French cosmetics giant L'Oreal considers sale of the Body Shop
L'OREAL has confirmed that its mulling a potential sale of The Body Shop more than 10 years after snapping up the ethical skincare brand.
The French cosmetics giant said it was "exploring all strategic options" regarding its ownership of the firm founded by Dame Anita Roddick in 1976.
It said it was looking at potential options to give the retailer the "best opportunity" to develop, but said no decision had been taken.
The update came as The Body Shop revealed a further slide in sales as a lacklustre performance in Saudi Arabia and Hong Kong continued to dog the firm.
Sales at the skincare brand sank 5 per cent to €920.8 million (£784.2 million), down from €967.2 millio (£823.7 million) in the year to the end of December.
But L'Oreal said The Body Shop's "momentum was good" in Europe - especially in the UK - and across Latin America thanks to a new operation in Chile.
On the potential sale, Jean-Paul Argon, chairman and chief executive of L'Oreal, said: "As part of this brand portfolio optimisation, it has been decided to explore all strategic options regarding The Body Shop's ownership in order to give it the best opportunities and full ability to continue its development.
"No decision has been taken so far."
On a like-for-like basis, it said The Body Shop's sales had risen by 0.6 per cent, while annual group sales at L'Oreal climbed 2.3 per cent to €25.8 billion(£21.9 billion).
The Financial Times reported on Wednesday that L'Oreal had drafted in bankers from Lazard to review its options and sound out buyers for The Body Shop, with some private equity firms eyeing a possible deal.
Dame Anita and her husband banked around £117 million from their 18 per cent stake in the business when they backed the board's decision to push through a £652.3 million sale to L'Oreal in March 2006.
The Roddicks started The Body Shop in 1976 to help support their two young daughters, Justine and Samantha.
The company has 3,000 stores in 66 countries, employing around 22,000 people.
Harsha Wickremasinghe, an associate at international M&A and debt advisory firm Livingstone, said it was "surprising" that an owner of the magnitude of L’Oreal has failed to capitalise on the potential The Body Shop had.
He said: "L’Oreal's strengths lie in developing and nurturing brands, not as a retailer operating a sprawling store estate. Whilst it represents a small sales contribution to L’Oreal, it will undoubtedly be a source of frustration for the cosmetics giant that they could not drive the business forward in the way they anticipated when they acquired it in 2006.
“Previously viewed as an innovator, The Body Shop has lost its way in recent years. The messaging is mixed, the product proposition is not compelling enough and its stores lack inspiration and the retail theatre that is required to draw shoppers through their doors.
"Unsurprisingly, the competition has become fierce in recent years with rivals such as Lush boasting a stronger proposition whilst effectively communicating its strong ethical stance to their customer base."