Byline: Jennifer Weil / With contributions from Brid Costello

PARIS — L’Oreal chairman and chief executive officer Lindsay Owen-Jones doesn’t like small numbers — and his company doesn’t produce many of them.
On Thursday, Owen-Jones revealed that L’Oreal’s sales in the first quarter of 2002 jumped 9.3 percent, to $3.25 billion, and said the French beauty giant is on track to log its 18th consecutive year of double-digit profit growth.
At a time when many of its competitors are awaiting a turnaround, L’Oreal continues to outpace the cosmetics market’s average yearly rise since 1990 of 4.6 percent. As reported, L’Oreal posted a 19.6 percent increase in net profits last year, to $1.07 billion, on consolidated net sales of $11.97 billion. All figures are converted from the euro at current exchange rates.
“I am well aware that the question on everyone’s lips is not how you achieved 17 years of growth, but rather: ‘Will you achieve 17 more years?”‘ Owen-Jones told analysts and journalists during its annual financial review. He said that the very short-term outlook is “rather encouraging.”
Reviewing the company’s performance, he said: “Numerous product successes, strong momentum from international expansion, the rapid integration of acquisitions and further improvement of margins enabled us to achieve a very good year in 2001.” Key also to L’Oreal’s development is its presence in growing cosmetics markets.
Analysts agree that the firm is well positioned to maintain its momentum.
“The first-quarter figures were better than expected on a like-for-like basis,” said Jacques-Franck Dossin, a luxury-goods analyst at Goldman Sachs in London, referring to the group’s consolidated sales up 8.5 percent at comparative group structure and constant exchange rates.
“It is good news after the gradual slowdown seen throughout 2001,” continued Dossin. “The margin mix seems good, with strong professional sales. It increases our level of confidence that a cyclical recovery is on the way.”
“The first-quarter figures were good, better than expected; we had forecast 6.5 percent growth,” agreed Antoine Belge, cosmetics analyst at ABN Amro in Paris. “We had expected a rather slower start to the year because of the difficulties in duty-free and U.S. department stores. But despite that, L’Oreal managed to show stronger organic sales growth in the first quarter.”
“L’Oreal showed remarkable like-for-like sales in the first quarter, given the tough comparison to strong growth in Q1 2001 [plus 7.8 percent],” said Susanne Seibel, industry analyst at UBS Warburg in London. “And given the easier comparisons for the second half, we are looking for a pretty good year.”
L’Oreal also reported that during the first quarter, exchange rate fluctuations had a positive impact of 1.3 percent, and that the net effect of changes in the consolidation structure was down 0.5 percent.
The firm’s cosmetics division had a 9.6 percent consolidated sales increase for the period; at constant exchange, it would have been 8.3 percent. Dermatology consolidated sales volume was up by 27.7 percent, or by 24.5 percent excluding currency fluctuations.
“Having made an excellent start to the year, our confidence for 2002 has been reinforced,” continued Owen-Jones. “Another year of double-digit growth is unfolding.”
L’Oreal will continue to focus on organic growth, rather than drive business through acquisitions, which have contributed up to 15 percent of annual group sales in the recent past. Owen-Jones said that firms taken over by L’Oreal are quickly integrated into L’Oreal to avoid dilution of the core portfolio. Carson, for instance, was swiftly fused with Soft Sheen.
Analysts say L’Oreal is increasingly vocal about its emphasis on strengthening the earnings-before-interest-and-taxes margins. This is particularly true in emerging countries, where the EBIT margin was 8.1 percent last year and is expected to reach 10 percent in the next three years.
As for the long-rumored possibility of a L’Oreal buyout of Beiersdorf, Owen-Jones gave a “no comment.”
L’Oreal will continue developing its existing brands, 14 of which currently ring up more than 92 percent of the group’s cosmetics sales.
The meeting Thursday was kicked off with a recap of some of 2001’s hit products and brands. Gilles Weil, president in charge of the luxury products division, said Biotherm’s Age Fitness skin care product, with olive leaf extracts, sold one million units last year. Part of its strength, he said, is its texture, which is varied from market to market, according to local tastes.
Biotherm, which posted sales of $263.45 million in 2001, is gearing up to expand further into Asia — to Korea and Taiwan — this year. The brand opened its first boutique, in Hong Kong, last March. The 538-square-foot store’s sales doubled projections, said Weil.
Jean-Jacques Lebel, president of L’Oreal’s professional products division, highlighted Kerastase’s hair relaxer line, called Oleo-Relax. Kerastase has registered growth of 105 percent, 90 percent and 28 percent in Korea, the U.S. and Japan, respectively. The brand rang up $5 million in sales in the U.S. last year
In L’Oreal’s consumer products division, a star product is Maybelline New York’s Water Shine Diamonds lipstick, which includes minute pieces of silver-coated glass, said president Patrick Rabain. Thirty million units of the lipstick were sold worldwide last year. In France this March, 1 out of every 3 lipsticks sold was from the Water Shine Diamonds line.
Maybelline is currently number one in the U.S., with 19.8 percent market share, according to an Information Resources Inc. panel. It’s first in Europe, with 22.2 percent, according to a Nielsen/IRI 11-country panel.
As for the Internet, Beatrice Dautresme, executive vice president of strategic business development, said L’Oreal is increasingly using online initiatives for marketing. She explained that starting this year, it will be possible for cybernauts to take part in multimedia promotions over Lancome Web sites.
L’Oreal stock closed Thursday at a unit price of $72.30, up 0.3 percent over the previous night’s close.