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L'Oreal shares drop as struggles to lift growth at Garnier shampoo unit

Key Points
  • The French cosmetics group said operating income grew 1.8 percent from a year ago to 2.58 billion euros ($3 billion), in line with the forecast by analysts in an Inquiry Financial poll for Reuters, while margins reached 19.2 percent.
  • Revenue was down 0.2 percent from a year earlier to 13.4 billion euros in the period but increased 6.6 percent on a like-for-like basis, which strips out currency fluctuations and portfolio changes.
L'Oreal CEO: Hope second half of 2018 will show improvement in French economy

L'Oreal shares fell on Friday as the cosmetics firm struggled to fire up sales of its mass market beauty products like Garnier shampoo and revenues in western Europe faltered.

The French company posted higher operating income in the first half of the year late on Thursday. Its luxury arm extended its strong run, with labels like Lancome doing well in China in an encouraging signal for rivals like U.S.-based Estee Lauder, which is more squarely focused on premium brands.

But L'Oreal reported lower-than-expected comparable sales growth of 2.3 percent in the second quarter in its central mass market division, and the United Kingdom, gearing up to leave the EU, emerged as a fresh weak spot across the group.

Its shares were down just over 4 percent at 1028 GMT. "Clearly we are not happy with growth in the consumer division in the first half," L'Oreal Chairman and Chief Executive Jean-Paul Agon told analysts on a conference call on Friday.

L’Oreal CEO: Trade war 'totally absurd' and not what we need right now

"We think that we have everything it takes to outgrow the market and clearly the ambition is to get back progressively, soon, to a rhythm, of 3 to 4 percent," he said but did not elaborate.

A sluggish backdrop for mass market products in L'Oreal's home market - echoing the cut-throat competition hampering French supermarket retailers - showed little signs of a turnaround so far.

Other markets like Brazil and Italy were tough too but should improve, the company said. The outlook for Britain, as it gears up to leave the EU next March, was less encouraging.

Agon said L'Oreal had not lost market share in the United Kingdom, where its consumer, luxury and professional products units have traditionally done well.

But he pointed to a "less buoyant" backdrop than a year ago, when a weaker pound had at least spurred tourist purchases on premium cosmetics.

"Also there is a consumer sentiment in the United Kingdom, probably linked to this Brexit story, that is not what it used to be," Agon said. "The market is not in a great shape (...) and I'm not really confident that it will improve soon."

Overall, L'Oreal's operating income grew 1.8 percent from a year ago to 2.58 billion euros ($3 billion) in the first half of the year, in line with forecasts.

The Asian market continued to outperform, and demand from Chinese shoppers proved resilient at L'Oreal in the face of a trade spat with the United States, mirroring encouraging signals across the broader luxury goods industry.