L'Oreal cuts sales and profit forecasts

By Guy Montague-Jones

- Last updated on GMT

Related tags Cent Europe

A sluggish September has forced L’Oreal to cut its sales and profit forecasts for the financial year.

Third quarter sales rose 3.4 per cent to €4.27bn over the three months ending September 30 but the increase failed to match expectations. In view of this and the deteriorating economic situation L’Oreal decided to reduce its sales guidance for the year.

Great expectations fall

L’Oreal had estimated in August that like-for-like growth, which excludes acquisitions and currency fluctuations, would be nearly 6 per cent for the fiscal year.

But the company now expects like-for-like sales growth to be only 4 per cent because of falling consumer spending and cautiously trim orders from distributors.

Profits are therefore expected to take a hit so the earnings per share forecast was also cut from double digit figures to between 7 and 8 per cent

“Since September, we have noted a clear slowdown in some markets in Western Europe and North America, and have been confronted with a contraction of purchasing by distributors in view of the current economic crisis,”​ said L’Oreal CEO Jean-Paul Agon.

The heart of weakness

North American sales suffered most falling 10.8 per cent in reported terms or 2.3 per cent in like-for-like terms. Falling numbers in department stores and a sharp drop in salon visits were cited as reasons for the decline along with stock reductions by distributors.

In Western Europe sales were up 3.9 per cent in reported terms but fell 1.8 per cent on a like-for-like basis. L’Oreal said France and Spain had been particularly badly affected by the changing economic environment, while Northern European countries performed best.

Despite the weakening sales in developed markets, L’Oreal remains confident that by maintaining strong promotional support for its brands the company can prepare for 2009 in the best possible conditions.

“Confident in our development strategy, we are looking ahead to 2009 with realism, but also with determination to continue strengthening our worldwide position thanks to the quality of our innovations and the richness of our brand portfolio,”​ added Agon.

L’Oreal is not the only cosmetics company to be struggling in the current economic climate.

Despite reporting a strong rise in third quarter profits yesterday Avon missed market expectations because of poor North American sales. Shares in the company tumbled by more than 20 percent in early trading yesterday as the results indicated that cosmetics is not the safe haven investors were hoping to find.

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