Improving US sales should help L’Oreal return to growth in 2010
L’Oreal’s global market performance in 2009 has been hard hit by poor sales in the all-important US market, a result that has led the company to record a fall in its overall sales for the first time in over ten years.
Analysing the results for 2009, market researcher Nielsen believes that the company’s US performance was ‘worrisome’, particularly given that it increased advertising and promotional spend during the first half of the year.
Added to this is the fact that, combined with declining sales in the US, Nielsen data also shows that the company lost market share there in September and October, ending the year on a particularly bad note, with Q4 sales falling by 3.9 per cent.
December showed first US sales growth in 20 months
However, the company did record a slight up-tick in the US at the end of Q4, with a 1 percent growth in sales for the month of December indicating the first sales growth since April 2008.
Likewise, market research data from the Bloomberg Derpartment Store Index forecasts that 2010 growth will be influenced by the start of a clear recovery in this retail channel, which is a target area for L’Oreal’s extensive mass market prestige product portfolio.
Financial analyst Andrew Wood, from Sanford Bernstein, suggests the fact that L’Oreal’s US December sales results were positive, combined with the forecasts for department stores sales, could help to reignite the company’s performance.
Wood believes that this, combined with the fact that comparisons for the 2009 financial year will be so low, could actually reflect favourably for the company in 2010, although results are unlikely to compare with the breakneck growth of recent years.
L'Oreal's worst year
“Despite the more positive Q4, the financial year 2009 should still go down in history as probably L’Oreal’s worst ever year with negative growth in three of its four cosmetics division and negative growth for the over all company of 0.5 per cent,” said Wood.
“We continue to expect [the company] to return to low-to-mid-single digits growth in 2010 as the recent boost in A&P begins to work and helps L’Oreal curb its share losses."
Bernstein says sales growth for L’Oreal in the three year period 2010 – 2012 should be ‘average’, predicting that organic growth will be around +5 per cent, at best, while it currently gives the company an ‘underperform’ rating
