Revenue rose 0.3 percent to 4.37 billion euros ($5.7 billion), Paris-based L’Oreal said after markets closed, below the 4.43 billion-euro median estimate of 11 analysts surveyed by Bloomberg and down from the fourth quarter’s 4.7 percent gain.

L’Oreal’s luxury division, maker of Armani Code and Lancome scents, posted a 17.5 percent sales drop excluding currency moves and acquisitions, the worst performance of any business line. Chief Executive Officer Jean-Paul Agon said the division suffered “very large inventory adjustments,” especially in France, after a disappointing Christmas.

Declines in western Europe were a “shocker,” said Andy Smith, a London-based analyst at ICAP. The luxury and professional-product units “did the damage,” he said.

“Promotional pressures” are greater in 2009 than they were last year, and will constrain profitability, Agon said.

Excluding acquisitions and currencies, sales fell 4.3 percent, more than the 3.4 percent drop analysts estimated and worsening from the fourth quarter’s 0.6 percent decline.

Western Europe sales declined 9.3 percent on that basis, surpassing the 5 percent drop in North America. That’s a reversal of last year’s trend, when U.S. department stores suffered more than their counterparts in Europe.

Cost-Cut Plans

Luxury-goods demand was also hurt as a “sharp fall” in air travel hurt sales at duty-free stores, L’Oreal said, while both Russia and Dubai suffered a “very large drop in consumption.”

“This quarter was definitively a tough one, and we expect improvements” from the second quarter, Agon said on a conference call. “We expect destocking to be reduced significantly in the next quarters.”

Agon said in the statement that L’Oreal will cut costs and will develop “accessible innovation” products to sustain growth in the crisis. He said L’Oreal should “gradually improve its performance in the course of 2009,” and called the first- quarter luxury sales drop “atypical” due to destocking.

Revenue in the rest of the world increased 1.8 percent on a like-for-like basis, led by a 9.7 percent gain in Latin America.

L’Oreal, whose other brands include Maybelline makeup, cut sales and profit forecasts three times last year, citing a “brutal” slowdown in the U.S. and weakening economies in Europe and China. The stock has dropped about 9 percent this year after a 36 percent slide in 2008.

Body Shop, Galderma

Agon said the consumer products division is gaining market share, calling the unit “resilient,” which he also used to describe the active cosmetics and Body Shop businesses.

Total first-quarter sales in the consumer-products unit, whose brands include L’Oreal de Paris shampoos and Maybelline, rose 1.6 percent.

Revenue fell 3.9 percent at the active cosmetics unit, which sells anti-aging cream. The “dermocosmetics” market shrank for the first time in western Europe, L’Oreal said.

Agon said he had never seen such a “pronounced and sudden” slowdown among L’Oreal’s hair-salon customers. The slump prompted a 3.2 percent drop in revenue from professional products. He said the company is winning market share among salons in the crisis.

At Body Shop, the natural- and ethical-cosmetics brand L’Oreal acquired in 2006, sales fell 3.3 percent in the quarter, though revenue rose 2.5 percent if acquisitions and currency effects are excluded.

The Galderma venture with Nestle SA, which makes treatments for skin conditions, posted a 32 percent sales increase on products designed to combat acne and psoriasis.