L'Oreal reports drop in sales as results miss target

By Guy Montague-Jones

- Last updated on GMT

Related tags Revenue

L’Oreal has reported a fall in sales in the last quarter of 2008 bringing years of high growth rates to an abrupt end.

Sales for the last three months of the year dropped 0.6 percent on a like-for-like basis to €4.629bn so that for the fiscal year, sales came in well below expectations.

The 3.1 per cent growth figure for 2008 failed to match the 4 per cent forecast given in October which itself was a reduction on the original guidance of 6 per cent.

No forecast given for 2009

Following in the footsteps of Unilever, L’Oreal is not giving guidance this time round. The company said “we are tackling 2009 with realism, confidence and resolve”​ but omitted any specific guidance for the year ahead from its financial statement.

Breaking down the results for the latest quarter, L’Oreal experienced greatest weakness in luxury and professional products, as salon visits dropped and consumers turned away from department stores.

Regionally, North America was hardest hit with fourth quarter sales down 11.6 per cent but even sales in emerging markets were not as strong as in previous years.

After years of high double-digit growth, Rest of the World sales, which encompass Asia, Eastern Europe, Latin America and Africa-Orient-Pacific, were only up 9 percent.

The decline in sales revenue growth took its toll on profits. Even with a substantial reduction in tax, earnings per share were up by only 3 per cent for the full year to €3.49.

Meanwhile, operating profit for 2008 was down by 3.6 per cent to €2.725bn hit by lower sales, the impact of the YSL Beauté acquisition and higher commodity prices.

Spending on advertising increased

Advertising and promotion expenses also shot up in the second half of the year. In an interview with the Financial Times, CEO Jean-Paul Agon said the company would maintain spending on innovative products and advertising.

Bernstein Research analyst Andrew Wood recently criticized L’Oreal for cutting spending on advertising and hailed the latest increases as “the right move by management”​.

However, giving his initial perspective on the fourth quarter results, Wood was downbeat saying they look “very poor”​ and “far worse than the already very low expectations of the market.”

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