PARIS — The stock market here penalized L’Oréal on Friday, when its shares closed down 2.7 percent a day after the company published financials that fell slightly below analysts’ forecasts.
The world’s largest beauty company’s second-quarter revenues of 6.34 billion euros, or $7.13 billion at average exchange, declined 0.6 percent in reported terms. On a like-for-like basis, they rose 4.3 percent, versus the 4.6 percent expected by analysts.
Difficult trading conditions in France weighed heavily on group revenues in the three months ended June 30.
“France has been really the problem child of this second quarter,” Jean-Paul Agon, L’Oréal chairman and chief executive officer, told financial analysts and journalists during a conference call Friday.
He said a confluence of factors in the country — rainy weather, which negatively impacted sales of products like sun and body care; low morale due to terrorist attacks, and price wars among mass-market retailers — cost the company a full point of growth.
“It explains most of the differences between what we expected to do or wanted to do in the second quarter and what we finally were able to do,” he said. “France is a very difficult market.”
That said, the country represents only 25 percent of L’Oréal’s entire business in Europe, and excluding France, that region did better than in the same prior-year period, pointed out Christian Mulliez, the company’s executive vice president and chief financial officer.
Agon called L’Oréal’s first half “very solid,” when operating profit gained 1.7 percent to 2.36 billion euros, or $2.64 billion, and sales advanced 0.6 percent to 12.89 billion euros, or $14.38 billion. All divisions and geographic zones contributed to growth.
He also highlighted the acceleration of the company’s digital transformation. Digital media accounted for more than 30 percent of L’Oréal’s media spending, versus 25 percent in the first half of 2015.
“Across all brands and functions, we continue to drive our digital transformation at full speed,” said Agon. “E-commerce, growing at plus-33 percent, [makes] close to 6 percent of total group sales.”
He added: “As I keep explaining to our teams, e-commerce is not the cherry on the cake. It becomes the new cake. We have to see it as a new channel in which we want to take the lion’s share, and that is what we are trying to do.”
Agon discussed, as well, the difficulties linked to the Clarisonic and Magic brands, whose goodwill impairment amounted to 234 million euros and 213 million euros, or $261.1 million and $237.7 million, respectively. That dented L’Oréal’s first-half net profits, which fell 21.3 percent to 1.48 billion euros, or $1.65 billion.
He acknowledged some ongoing difficulties with the brands and said L’Oréal preferred to be cautious and rigorous, so it opted for the impairment and redefined the business plans for their future.
“At the same time, we strongly believe that these two acquisitions have a very [important] strategic relevance for us,” said Agon, who described the cosmetic device market Clarisonic is in as “interesting, and where we have to continue exploring and innovating. We have learned a lot thanks to these few years with Clarisonic.”
Agon said: “On Magic, we are in the middle of [a] transition now, and we are coming back with strong innovations that we didn’t probably have fast enough in the beginning. We are launching in China many new skin-care masks with innovative technologies. We really believe the business will get better.”
In the cases of Clarisonic and Magic, competition ramped up significantly in their categories after they were purchased, in 2011 and 2014, respectively.
Agon discussed L’Oréal’s acquiring IT Cosmetics, the fast-growing beauty brand built by Jamie Kern Lima, for $1.2 billion.
“It’s a clear opportunity in the makeup category, and the reasons are very simple,” he said, first pointing to the fact that worldwide makeup category “is on fire. In 40 years in the industry, I’ve never seen the makeup category growing so fast.”
Agon said L’Oréal has been highly successful with makeup buys.
“The business that we are doing with NYX and Urban Decay are several times ahead of the acquisition business plans for these two brands,” he said. “So makeup is definitely a very strong bet.”
The executive added IT Cosmetics is complementary to L’Oréal’s other brands.
“It’s not the typical professional, very visible makeup,” he said. “It will definitely be very important in our global makeup portfolio.”
Agon expects the beauty market worldwide in 2016 to be up between 3.5 and 4 percent, although probably closer to 4 percent, so slightly above the guidance L’Oréal gave in February.
“We are confident in our ability to accelerate our organic growth in the second half, to outperform once again the beauty market in 2016 and to deliver another year of increasing sales and profits,” he said.