PARIS — Strong currency tailwinds continued to boost L’Oréal’s sales in the second quarter, when the company registered gains in all of its divisions and geographic zones.
The world’s largest beauty company, which published results for the three months ended June 30 after the market closed here on Thursday, said revenues jumped 15.3 percent in reported terms to 6.38 billion euros, or $7.06 billion.
On a like-for-like basis, company sales advanced 3.6 percent, just shy of the market consensus of 4 percent.
Contributors to the downtick (the company had posted a 4 percent first-quarter sales gain in comparable terms) included factors such as a decline in Brazil, wrote ConsumerEdge Research analyst Javier Escalante in a note.
“Shipments [were] possibly down 5 percent to 10 percent – as retailers built inventories in Q1 ahead of the implementation of higher taxes on cosmetics,” he explained.
Escalante also highlighted that the company’s sales slowed to 5 percent in Asia, and that L’Oréal flagged a weakness in Hong Kong, but not Mainland China.
“The biggest negative surprise was in the New Markets [L’Oréal’s largest geographic zone with revenues of 2.4 billion euros, or $2.65 billion, up 5.1 percent on a like-for-like basis], which had been showing some signs of renewed momentum in the last two quarters, but took a big step back in Q2 to its lowest level in over six years, since the depths of the global recession in Q1 2009,” wrote Andrew Wood, an analyst at Sanford C. Bernstein & Co.
In comparable terms, revenues were up 1.5 percent in Latin America and 4.1 percent in the Asia, Pacific zone, for instance.”
Meanwhile, the more mature regions – Western Europe, where sales gained 2.6 percent, and North America, where revenues advanced 2.9 percent on a like-for-like basis – performed better than expected, according to Eva Quiroga, an analyst at UBS.
“We believe that the market will be comforted by the improvement in the two developed regions,” she wrote in a note.
L’Oréal’s Professional and Consumer divisions, which registered revenue gains of 3.5 percent and 2 percent, respectively, in comparable terms also came in slightly ahead of UBS’s forecasts. The Active Cosmetics and Luxury divisions, with upticks of 6.5 percent and 5.8 percent, were under the bank’s estimates.
L’Oréal said net profit in the first half of the year increased 8.5 percent to 1.88 billion euros, or $2.1 billion. Operating profit, which advanced 14.5 percent to 2.32 billion euros, or $2.6 billion, was in line with consensus, as was the operating margin, which declined 10 basis points to 18.1 percent.
Céline Pannuti, an analyst at J.P. Morgan Cazenove, noted that M&A in the Professional division and the rebalancing of the Active Cosmetics division’s margin negatively impacted the company’s margin in the first half.
“We would expect [the] margin to rise in H2 ’15,” she added.
L’Oréal’s first-half sales gained 14.7 percent to 12.82 billion euros, or $14.32 billion.
“At the end of June, our reported growth is the strongest recorded for the last 20 years, with a very positive currency effect,” stated Jean-Paul Agon, L’Oréal chairman and chief executive officer.
Currency fluctuations had a favorable impact of 9.7 percent and acquisitions, of 1.2 percent, in the six months.
On a like-for-like basis, revenues grew 3.8 percent, and at constant currency rates, they increased 5 percent.
Dollar figures are converted at average exchange for the period to which they refer.
Agon stated that the L’Oréal Luxe division is significantly outperforming the worldwide market with double-digit growth of its brands Giorgio Armani, Yves Saint Laurent and Kiehl’s. L’Oréal Professionnel and Redken are bolstering the Professional Products division, which is rebounding. The Active Cosmetics division is strengthening its position globally because of La Roche-Posay, and the Consumer Products division is showing slight improvement, due particularly to Maybelline.
“Thanks in particular to a rich innovation portfolio, prospects of rapid e-commerce growth and the continuing roll-out of recently acquired brands, we are projecting an acceleration in growth in the second half,” stated Agon. “We are confident in our ability to outperform the beauty market and achieve a year of significant growth in both sales and profits.”
“In light of the market caution on the extent of the industry slowdown into Q2 ’15, we believe L’Oréal H1 ’15 results should reassure and would expect a neutral stock reaction,” wrote Pannuti.
Agon will hold a conference call with analysts Friday to discuss the results.