Slowdown in North America Impacts L’Oréal

2008-04-16 | 11:10

A 'difficult' first quarter in the region.

L'Oréal’s organic sales growth slowed in the first quarter as the company reported a 7.2% decline in North American sales. The news sent the company’s share price down to 21-month lows. Still, L’Oréal officials were optimistic for full year gains.

L’Oréal said sales rose 5.1% on a like-for-like basis, but that was below the 6-6.5% range that analysts had expected. Excluding a 3.9% drop in underlying sales in North America, L'Oréal said group like-for-like sales increased 7.5%.

Total sales rose 2.1% to 4.359 billion euros from 4.268 billion, including a negative 5.0% impact from currency effects.

Applying exchange rates as of March 31, L'Oreal said it estimates a negative 6.0% impact for 2008 sales.

In North America, L'Oréal cited an “exceptionally difficult” environment, which it attributed to “an exceptionally strong fourth quarter 2007, a flat or even very negative market in some channels, and a very cautious inventory management approach by distributors.”

In a call with analysts, CEO Jean-Paul Agon noted that the first quarter was “a bit more difficult than expected” in North America. But he said he expects North American organic sales to be “at least positive” in the coming quarters, bringing full-year sales into positive territory.

In its sales statement, the company said it expects growth to accelerate in the coming quarters on the back of “favorable launch phasing, better prospects in North America, and continuing dynamism in the other zones.”

The group reiterated its full-year guidance for an increase of 6-8% in organic sales.

By region, first-quarter sales in Western Europe rose 1% to 1.939 billion euros, including 2.3% organic growth. L'Oréal said the underlying growth was in line with its expectations.

In North America, sales fell 7.2% to 893 million euros, the weak dollar worsened the 3.9% decline in organic sales.

But in the Rest of the World zone, sales rose 12.1% to 1.286 billion euros, with organic growth of 16.7%.

Agon told analysts that the L'Oréal's Western European business is “moving in the right direction,” contrary to concerns about a slowdown, while sales in the Rest of the World zone were in line with 2007 trends.

Within emerging markets, he said underlying growth in China had accelerated in the first quarter to 37.5%, compared to 30% last year, with L'Oréal also gaining market share. Agon pointed out that gains in China more than offset a slowdown in Brazil.

By division, L'Oréal said its main cosmetics business rose 2.2% to 4.118 billion euros, including 4.8% like-for-like growth.

Within cosmetics, professional products recorded 5.1% organic growth in the first quarter, consumer products rose 4.7%, luxury product sales increased 5.8%, active cosmetics improved 4.8% and sales within the small dermatology unit surged 13.2%.

Meanwhile, The Body Shop unit reported a 7.4% gain that Agon noted was due to good sales in Europe and the Rest of the World, which was partially offset by a fall in North American sales.