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The Estée Lauder Companies Inc. reported net sales for its second quarter ended December 31, 2012 of $2.93 billion, a 7% increase compared with $2.74 billion in the prior-year quarter. Excluding the impact of foreign currency translation, net sales also increased 7% from a year ago. These results were delivered against a 10% local currency sales increase in the prior-year quarter and continued softness in certain markets, particularly Southern Europe and Korea.
Fabrizio Freda, president and CEO of The Estée Lauder Companies, said, “Our performance this quarter reflected the global appeal of our brands in all regions. These results demonstrate our ability to continue to grow, on top of the double-digit trends we generated in the prior year, even in the face of macroeconomic headwinds and challenges in certain international countries. Organic sales growth for the quarter was in line with our expectations, while earnings per share exceeded our forecast.
“We began the second half of our fiscal year by successfully launching another wave of our strategic modernization Initiative in early January, a key driver to achieving additional long-term efficiencies. Our recent increased strategic marketing spending behind key innovations and existing winning products in countries with good momentum should help drive sales growth in coming months. We expect continued solid growth in the U.S., many emerging markets and e-commerce and improving trends in travel retail. For the full fiscal year, we are re-affirming our sales growth forecast of between 6% and 7% in local currency, while raising our earnings per share guidance to $2.51–2.59,” he concluded.
The global prestige beauty industry continues to experience mixed results and overall growth has slowed from the prior year as the company expected. Nonetheless, the company’s performance was broad-based, generating local currency sales gains in each of its geographic regions and major product categories. Sales growth was solid in the U.S. and certain developed countries and strong overall in emerging markets.
The net overall change in net sales and operating income for the quarter were favorably impacted by the shifts in orders from certain retailers due to the company’s implementation of SAP, as previously mentioned, in the following product categories:
Excluding the impact of the shifts in orders:
The skin care category is a strategic priority for the company. The Estée Lauder Companies gained share in this category during the quarter in certain countries where its products are sold. Skin care sales growth was strong, particularly in view of the 13% growth reported in the prior-year quarter. For makeup, higher sales primarily reflected an increase in net sales from the company’s makeup artist brands while in fragrance, notable sales increases were generated from the recent launch of Coach Love and higher-end fragrance products from Jo Malone and Tom Ford. These increases were partially offset by lower sales of Estée Lauder Sensuous Nude and DKNY Golden Delicious, which were launched in the prior-year period, as well as from certain other fragrances. Hair care net sales growth was driven by Aveda, reflecting the continued success of its Invati line of products and the recent launches of Pure Abundance Style Prep and Be Curly Curl Controller. The category also benefited from expanded global distribution, in particular to salons and multi-brand specialty retailers.
In the quarter, the net overall change in net sales and operating income in the company’s geographic regions were favorably impacted by the shifts in orders from certain retailers as previously mentioned, as follows:
Excluding the impact of the shifts in orders:
For the Americas, the net sales increase was primarily attributable to strong growth in the U.S., which benefited from successful new product offerings. The improvement reflects growth from the company’s makeup artist brands and certain heritage and hair care brands. Sales increased in each of the Company’s major product categories, except fragrance, and the higher sales also reflect double-digit local currency gains in Canada and Latin America.
For Europe, the Middle East and Africa, in constant currency, net sales increased in the majority of countries in the region and in each product category. Economic uncertainties in some southern European countries impacted the beauty markets, but the company continued to generate growth in most markets. In constant currency, double-digit net sales growth was recorded in a number of areas, including Switzerland, France, the Nordic countries, South Africa and Turkey, while solid sales gains were generated in the U.K., Benelux and the Middle East. The company’s net sales in travel retail grew high-single digits, while retail sales grew double-digits in the quarter, which was more than twice the increase in airline passenger traffic. Continued select retailer destocking impacted net sales growth. These increases were partially offset by lower net sales, primarily in Russia, Spain and Italy.
For Asia/Pacific, the company’s strongest local currency sales growth was generated in China and Hong Kong, primarily reflecting strong sales of skin care products. In China, the increase reflected sales to new consumers in expanded distribution in tier two and three cities. Japan and Taiwan posted solid sales gains. The region’s sales growth of 9% improved upon the prior-year quarter, when sales grew 18% in constant currency. The increases in certain Asian countries were partially offset by lower net sales, predominantly in Korea, reflecting difficult economic conditions and competitive pressures. Sales in Australia also declined. The company expects to see continued weakness in prestige beauty in Korea, which also impacted the travel retail business there.