L`Oreal slips after Q4 sales, margins miss forecast
L'Oreal shares fell sharply on Friday, handing back some of their recent gains, after the world's biggest cosmetics group posted fourth-quarter sales and margins below expectations.
February 12, 2011 / 10:47 IST
L'Oreal shares fell sharply on Friday, handing back some of their recent gains, after the world's biggest cosmetics group posted quarter four sales and margins below expectations.
The French maker of Yves Saint Laurent lipstick and Garnier shampoo said it expected to beat global cosmetics market growth seen at 3-4% for 2011."We expect to outperform the market again this year," chief executive Jean-Paul Agon said at a results presentation.But analysts were disappointed after the group reported like-for-like sales up 4.1% in the three months to end-December, below a forecast for 5.3% in a Reuters poll."In 2011 and beyond we are not convinced that L'Oreal can return to former glories, and still consider the stock to be expensive," Bernstein analyst Andrew Wood wrote in a note.Deutsche Bank analysts said an improvement in second-half profit margins was also below their expectations, leading them to trim their earnings per share forecasts for 2011-13 by 1% and lower their investment rating to "hold" from "buy".At 1311 GMT, L'Oreal shares, which fell as much as 5.7%, were down 4.66 percent at 85.33 euros, the second-biggest decline by a European blue-chip company.The stock had risen around a quarter in value since May and has outperformed European health and personal care stocks by 8% this year, according to UBS analysts, who also cut their rating on the stock to "neutral" from "buy."L'Oreal's results came after US rivals Estee Lauder and Elizabeth Arden raised full-year forecasts and topped profit expectations for the year just passed, helped by overseas business, particularly in China and Russia.Agon, who is stepping up to executive chairman following the resignation of Lindsay Owen-Jones, said L'Oreal had made no decision on a share buyback and wanted to preserve cash for potential acquisitions."Our priority remains acquisitions, regarding our use of cash. No decision has been taken yet regarding share buybacks," he said.Agon also said the group did not need acquisitions to speed up growth in emerging markets."To go fast in these new markets, we do not need a new brand, a local brand. If we consider an acquisition it would be for a specific purpose," he said.Some analysts on Friday said the size of the dividend, which was raised by 20% to 1.8 euros a share, made a share buyback unlikely.Agon said L'Oreal planned to enter new markets this year such as Saudi Arabia and Nigeria after having entered countries such as Egypt and Pakistan in 2010.He said he expected new markets to make up 50-60% of total sales, more than North America and Europe combined, in the next 10 years, depending on currency fluctuations.One of the black spots of L'Oreal's results was Body Shop, acquired in 2006, whose sales fell 1.1% in 2010 in comparable terms and 3% in the fourth quarter alone."This is a transition year for Body Shop," Agon said about the brand which underwent a structuring. He said the brand Body Shop had much potential for growth, having doubled the number of shops in India and it was not yet in countries such as China and Brazil.Agon told le Figaro in an interview published on Friday that the group was looking at a potential acquisition targets in India or Brazil.But asked about whether the group planned to get into direct sales, possibly via an acquisition, Agon said: "It is not on the agenda but nothing is taboo". Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
