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L’Oreal Sales Growth Curbed by Sluggish U.S. Demand

L’Oreal SA (OR), the world’s largest cosmetics company, reported second-quarter sales that missed analysts’ estimates as demand for Maybelline New York makeup and other consumer products remained sluggish in the U.S.

Like-for-like revenue increased 4.1 percent, Paris-based L’Oreal said yesterday after European markets closed, accelerating from the previous quarter’s 3.5 percent gain. Analysts predicted 4.4 percent, based on the median of 13 estimates compiled by Bloomberg. Sales rose 2.4 percent in North America, compared with a 0.6 percent fall in the first three months.

L’Oreal has struggled this year to accelerate growth in the consumer-products division as American mass-market shoppers remain restrained in spending money and emerging economic growth slowed. Unilever (UNA), the maker of Dove shampoo, also flagged difficulties in newer markets though growth at the company’s personal-care division advanced 4.5 percent in the period.

While the French company’s revenue fell just short of expectations, “this remains a far cry from what we used to see from L’Oreal, below what Unilever delivered in its personal-care business and far below what we believe” L’Oreal’s valuation requires, wrote Andrew Wood, an analyst at Sanford Bernstein, in a note to investors. The company trades at 23 times estimated earnings.

Photographer: Simon Dawson/Bloomberg

Maybelline nail varnish. Close

Maybelline nail varnish.

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Photographer: Simon Dawson/Bloomberg

Maybelline nail varnish.

The shares rose 0.8 percent to 127.35 euros in early Paris trading, bringing their loss this year to about 0.4 percent.

North America

L’Oreal predicted in April that North American consumer-product sales would return to growth in the second quarter and accelerate through 2014. While global sales at the unit, which includes Garnier shampoo, rose 2.8 percent in period, that lagged behind the 3.2 percent acceleration predicted by analysts, though it picked up from the 1.2 percent reported in the first quarter.

To help stoke growth, the company is launching new products like Fibralogy by L’Oreal Paris for hair care. New facial skincare items, however, have been “less effective,” L’Oreal said.

The personal-care market is consolidating as companies from Germany’s Henkel AG to Japan’s Kose Corp. buy niche brands to widen product ranges. Since January, L’Oreal has acquired facial-mask maker Magic Holdings International Ltd. and spa brands Decleor and Carita. Including the buyback of 8 percent of its stock from Nestle SA, L’Oreal has spent more than $5 billion on deals this year, and it is looking for more targets.

The maker of Giorgio Armani scents repeated it expects to outperform the market in 2014 and improve like-for-like sales, profitability and earnings per share. First-half operating income rose 0.2 percent to 2.03 billion euros ($2.72 billion). Analysts predicted 2.02 billion euros, according to the average of 12 estimates compiled by Bloomberg.

L’Oreal has said it expects the cosmetics market to grow 3.5 percent to 4 percent this year.

To contact the reporter on this story: Andrew Roberts in Paris at aroberts36@bloomberg.net

To contact the editors responsible for this story: Celeste Perri at cperri@bloomberg.net Tom Lavell

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