France-based L'Oreal SA (
) recently reported 2014 first half sales figures. Sales declined
1.5% as against sales growth of 4.7% in the first half of 2013. The
decline was due to a difficult operating environment and currency
headwinds. Currency fluctuations impacted sales by 5.1% in the
quarter, while the net impact of changes in consolidation was
On a constant currency basis, first half 2014 sales grew 3.8%,
driven by 4% growth in total cosmetics division, which a 1.7%
decline in The Body Shop. Last year, the company delivered sales
growth of 5.4% in the first half. Sales, on a constant currency
basis, increased 4.1% in the second quarter of 2014, compared with
last year quarter growth of 5.2%.
Gross margin improved 10 basis points to 71.8% in the first half
of 2014, while operating margin expanded 30 basis points to 18.2%.
With the exception of the Professional Products Division, whose
profitability has declined from 20.1% to 19.6%, profitability of
each of the divisions in the cosmetics category increased during
the first half of 2014.
Adjusted earnings per share increased 7.5% (in local currency)
in the first half of 2014, driven by improved operating
The company operates through the Cosmetics Divisions and The
Body Shop. The cosmetics division is further sub-divided into four
categories: Professional Products, Consumer Products, L'Oréal Luxe
and Active Cosmetics.
Operational Segment Details
On a constant currency basis, the division grew 4% in the first
half of 2014, while it increased 4.3% in the second quarter.
: The Professional Products division posted an increase of 3% on a
constant currency basis in the first half of 2014. Rate of growth
improved from 1.4% in the first half of 2013 owing to an
improvement in Western Europe and the United States. The company
witnessed momentum in the New Markets (excluding Japan), especially
in India, Russia and Brazil. In the second quarter of 2014, the
division grew 2.2% from the year-ago quarter.
The improvement came on the back of Haircare and hair colourants
products. The re-launch of TecniArt by L'Oréal Professionnel and
Redken's styling range also helped growth.
: The Consumer Products division posted an increase of 2% on a
constant currency basis in the first half of 2014. Growth however
was lower than last year's growth of 6.3% in the first half due to
sluggishness in the American mass market and weakness in the
emerging markets. The division was still benefited by the gradual
improvement in the European markets. In the second quarter of 2014,
the division grew 2.8% from the year-ago quarter.
The new launches in this division were not able to win market
share. However, the division received good response in haircare. In
hair colourants, the recently introduced Garnier Olia continues to
perform well, while in make-up, L'Oréal Paris is expanding well,
and is innovating with Butterfly and Miss Manga mascaras.
: The division posted an increase of 7.4% on a constant currency
basis in the first half of 2014. Growth was higher than last year's
6.4% in the first half, driven by market share gains across all
geographic zones, particularly in China, United States and Western
Europe. In the second quarter of 2014, the division grew 7.5% from
the year-ago quarter.
L'Oréal Luxe is growing rapidly, driven by the vitality of the
novel brands Urban Decay, Kiehl's and Clarisonic and by the success
of fragrances with Lancôme, "La Vie est Belle" and Giorgio Armani,
: The division posted an increase of 8.1% on a constant currency
basis in the first half of 2014. Growth improved from last year's
growth of7.8% in the first half, driven by market share gains in
France, Russia, Brazil and China. In the second quarter of 2014,
the division grew 7.4% from the year-ago quarter.
The division grew strongly with the continuing recovery of Vichy
and the roll-out of SkinCeuticals.
The Body Shop
: The division recorded sales decline of 1.7% on a constant
currency basis in the first half of 2014 due to challenges in some
of the Asian markets. However, innovations led to improved
businesses in Europe, North America, the Middle East, Africa and
Brazil in the first half. In the second quarter of 2014, the
division reported flat sales.
In the first half of 2014, the company's results were impacted
by currency headwinds. The company continues to expect currency to
negatively impact sales by 4.3% in full year 2014. However, we are
optimistic on the company's newly-acquired businesses of Decléor
and Carita and Magic Holdings International Limited, which are
expected to add around 0.4% to the company's full year sales.
In addition, the finalization of the strategic transaction
between L'Oréal and Nestlé on Jul 8, 2014 will help the company to
record a capital gain of more than 2 billion euros in 2015. Also,
the buyback of 48.5 million L'Oreal shares owned by Nestle will
have an accretive impact of more than 5% on net earnings in
L'Oreal holds a Zacks Rank #4 (Sell).
Some better-ranked companies in the consumer staple sector
include Treehouse Foods, Inc (
), BRF S.A. (
) and Pinnacle Foods Inc (
). While Treehouse sports a Zacks Rank #1 (Strong buy), BRF S.A.
and Pinnacle hold a Zacks Rank #2 (Buy).
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