L'Oreal said on Friday it was confident on the outlook for 2007, despite signs of a slowdown in the United States, thanks to booming demand in new markets and the launch of new brands like Sanoflore and Diesel.
Speaking a day after the world's largest cosmetics group published a better-than-expected 8.4 percent rise in first half profit, Chief Executive Officer Jean-Paul Agon said there were signs U.S. consumers were feeling the impact of the slide in the housing market and high petrol prices.
In the United States, we are not more confident at the end of August than at the end of June. We have seen in the panels of May, June and July a certain slowdown, above all in the mass market, which is not dramatic but is a slowdown, Agon told a meeting with financial analysts and journalists.
We are a bit prudent on the market in America, but because we have good news in general elsewhere we are rather confident, Agon added. He said, however, he still expected U.S. sales in 2007 to outpace those of 2006.
L'Oreal said late on Thursday its gross margin was steady at 71.5 percent of sales of 8.514 billion euros ($11.63 billion). It said it expected full year like-for-like sales to grow between 7 and 8 percent and earnings per share to grow more than 10 percent.
L'Oreal estimated the global cosmetics market grew 5 percent in the first half and Agon noted the company grew 1.5 times as fast as it won market share in almost all product categories.
In emerging markets like Brazil, Russia, India, Mexico and China, L'Oreal said it was growing twice as fast as the market.
The BRIMC countries accounted for 11.7 percent of sales at the end of June but 33 percent of growth, Agon said.
This year for the first time Russia and China will be among our top 10 markets and Brazil and Mexico are not far behind.
He said the top line growth coupled with efforts L'Oreal is taking to restructure its industrial base -- which he said he would detail next February -- would lead to a significant rise in gross margin in the second half.
The group would be able to fully compensate for increased raw material and energy prices, he said.
L'Oreal increased its advertising and promotional spend in the second half of 2006 to help accelerate the rollout of its products in emerging markets.
Agon said second half A&P spending this year would not rise year on year but he did not expect this to hit growth. He noted L'Oreal like other companies was shifting its advertising away gradually from traditional media -- citing the launch this month of Fuel for Life, its first perfume for denim brand Diesel.
A large part of the budget has gone on the Internet...and a lot on events, Agon said, adding first indications were that sales of the scent had got off to a good start.
I think we will see more and more a redeployment of marketing on different media because our brands touch different targets who don't look at the same media, he added.
L'Oreal will next month launch its Sanoflore bio cosmetics brand, bought last October, to five new European countries and over the next 12 months deploy it throughout Europe, Agon said.