L'Oreal shares fall after sales disappoint

City A.M. Reporter
L'Oreal shares fell back, returning some of their recent gains, after the world's biggest cosmetics group posted fourth-quarter sales and margins that were 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 per cent for 2011.

"We expect to outperform the market again this year," chief executive Jean-Paul Agon said at a results presentation.

However, analysts were disappointed after the group reported on Thursday after the market closed that like-for-like sales rose 4.1 per cent in the three months to end-December, below a forecast for 5.3 per cent 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," said Sanford C. Bernstein analyst Andrew Wood.

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 one per cent and lower their investment rating to "hold" from "buy".

L'Oreal shares were down 4.8 per cent at €85.21 (£72.36), 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 eight per cent 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.

Asked about whether the group planned to get into direct sales, Agon said: "It is not on the agenda but nothing is taboo".