strong result, reporting 9.8 percent growth in the quarter to 1.25 billion euros, or $1.95 billion, and an 11 percent spike in the half to 2.54 billion euros, or $3.88 billion. On a comparable basis, sales were up 14.8 percent and 15.7 percent, respectively.

By operational division in the second quarter, L'Oréal's luxury products business' sales were down 2.6 percent at 881 million euros, or $1.38 billion; professional products reported an increase of 2.7 percent to 629 million euros, or $983.3 million; consumer products grew 1.4 percent to 2.16 billion euros, or $3.38 billion, and active cosmetics rose 2.1 percent to 331 million euros, or $517.5 million. On a like-for-like basis, sales were up 3.9 percent, 2.5 percent, 6.7 percent and 3.9 percent, respectively, for the four divisions.

The Body Shop saw sales dip 3.4 percent in the second quarter to 166 million euros, or $259.5 million, and 2 percent in the half to 334 million, or $511.2 million. On a comparable basis sales increased 7.4 percent in both the quarter and the half. L'Oréal said the ethical bath and body retailer's sales were particularly strong in Eastern Europe and Asia, excluding Japan.

The U.S. "remains more difficult," the company stated. The chain opened 39 stores since the beginning of the year, bringing its door count to 2,465.

L'Oréal's dermatology division, in which it owns a 50 percent stake, saw sales spike 16.6 percent in the quarter to 105 million euros, or $164.15 million, and 11.9 percent in the half to 178 million euros, or $272.4 million.

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