US sales slump causes Clarins' profits to fall sharply

By Guy Montague-Jones

- Last updated on GMT

Related tags: Cent, Marketing, Clarins

Luxury cosmetics group Clarins has suffered a sharp decline in
profits over the first half of the year following a sales crisis in
the US.

The France-based company reported a fall in operating profit of 23.5 per cent over the first half of 2007, dragging the total figure down to €40m. The blow was softened by a rise in financial income and a reduction in the effective tax rate, causing net profit to fall by 12 per cent to €36.7. Net sales for the first half of the year stood at €494.6m following 4.2 per cent growth, which was considered weak given the number of new brands and products that the company has launched over the past year. Clarins' faltering operations in the subdued US market was the main factor behind its poor financial performance. As sales in Europe and Asia rose 8.8 per cent and 20.3 per cent respectively, sales in North America plummeted 15.7 per cent. The US decline was blamed on the poor performance of new brands and falling orders from department stores as luxury products had a tough time leaving the shelves in a weak economic environment. Perfume sales were particularly low, growing by only 2.4 per cent over the first half of 2007. This reflects a weak US fragrance market, the value of which fell by 4.5 per cent last year to $5.9bn, according to Euromonitor. Other factors behind Clarins' disappointing results include the weak dollar and high marketing expenses. The company is banking on the successful impact of its marketing expenditure on the sales of its recently launched and soon to be released product ranges. The failure of new brands to save Clarins from financial woe in 2006 suggests that this is not a guaranteed route to success especially as many economic analysts are forecasting recession in the US. Nonetheless the initial signs in the company's latest results are positive as sales grew by 7.6 per cent during the second quarter of 2007 as opposed to 0.9 per cent over the first quarter. The highlight of its upcoming launches is perhaps My Blend, a skin care brand that taps into the trend for personalized products that take account variations in age, lifestyle and skin type. Clarins expects the costs of the launch and other marketing and product development costs to adversely affect operating margins for the whole of 2007. As for its overall financial outlook, the company has kept to its full-year forecast of 6 per cent sales growth in spite of its weak first half results. In recent months Clarins has endured several body blows. Earlier this year the upmarket cosmetics firm received a €500,000 fine from the French Conseil de la Concurrence (Competition Council) after being found guilty of price-fixing between 1997 and 2007. While in March Clarins' founder Jacques Courtin-Clarins died, sparking speculation that the company would be swallowed up by a giant player like L'Oreal or Beiersdorf. And finally, last month the UK advertising watchdog, the Advertising Standards Authority, ordered Clarin's to remove print ads for the firm's new Expertise 3P skincare spray after the firm failed to provide sufficient evidence to support its claim that the product protected the user from 'damaging' electromagnetic waves.

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