Cosmetics
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. Corporate Overview
1.1 Corporate History
In 1996, LOreal became the second largest cosmetics maker in the US, following the acquisition of Maybelline
1.2 Key Facts
Sales (FY05) – US$18.1 billion, Assets (FY05) – US$ 29.8 billion
1.3 Subsidiaries/Affiliates
One of major subsidiaries – LOreal UK Ltd (Revenue Ð- US$0.92 billion, Employees – 2,450)
1.4 Organizational Chart
Chairman & Chief Executive – Lindsay Owen-Jones
1.5 Profiles of Key People
Lindsay Owen-Jones joined LOreal Group in 1969
1.6 Recent Developments
Body Shop, the British natural-based cosmetics retailer was taken over by LOreal in a US$ 1.14 billion deal
2. Business Description
2.1 Business Segments
Consumer Products Division
Luxury Products Division
Professional Products Division
Active Cosmetics Division
2.1.1 Products/Services
Major brands – Giorgio Armani, Ralph Lauren, Garnier, Maybelline
2.2 Geographical Segmentation
Western Europe accounts for 47% of the total sales
2.3 Key Partnerships/Alliances
Ð* Partnered with Italy based company, Diesel for the launch of a new fragrance line
Ð* Collaborated with Weinstein Company and Dimension Films to promote the latters promotion of films over the next two years
3. SWOT Analysis
3.1 Strengths
Strong and Focused Brand Portfolio
Presence in Emerging Markets
Strong R&D Capability
3.2 Weaknesses
Dependence on Western European Markets
Late Entry into Japan
3.3 Opportunities
M&A Opportunities
Growth in Adjacent Categories
3.4 Threats
Competition from Private Labels
Price Competition among Branded Manufacturers
Ban on Direct Selling in China
4. Key Business Strategies
Building and Maintaining Strong Brand Portfolio
Global Marketing
Inorganic Growth
5. Financial Performance
5.1 Financial Highlights
In 2005, the companys revenues increased by nearly 6.5% to US$18.1 billion, reflecting like-for-like growth of 4.8%
5.2 Five-Year Financial Summary
Total assets of the company have increased from US$11.9 billion in 2000 to US$25.4 billion in 2004
5.3 Ratio Analysis
Profitability Ratios – Net profit margin increased to 13.6% in 2005, from 10.9% in 2004, mainly due to the restatement of deferred tax assets
Performance Ratios – In FY05, LOreal reported 8.4%ROA and 13.7% ROE, improving by 1.3 points and 1.5 points, respectively over FY04.
5.4 Market Indicators
5.4.1 Stock Chart
LOreals share prices increased by over 13% in the period Feb 2005 to Feb 2006, after losing almost two-fifths of their value in the prior four years.
5.4.2 Earnings Estimates
Revenue Estimates – Revenues are expected to increase to US$18.7 billion by 2006 and to US$22.4 billion by 2009
Net Income Estimates – Net income is also expected to increase, with margins expected to move upwards, due to improved efficiency and higher sales
EPS Estimates Ð- Estimated increase in EPS at a CAGR of over 13% the next three years
6. Competitive Landscape
6.1 Industry Overview
Global cosmetics industry is being driven by increasing demand of natural cosmetics, direct sales model, power brands and shifting focus towards the young consumers.
6.1.1 Industry Definition and Segmentation
6.1.2 Key Drivers
Growing Demand for Anti-Aging Products
Chinese Market Poised for Critical Push
6.1.3 Major Trends
Demand for Natural Cosmetics
Growth of Direct Sales Channel
Shift in Focus to Youth
Changing Consumer Lifestyles
Increasing Role of Media
6.1.4 Issues and Implications
Vulnerability of Human Skin
FDA Warning in Untested Products
Pending EU Regulations
6.1.5 Outlook
Innovations in Cosmetics Segment
Demand for Cosmeceuticals
6.2 Competition
Avon
Estee Lauder
Revlon