PARIS — L’Oréal expects to post a record profit margin in 2017, backed by strong second-quarter and first-half results that were driven by the company’s Luxe Division and emerging markets.
The world’s largest beauty maker said on Thursday, after the close of the French bourse, that its sales in the three months ended June 30 — deconsolidating The Body Shop business — reached 6.56 billon euros, up 3.5 percent in reported terms and 4.3 percent on a like-for-like basis. The latter fell slightly short of financial analysts’ consensus, which forecast a 4.5 percent increase.
“The second-quarter like-for-like growth of 4.3 percent was bang in line with Deutsche Bank and more balanced than first-quarter 2017,” said Eva Quiroga, an analyst at Deutsche Bank. “While L’Oréal Luxe remained the best performer, with 8.9 like-for-like growth, it contributed less than 60 percent rather than more than 80 percent of total growth, and all the other divisions were in positive territory.”
On a constant basis, the Active Cosmetics Division’s sales rose by 6.7 percent; the Consumer Products Division’s by 2.4 percent, and the Professional Products Division’s by 0.3 percent.
Meanwhile, revenues in the New Markets — including the Asia-Pacific region, Latin America, Eastern Europe, and Africa and the Middle East zone — advanced 6.9 percent, followed by sales in Western Europe, 3.1 percent, and North America, 2.4 percent.
In the first six months of the year, L’Oréal’s net profits advanced 37.7 percent, due to the goodwill impairment for Clarisonic and Magic Holding, to 2.04 billion euros. The group’s first-half operating profit grew 7.1 percent to 2.53 billion euros, and its operating margin came in at 18.9 percent, down 20 basis points.
“[That was] below its recent solid pace of growth…and below our and consensus expectations [of a 20 basis-point rise],” wrote Andrew Wood, an analyst at Sanford C. Bernstein & Co. LLC, in a research note. “Underlying [earnings per share] growth [of 8 percent] was broadly as we expected [up 7 percent] helped by lower tax. So overall, it was a solid reporting, but nothing special.…We would not expect a big stock reaction.”
L’Oréal’s revenues in the first half were 13.41 billion euros, up 4 percent in reported terms and 4.3 percent on a like-for-like basis. That increase was again led by the Luxe Division, whose sales advanced 10.5 percent in constant terms.
“[It’s] the second consecutive [double-digit like-for-like] growth quarter for the high-margin segment. Relative to estimates, the great growth in Luxe was needed to offset lighter growth in [the Consumer Products Division] — lapping the Whole Blends launch, U.S. mass makeup slowdown and difficult [emerging markets] ex-Asia — and the Professional Division that also failed to lap difficult comps,” wrote Jonathan Feeney, co-lead staples analyst at Consumer Edge Research, in a note.
Céline Pannuti, an analyst at J.P. Morgan Cazenove, wrote that L’Oréal closed the half with “best-in-class volume-driven growth.”
“With superior top-line growth — a rare occurrence in the staples sector — and a strong balance sheet offering investments or cash-return opportunities, we continue to argue that L’Oréal shares should deserve a premium rating,” she continued.
L’Oréal’s e-commerce activity also showed muscle, posting a 29.5 percent uptick and generating 7 percent of total company sales.
L’Oréal said that as of June 30 it has marked The Body Shop as a business held for sale. As reported, in late June, Brazil’s Natura signed a contract to move forward with a deal to acquire the activity in an offer valuing The Body Shop at 1 billion euros.
“Over the full year, the sale of The Body Shop, and the accretive effect this has on profitability, mean that we will be able to strongly increase our profitability, which for the first time could reach 18 percent of sales, and also take the opportunity to strengthen our business drivers in order to accelerate our market share gains and thus our future growth,” said Jean-Paul Agon, L’Oréal chairman and chief executive officer, in a statement.
He added: “This strategic choice, combined with the good first-half results, strengthens our confidence in our ability to once again outperform the cosmetics market in 2017, and to achieve growth in both our sales and profits.”