L’Oreal ditches double-digit EPS growth3 min read . Updated: 16 Feb 2010, 04:24 PM IST
L’Oreal ditches double-digit EPS growth
L’Oreal ditches double-digit EPS growth
Paris: French beauty products giant L’Oreal has ditched its long-held target of double-digit growth in earnings per share after posting fourth-quarter sales below market forecasts.
The French group, which had met that goal for more than two decades until it was hit by the downturn in 2008, said it wanted to be free to lower or hike investments depending on its needs.
“We do not want to continue to have to wear a yoke that forces us to make our results grow in double-digit terms every year," Jean-Paul Agon told Reuters in an interview at the group’s headquarters just outside Paris.
“That kind of obligation can lead to strategic mistakes."
This year, Agon said the company planned to keep investments in advertising and promotional activities at a high level and would increase spending on research and development at a faster pace than the company’s sales growth.
“That is a pretty fundamental change for the group (to abandon the double-digit EPS growth target) as the stock is priced as if it would meet that target," one London-based analyst said.
Agon’s comments came as the group’s disappointing fourth-quarter sales helped push L’Oreal shares down more than 4% and by 1008 GMT, they were 5% lower at €72.95 , the biggest drop among CAC 40 blue-chip stocks.
L’Oreal is the most expensive stock in the sector trading on more than 20 times 2010 earnings.
The Paris-based group, which is also behind Garnier shampoo, Vichy creams and Kiehl’s essential oils, celebrated its 100th anniversary last year and represents about 15% of the world cosmetics market.
Growth returns in 2010
Agon said L’Oreal had been enjoying renewed growth early in the year, particularly at its luxury division.
He said luxury cosmetics, such as Yves Saint Laurent lipstick and Lancome cream, had seen an uptick in sales January and February after suffering a year-on-year 4.7 drop in the fourth quarter.
Analysts had expected L’Oreal’s luxury sales to rise in the fourth quarter, by as much as 4%.
Agon acknowledged the luxury division had not performed as expected at the end of the year, adding: “Luxury will enjoy a nice rebound. I am very confident about the division for 2010 and for the first quarter."
Perfumes, which represent 45% of luxury sales, were hit hardest by the spending slump, he explained.
But overall, January and February had been good and sales were recovering faster in Western Europe than in North America.
“Early 2010, we have the feeling that this is the year we are exiting the crisis," Agon said, sitting in his spacious top floor office overlooking Paris and the Eiffel Tower.
New era of development
Looking ahead, he said the group was entering a new era of development and forecast profits and sales to rise in 2010.
Markets had stabilised in Western Europe and were slightly positive at the end of 2009 and in early 2010, although in North America, L’Oreal’s second biggest market after Western Europe, the group had not yet seen signs of recovery.
L’Oreal, which usually tries to beat the market, saw its sales drop 1.1 percent in 2009 while global cosmetics market witnessed a 1 percent increase..
Agon forecast global cosmetics sales would rise 2-4 percent this year.
He said the downturn had not changed consumer behaviour toward beauty products, as market research showed buyers had not traded down. “The real issue after the crisis is innovation at the right price," Agon said.
Last year, L’Oreal introduced entry-level products at many of its brands to woo consumers and encourage them to climb up the price ladder. “We have proof that this really does get us new consumers," Agon said.
Asked about expanding the group’s portfolio of products via acquisitions, Agon said L’Oreal would have the firing power to finance them but declined to say if a deal was afoot.
Agon said the company had not decided yet whether it would buy back shares this year.