Nov. 5 (Bloomberg) -- L’Oreal SA, the world’s largest cosmetics maker, said third-quarter sales declined 0.7 percent as inventory cuts by European distributors outweighed gains in emerging markets.

Revenue in the three months through September 30 fell to 4.23 billion euros ($6.3 billion) from 4.27 billion euros a year earlier, Paris-based L’Oreal said today, below the 4.25 billion- euro median estimate of 11 analysts surveyed by Bloomberg News.

The maker of Maybelline makeup and Lancome fragrances continued to suffer as the recession forced Europeans to pare spending. Demand for L’Oreal shampoos and make-up in Asia and Latin America accelerated, setting stage for sales improvement this quarter, Chief Executive Officer Jean-Paul Agon said.

“We remain cautious on western Europe and North America,” JPMorgan Chase & Co. analyst Celine Pannuti said before the numbers were released, citing “numerous promotional activities by L’Oreal competitors.”

L’Oreal shares rose 96 cents, or 1.4 percent, to 71.30 euros today. The sales were announced after markets closed. The stock is up 14 percent this year after sliding 36 percent last year.

Excluding acquisitions and currency swings, sales rose 0.8 percent, an improvement from the 3.2 percent decline in the first half of the year, confirming L’Oreal’s July forecast that performance would keep improving in 2009. The like-for-like growth beat the 0.4 percent median analyst estimate.

Confident of Improvement

L’Oreal is confident that the fourth-quarter improvement would continue through 2010, Agon said during a conference call, citing a “very strong acceleration” in sales growth at the mass-market unit, the company’s largest by revenue.

“The market devolution is stabilizing in developed countries and sales are accelerating in emerging markets,” Agon said. “Overall the situation is getting better.”

Revenue in western Europe declined 2.4 percent, excluding currency fluctuations and acquisitions, while sales in North America fell 1.3 percent on the same basis. Inventory reductions by third-party retailers are waning, although they haven’t yet started replenishing their stocks, Agon said.

Sales in the rest of the world increased 8 percent on that basis, led by an 11 percent gain in Latin America and the same rise in Asia. Revenue in China increased 17 percent during the quarter while it jumped 18 percent in Brazil, Agon said.

Like-for-like sales in the consumer-products unit, whose brands include mass-market L’Oreal de Paris, rose 5.9 percent.

The active cosmetics unit, which sells anti-aging creams, posted a 1.1 percent growth on that basis, while revenue from professional hair-salon products fell 1.4 percent.

Sales of luxury cosmetics that include the Armani and YSL brands fell 6 percent on a like-for-like basis. Agon said he expects no improvement in global luxury sales in the fourth quarter.

Body Shop, the natural- and ethical-cosmetics brand L’Oreal acquired in 2006, posted a 4.1 percent decline.

To contact the reporter on this story: Ladka Bauerova through the Paris newsroom at lbauerova@bloomberg.net.

Last Updated: November 5, 2009 15:41 EST