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The Estée Lauder Companies Inc. reported a solid financial performance for its third quarter ended March 31, 2012. For the quarter, the company had net sales of $2.25 billion, a 4% increase compared with $2.17 billion reported in the prior-year quarter. Excluding the impact of foreign currency translation, net sales increased 5%. The company also reported net earnings for the quarter of $130.4 million, a 5% increase compared with $124.7 million last year.
In the second quarter of fiscal 2012, some retailers, primarily in Asia/Pacific, accelerated their orders in advance of the company’s January 2012 implementation of SAP at certain of its locations and brands. Those additional orders amounted to approximately $30 million in sales that would have likely occurred in the company’s fiscal 2012 third quarter. Additionally, the company’s fiscal 2011 third quarter included approximately $42 million of sales resulting from accelerated orders, primarily by retailers in Europe, in advance of the company’s April 2011 implementation of SAP at certain of its locations. Combined, these actions created a difficult comparison between the fiscal 2012 third quarter and the fiscal 2011 third quarter of approximately $72 million in sales and $54 million in operating income, equal to $.09 per diluted common share. Additionally, in the current third quarter, the company established a provision for anticipated returns of approximately $16 million as a result of repositioning certain products due to changes in regulations related to sunscreen products in the United States, which reduced net sales growth by approximately 70 basis points.
Fabrizio Freda, Estée Lauder Companies’ president and CEO, said, “Our third quarter sales came in slightly ahead of our forecast and, importantly, we were able to leverage part of that growth into an overachievement of earnings per share. Driving our performance are focused investments on our distinctive product innovations, supported by strong creative capabilities and elevated high-touch services. These elements provide a foundation for continuous growth and, coupled with cost savings and productivity improvements, increased and sustainable profitability. On the strength of our brands, we posted across-the-board sales gains in our regions, strong skin care growth and increases in most channels, while further generating substantial gross margin improvements. Our outlook for the balance of the year remains positive, giving us the confidence that for the full fiscal year we will achieve double-digit local currency sales growth and the ability to raise our full-year earnings per share estimate, before restructuring charges, to $2.21 to $2.26.”
The company’s performance was due to solid overall business, particularly from its largest brands. The company reported sales gains in every region, including strong skin care growth within each region. Sales growth in other product categories in each region was mixed. Sales growth was particularly strong in travel retail and emerging markets, along with solid gains in several developed countries.
During the quarter, the company made substantial progress on its previously stated strategic goals, with a strong improvement in cost of sales as a percentage of net sales. All product categories and geographic regions benefited from companywide efforts to reduce or eliminate non-value added costs. In connection with the long-term strategic plan and certain ongoing initiatives, the company realized savings of $40 million during the quarter. As a percentage of net sales, advertising, merchandising and sampling expenses increased to support the company’s biggest innovations. Gross margin expanded 140 basis points, while operating margin remained unchanged, before restructuring charges.