L'Oreal profits continue to boom on luxury sales

By Simon Pitman

- Last updated on GMT

Related tags: Like-for-like sales, Net profits, Cosmetics

The world's largest cosmetic company just goes from strength to
strength, having announced an 8.7 per cent hike in sales and a 21.8
per cent jump in net profits thanks to strong premium cosmetic
sales and continued growth in developing markets.

Sales hit €7.78bn for the first six months of the year ending June 30, whereas net profits rose to €1.08bn, compared to the same six month period in 2005.

"Over the first half of 2006 there has been a clear upturn in sales growth, thanks to the return to growth in Western Europe and the strong advances still being made in the new markets, particularly in Latin America and Eastern Europe,"​ said L'Oreal CEO Jean-Paul Agon.

"The efforts made in cost control, in enhancing the value of products and the favourable impact of currency fluctuations have resulted in a large increase in the gross profit and operating profit of each of the Divisions, thus contributing to a large increase in net profit."

Agon added that, encouraged by the first half results, he was confident that the company would be returning double-digit earnings per share growth in 2006.

In a bid to maintain growth it looks likely that the company will maintain its acquisition plans. At the beginning of the year the company bought up British natural cosmetics player Body Shop, and stated that it was expecting to keep looking out for other suitable businesses.

To pursue this focus analysts believe that the company may sell drugmaker Sanofi-Aventis SA to raise funds for further acquisitions. Future prospects may include skin care companies in either the US or Europe or small acquisitions in developing markets.

On a category basis, sales for the company's Active Cosmetics division saw the biggest growth, up 11.6 per cent on a like-for-like base to reach €653m, whereas like-for-like sales for the luxury division were up 6.1 per cent to reach €1.78bn.

In the luxury division, L'Oreal reported that fragrance sales were particularly dynamic, with the new fragrance ArmanicCode Women By Georgio Armani now reaching the top ten best selling perfumes in Europe. Likewise Hynose, Polo Black and Amor Pour Homme were all ear-marked as having strong growth.

In the Active Cosmetics division growth was reported across all product lines, with the success of new launches such as the skin care lines LiftActiv Pro Nuit and Normaderm Nuit, as well as Toleriane Teint contributing significantly to growth.

On a geographical basis all regions reported a significant increase in sales, with the western European market increasing like-for-like sales by 3.7 per cent to reach €3.67bn.

The biggest ingrease in like-for-like sales was in Eastern Europe, where the figure rose 21.9 per cent to reach €411m. In Latin America the growth came in at 16.2 per cent to reach €481m.

The sales growth and continued rise in profitability mean that, as well as being on course to increase profit margins, L'Oreal also has increased spending power.

As analysts have widely acknowledged those circumstances are very likely to result in acquisition activity with the next six months if the right opportunity presents itself.

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