Luxury outperforms mass for L'Oréal
Agon confident but analysts uncertain
L'Oréal achieved a marked improvement in profitability in first half 2010 and company president Jean-Paul Agon has said he is optimistic about progress through the rest of this year, despite an uncertain economic environment.
L'Oreal's sales rose 6.3% to €9.7bn in terms of stable exchange rates in the first six months with a record operating margin of 17.3% of sales against 15.7% in the same period of 2009. Profits went up 21.5% to €1.7bn in the wake of a programme of cost cutting.
While the luxury end products of the group – YSL Beauté and Lancôme – put on strong growth, improving their profitability, the mass market products such as L'Oréal Paris and Garnier, and the ranges sold in pharmacies including Vichy saw a slight downturn.
YSL Beauté's sales increased by 10.4% in the first half, mainly on the back of the success of the Nuit de l'Homme and Parisienne perfumes, making gains in market share in France and all the national markets in which the range is currently on sale. YSL Beauté will launch the Belle d'Opium fragrance in September with target sales of €1bn.
Agon indicated that L'Oréal's focus will switch to the beauty care sector in 2011 which is highly significant in the Asia region where care products account for almost 70% of sales.
L'Oréal's regional sales reflect the continuing importance of the newly emerging markets. While west European sales led the field at €3.7bn, the new markets of Asia, Latin America, the Middle East and eastern Europe have moved rapidly ahead since the end of the first half year reporting period into a leading role for the group in sales terms. This entire area accounted for an increase of 13% in sales since the start of this year to around €3.2bn. Growth in western Europe and the US turned out at 2% and 5% respectively with US sales of €2.1bn.
While Agon expressed considerable confidence in the future, industry analysts were less sure, not least because of a statement from Peter Brabeck, head of the Nestlé group, over its future involvement in the cosmetics major. Brabeck said Nestlé, which holds a 29.8% stake in L'Oréal, had not yet decided on what it wanted to do, adding however that the Nestlé board had asked him to consider what long-term development in the relationship with L'Oréal might be. Meanwhile, Brabeck said he assessed the presence of Nestlé within L'Oréal at present as "very positive" for the shareholders of both groups.