Is L’Oreal looking for an acquisition?
Monday, August 31st, 2009On a financial TV show Friday, it was noted that L’Oreal would be once again looking for acquisitions. A Dow Jones report said CEO Jean Paul Agon believes business for the beauty giant has improved enough that it can once again consider acquisitions.
Earnings for the first half fell by 14 percent, while sales were up 1 percent. This was better than what analysts expected. Luxury margins fell to 11.9 percent from 19.6 percent. Reduction of gross margins has plagued other luxury marketers, including Estee Lauder Companies and LVMH.
Premium activity, particularly in the States, has forced manufacturers to give away product (p-w-p and g-w-p) as part of a transaction. The value part of the sale directly or indirectly adds to cost of goods, lowering margins.
L’Oreal also sees an improving business climate, as retailers are no longer de-stocking. Agon said the turnaround has been fueled by its reliance on advertising and promotion, which was not cutback during the recession, although L’Oreal reduced costs in other areas. According to Dow Jones, three brokerages are now recommending L’Oreal’s stock.
But the intriguing question remains. Where will L’Oreal strike? What category looks attractive enough to pursue an acquisition? One would have to imagine that both the luxury business and mass makeup are not tempting now, while the naturally-positioned product segment could be of interest.