L’Oreal SA, the world’s largest cosmetics maker, said profit rose in 2006 as the company sold more Lancome luxury makeup and Armani Code perfume.
Net income climbed to 1.83 billion euros ($2.4 billion) after adjustment for some items from 1.64 billion euros in 2005, the Paris-based company said today in a statement. The shares fell as L’Oreal said costs related to last year’s acquisition of U.K.-based retailer Body Shop and an increase in research and development expenses would weigh on profitability this year.
Rising demand for luxury skin-care goods has boosted sales at the French company, which spent 652 million pounds ($1.3 billion) last year to acquire natural cosmetics retailer Body Shop. Costs related to that acquisition will be accentuated in the first half of this fiscal year, L’Oreal said today.
“Body Shop is having an impact on overall profitability, even though it’s a small business compared to the whole,” said Alessandra Coppola, an analyst with Standard & Poors Equity Research in London who cut L’Oreal to “hold” in September. “They are also increasing research and development costs.”
Shares of L’Oreal fell 1.05 euros, or 1.3 percent, to 80.6 euros in Paris. Coppola said some investors had switched out of L’Oreal stock and into LVMH Moet Hennessy Louis Vuitton SA, the world’s largest luxury goods maker, which reported sales that beat analysts’ estimates after markets closed yesterday. Shares of LVMH rose 5.9 percent, the most in more than three years.
Before today, L’Oreal stock had added 20 percent in 12 months, the fourth-largest gain in the seven-member Bloomberg World Cosmetics/Personal Care Index, which has risen 17 percent. The shares surged almost 7 percent last month, when the company reported fourth-quarter sales that beat analysts’ estimates.