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PARIS — It might be a tough period for beauty, but L’Oréal is bucking the trend.
Despite uncertain times, the French beauty giant is on track to post double-digit profit gains for 2003 — its 19th consecutive year — said Lindsay Owen-Jones, L’Oréal’s chairman and chief executive officer, at the firm’s yearly analyst meeting, which took place Thursday at L’Oréal’s corporate headquarters.
While Owen-Jones said that first-quarter sales figures are not a basis for extrapolation, he noted that they are “very encouraging.”
For the three months ended March 31, L’Oréal posted sales of $3.97 billion, down 1.1 percent year-on-year. The dip resulted from a minus 11.7 percent currency fluctuation in the period. On a like-for-like basis, sales for the firm rose 10.4 percent.
Dollar figures have been converted from the euro at current exchange rates.
“The comparison base, particularly relating to the dollar, has declined throughout 2002, which should mean that this impact will gradually be reduced over the coming months,” said Owen-Jones.
Analysts were upbeat about the quarterly turnout.
“I believe the first-quarter figures are very strong and impressive,” said Susanne Seibel, industry analyst at UBS Warburg in London. “The most important aspect is the impressive growth in L’Oréal’s consumer and professional divisions, which is a good indication of margin progression, as they’re said to be the most profitable categories in the group’s portfolio.”
In terms of divisions and at comparable structure and constant exchange rates, L’Oréal’s professional products’ sales increased 9.8 percent, mass market items’ sales spiked 14.2 percent, luxury products rose 2.5 percent and active cosmetics registered 11.2 percent growth.
By branch, cosmetics sales in the period were down 0.9 percent on a consolidated basis, and up 10.5 percent on a like-for-like basis. Dermatology sales fell 12.6 percent on a consolidated basis and rose 5.7 percent on a like-for-like basis.
Seibel also said L’Oréal’s sales growth on a region-by-region basis is a sign of good health. Sales in Western Europe were up 8.5 percent, 9.4 percent in North America and 19 percent in the rest of the world.
“The growth in North America and Western Europe — particularly in Europe, with a progression of 8.5 percent — was remarkable given the economic situation in the regions and the group’s high penetration,” she said.
Also at the analyst meeting, L’Oréal confirmed its figures for 2002. As reported, L’Oréal posted net profits last year of $1.58 billion on consolidated sales of $15.4 billion.
“In spite of the mediocre economic climate, the like-for-like sales-growth figure was one of the best in the last decade,” said Owen-Jones. “The improvement in margins was not just among the best in the last decade: It was the best, and by a very long way.”
Last year, L’Oréal’s operating margins increased to 12.9 percent from 12.1 percent in 2001.
Owen-Jones also emphasized that L’Oréal has continued to outpace the market by 50 to 100 percent over the past decade, when the beauty business grew by 4.8 percent on average.
“The strategy that has formed the basis for [L’Oréal’s] ‘outperformance’ consists of organic growth as a priority; investment in research and in quality control; concentration on a limited number of businesses and brands, and international development,” he explained.
“After many years of effort, L’Oréal is today ideally placed to take advantage of the enormous potential for future growth in emerging markets,” said Owen-Jones.
“L’Oréal has invested in emerging markets in the last couple of years by building infrastructure in terms of production and distribution,” continued Seibel. “It will benefit from profit growth from these investments going forward.”
Even last year, the numbers were strong for emerging markets. In the period, the “rest of the world,” or the regional category excluding Western Europe and North America, was L’Oréal’s fastest-growing market. It represented 19.8 percent of consolidated sales for cosmetics, or $2.96 billion, which was up 8.1 percent over 2001. On a like-for-like basis, the region’s sales rose 21.8 percent.
Sales in China last year were up 61 percent. In Brazil, they soared 50 percent.
Owen-Jones added that L’Oréal’s strategy has been to introduce brands on a market-by-market basis and to slowly infiltrate countries’ distribution channels.
A case in point is Vichy, which is known as Dr. Vichy in China. There, the products have been launched in just 350 of the country’s 400,000 pharmacies, said Laurent Attal, managing director of L’Oréal’s active cosmetics division and a member of the group’s executive committee.
“Over a long period, we have gradually selected, clarified and consolidated our brand portfolio,” continued Owen-Jones. “Not all the brands have been introduced in all countries, but all of them could be introduced without changing their positioning or distribution channel.”
When it comes to the situation in Iraq, Owen-Jones said it is having little effect on L’Oréal’s overall business. “Cosmetic products are less sensitive than others to economic cycles,” he said, adding that the geopolitical climate is proving difficult for the luxury goods sector.
“Some countries are more affected than others,” explained Gilles Weil, president of L’Oréal’s luxury goods division. “There are fewer people shopping in U.S. department stores, but paradoxically, our launches are successful [there].”
Weil noted that travel-retail stores have been particularly hard hit because of the war.
He also cited numerous successful launches in L’Oréal’s luxury division last year. For instance, Parfums Giorgio Armani rang up 17.6 percent growth year-on-year. The brand’s sales, which have topped the $429 million mark, were buoyed by the launches of Armani Mania and Sensi in 2002. Weil also noted the introductions of Biotherm’s Skin Loving Colors makeup line and Ralph Lauren’s Polo Blue.
In terms of possible acquisition targets, Owen-Jones was tight-lipped on the subject of speculation that L’Oréal is interested in acquiring Beiersdorf.
Owen-Jones also refused to speak at length about Procter & Gamble’s recent acquisition of Wella. However, he did add the deal “doesn’t change any of our ambitions. In our business, competition generates growth.”
Looking ahead, Owen-Jones said he is confident in the beauty industry’s growth, noting it will benefit from increased spending by aging Baby Boomers. He estimated that by 2015, 80 percent of women will use skin cream. He added the growth in the men’s segment will likely continue, saying that in 1990, only 4 percent of men said they used a skin cream; in 2002, 21 percent, while in 2015, 50 percent are expected to do so.
“[There is also a] general trend for high-quality, aspirational products,” he said. “That means more complex [formulae] and more expensive products.”
L’Oréal’s stock closed Thursday on the Paris bourse at $65.50, up 4.9 percent.