Will L'Oreal SA's (LRLCY) 1H14 Sales Disappoint Investors?

France-based L'Oreal SA (LRLCY) is set to report first half fiscal 2014 sales results on Jul 31. L'Oreal creates and develops various cosmetics products for women and men worldwide. Let's see how things are shaping up prior to the announcement.

Factors to Consider

The cosmetic company reported dismal first quarter results wherein sales declined 2.2% due to currency headwinds of 5%. The company also decided to terminate the mail order business of Beauté Créateurs during the first quarter, which had a slight negative impact on sales.

However, on a currency-neutral basis sales increased 3.5%, of which the total cosmetics division increased 3.7%. The Body Shop sales declined 3.4% due to a difficult operating environment in Asia and U.K. Region-wise, the company witnessed recovery in Western Europe, while Southern Europe showed signs of improvement for the first time since 2007. However, North America sales were down 0.6% in the first quarter.

In the first half of 2014, the company continues to expect currency headwinds to hurt the top line. It expects currency to negatively impact sales by 4.3% in full year 2014. However, we are optimistic on the company's newly-acquired businesses of Decléor and Carita and Magic Holdings International Limited, which are expected to add around 0.4% to the company's full-year sales.

The acquisition of Magic Holdings was L'Oréal's biggest investment in the Chinese beauty market, which will strengthen its leadership position in the world's third largest beauty market. Also, Decléor's expertise in aromatherapy and Carita's legendary products will contribute to L'Oréal brands.

L'Oreal has a Zacks Rank #4 (Sell).

Some other players in the cosmetic industry which are due to report their quarterly results include Avon Products Inc. AVP, The Estee Lauder Companies, Inc. EL and Elizabeth Arden, Inc. RDEN. Avon is expected to release its results on Jul 31, while Estee Lauder will report on Aug 15. Elizabeth Arden will come up with its results on Aug 14.

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