L'Oréal margins helped by product launches in first half

PARIS, France - French cosmetics maker L'Oréal posted improved margins and a nearly 8 percent rise in first-half operating profit, despite slightly weaker demand in major markets such as the United States.

The group's gross margin rose 70 basis points to 71.7 percent, helped by the launch of new and more expensive items such as the anti-aging skincare product Advanced Genifique by Lancome.

The group, which last month posted disappointing first-half sales, noted a slight growth deceleration in the first half, mainly due to a slowdown in the United States and weaker demand for luxury goods, particularly in countries such as South Korea.

L'Oréal's luxury products, which include Rouge Pur Couture Yves Saint Laurent lipstick and Armani perfumes, saw growth slow to 5.5 percent on a like-for-like basis in the second quarter from 7.2 percent in the previous three months.

"Overall profits and operating margin are broadly in line with expectations, but the gross margin delivery is encouraging and has fuelled increased research and development spending," said Alex Howson, analyst at London-based brokerage Jefferies.

The maker of Garnier shampoo and Maybelline make-up reported earnings before interest and tax (EBITDA) of 2.04 billion euros ($2.7 billion), roughly in line with the average estimate of 2.05 billion in a Thomson Reuters estimations poll.

The group's spending on research and development rose 8.8 percent, while its advertising and promotion costs remained stable at 30.2 percent of revenue.

The operating profit margin rose 50 basis points to 17.4 percent.

Earlier this month, L'Oréal agreed to buy Chinese facial mask provider Magic Holdings, allowing it to expand in the fastest-growing sector of China's $15 billion skincare market.

The group is holding a press conference on Friday starting at 0700 GMT, at which analysts are expected to grill management about current trading and its planed use of funds, having net cash of 572 million euros on its balance sheet at end-June.

"Sentiment will be driven tomorrow by what management may or may not say about second-half margin trends," said Pablo Zuanic, analyst at New York brokerage Liberum Capital.

L'Oréal reiterated its generic target of outperforming the market and increasing both sales and profits in 2013.