L’Oréal sees sales success but profit margins miss estimates for H1
The cosmetics manufacturer reported an 11 per cent increase in first-half profit with particular sales gained in Africa and Asia, as ‘New Markets’ accounted for 40 per cent of the group’s turnover for the period; a first for L’Oréal.
The global cosmetics market has an estimated growth of four per cent for the year, and the French firm is confident it will continue to outperform the market.
Falling short
However, despite L’Oréal seeking to highlight its success, the company did fall short of analyst estimates when it came to profit margins.
Gross profit as a percentage of sales narrowed to 71 per cent from 71.2 per cent at the end of 2011, although L’Oréal put this down to the consolidation of the Clarisonic business and a weakening Euro due to the financial situation.
“L’Oreal’s results came in below our expectations with generally poor quality. Especially noteworthy was the miss on our and consensus estimates on margins,” said Andrew Wood, an analyst at Sanford C. Bernstein.
Group CEO Jean-Paul Agon attempted to downplay these results, saying “the growth in results confirms the relevance of our business model: although it is important to emphasise that half-year figures are not particularly representative, this performance reflects the group's ability to build solid and profitable growth.”
"With strong growth in sales and results, the first half of 2012 confirms the group's good dynamics. L'Oréal is continuing to strengthen its positions, and is thus reinforcing its leadership of the worldwide cosmetics market,” he said.
Looking on the bright side…
Net income increased 10 per cent to €1.66 billion. Allowing for non-recurring items, net profit after controlling interests reached €1.63 billion, up 11 per cent.
The first-half operating margin widened to 16.9 per cent of sales from 16.2 per cent at the end of 2011 as L’Oreal reduced the amount it spent on advertising, promotions, selling, administration and other activities relative to revenue.
The cosmetics maker remains positive for the rest of the year, and Agon remains confident of continued success.
“Bolstered by these results, and despite the uncertainties of the economic environment, we confirm for 2012 our ambition to outperform the market, and achieve another year of growth in sales, results and profitability."
