A REVVED-UP L’OREAL FATTENS ITS AD BUDGETS TO FLY INTO CYBERSPACE

PARIS — The cyber age has dawned at L’Oreal.
Fully one-third of the French beauty giant’s annual three-hour-long performance review here Thursday was devoted to Internet-speak, including promises of plenty of online development, plumped-up ad budgets and even more e-tailing in the near future.
It’s practically a revolution at L’Oreal since the $10.7 billion company has been slower than many of its competitors to get plugged in.
But chairman and chief executive officer Lindsay Owen-Jones’s mind was also on more worldly issues. “1999 was our 15th consecutive year of double-digit profit growth,” he said, referring to the 15.1 percent rise to $829.9 million. “I am at a loss for words to describe the last fiscal year, after having used up terms such as strong, remarkable and encouraging.”
All figures are converted at constant exchange rates.
“The key development last year was unquestionably that emerging markets were back in full force, even if the scale of this trend is concealed by exchange-rate fluctuations,” Owen-Jones continued.
“To judge from the good progress made by the group in the first quarter of 200, I believe we are on the way to another excellent year,” he added.
The company reported its group consolidated first-quarter sales were up by 15.5 percent to $3.14 billion over the same period in 1999. Currency fluctuations had a positive impact of 6.9 percent.
At comparative group structure and constant exchange rates, the group’s consolidated sales would have been up by 8.5 percent. Excluding currency fluctuations, they would have been up by 8.6 percent.
The cosmetics division had a 15.3 percent sales increase for the period; at constant exchange it would have been 8.5 percent. Dermatology sales volume was up by 25.9 percent, or by 13.4 percent excluding currency fluctuations.
“I think we’re on the road to an excellent new year,” Owen-Jones said, “with sales growth better than last year.”
Despite the healthy double-digit gains, reaction from at least one security analyst was cautious. “2000 seems to be starting off well, but we don’t expect a significant acceleration of profits,” said Jacques-Franck Dossin, European branded consumer goods analyst for Goldman Sachs.
In terms of stock market prospects, Dossin said: “[L’Oreal is] an outstanding company within the sector with strong R&D, outflow of innovative products and great management, but we think the current valuation already fully reflects that to a large extent.”
For this year, L’Oreal plans to continue working with its online distributors in the mass market and invest more in Internet advertising. According to Patrick Rabain, vice president in charge of the consumer products division, the company’s online ad budget, which represented 0.3 percent of company’s media spend last year, will be bumped up to 3 percent for 2000.
He said last year the group’s 25 sites had one million visitors who stayed for 18 minutes on average. And the volume is growing substantially: In March, they logged in 400,000 visitors. “Our objective is 10 million for this year,” he said.
Rabain said L’Oreal is interested in continuing to take part in one-off events, like the tie-in it did with CBS.com for the Grammy Awards. It also could replicate joint ventures like the latest with StarMedia, where it launched a Web community for Latin women.
Further, Lancome, whose e-tail site went live in the U.S. last December, could be rolled out to other countries, said Gilles Weil, vice president in charge of the luxury products division. Since it went live, it has had 61,000 visitors monthly, received 1,600 e-mails and 133,000 skin diagnosis requests. Weil said that 80 percent of the site’s visitors are under 35.
In other cosmetics news, consolidated sales for the division last year totaled $10.099 billion, up 11.9 percent over 1998. At constant exchange they would have been up by 11.5 percent. According to the company, on a like-for-like basis, the division’s growth rate was 11 percent, its “best performance since 1990.”
By geographic zone, cosmetics sales grew by 9.8 percent in Western Europe: 21 percent in Greece, 15 percent in Spain, 15 percent in Norway, 17 percent in the Netherlands and 24 percent in Sweden.
In North America, where the company claims to be the market leader in hair colorants and makeup, the division posted gains of 18.3 percent, or of 12.5 percent excluding currency fluctuations.
Elsewhere, the company reported it had “especially strong rates of expansion” in Mexico, where it registered a 30 percent volume increase, Poland (18 percent), China (49 percent), Australia (34 percent) and India (99 percent).
In dermatology, Galderma’s net sales increased by 31.6 percent — or more than 30.9 percent excluding currency fluctuations — to $381.79 million. L’Oreal also reported the brand has strengthened its presence in Scandinavia and Asia, and that it had recently opened a Canadian plant.
The group’s Lanvin brand, which includes fashion and beauty, accounted for 0.2 percent of global sales last year, Owen-Jones said, without breaking out figures. Weil said the brand’s volume was up 18 percent in the period.
L’Oreal reported its research and development expenditure grew 13.3 percent during 1999, “substantially ahead of the rise in cosmetics sales.”
As usual, Jean-Pierre Valeriola, vice president of communications and public relations, started the meeting with a recap of 1999’s hit products.
In the luxury division, he said, Ralph Lauren Romance fragrance for men and women should bring in $170 million, or about 50 percent of sales for in the Ralph Lauren Fragrance division.
Helena Rubinstein’s Power A cream, which combines vitamin A and retinol, should sell about 400,000 units this year in Europe and Japan, or about $14.7 million. Meanwhile, Lancome’s Aromatonic is expected to sell about 2 million units worldwide this year.
In the consumer division, L’Oreal Paris’s QuickStick Foundation, which purportedly dries instantantly, is expected to ring up sales of more than $36.7 million worldwide this year. Valeriola said Maybelline’s WonderCurl mascara was a hit particularly in Japan, where more than a million units sold in less than three months; the product is expected to have more than $73.5 million in sales worldwide for 2000. Laboratoires Garnier’s Natea-Nutrisse — a colorant designed to mask white hair — is expected to sell more than 10 million units this year.
In active cosmetics, Vichy came out with Reti.C, a skin care product that combines retinol with vitamin C. L’Oreal is expecting to sell about 3 million units, or about $36.7 million this year.
In the salon division — which was previously called the professional division — Redkin’s Extreme-antisnap detangler for long hair sold 600,000 units in its first six months.

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