The Body Shop saw its shares tumble earlier this year

Body Shop shares rose as much as 11% to 274 pence, valuing the firm at �534m ($937m), before later sliding to 265p.

L'Oreal said it was always looking to add shareholder value, which might mean "a possible offer for Body Shop", but added that no decision had been made.

Body Shop said it had not received an approach from L'Oreal.

The firm also stressed that it was "confident" about its future prospects.

Profit warning

French L'Oreal makes a wide range of cosmetics, including Ambre Solaire sun cream and Lancome lipsticks.

Body Shop - with its ethically sourced products - was one of the icons of the High Street in the 1980s, but was hit when rivals started making similar products.

It managed to recover, and now has more than 2,000 stores in 53 countries.

However, in January its shares tumbled nearly 20% after the retailer warned that lower-than-expected Christmas sales in the UK and US would hit profits.