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Lauder's Fiscal Year Sales Results Increase by Double Digits
Posted: August 14, 2012
The Estée Lauder Companies Inc. reported a strong financial performance for its fourth quarter and fiscal year ended June 30, 2012. For the year, the company had net sales of $9.71 billion, a 10% increase compared with $8.81 billion reported in the prior year. Excluding the impact of foreign currency translation, net sales also increased 10% from a year ago. Excluding returns and charges in fiscal 2012 and 2011 related to restructuring activities, net sales for the year ended June 30, 2012 increased 10% to $9.72 billion and net earnings rose 21% to $901 million.
Fabrizio Freda, president and CEO of The Estée Lauder Companies, said, “A very strong fourth quarter, in which we generated double-digit growth in sales, excluding currency, and earnings per share, was driven largely by continued momentum in the U.S. and strong growth in China and travel retail. This performance capped another record year for our company. In fiscal 2012, we grew sales, net earnings and earnings per share by double digits. Our sales grew at twice the rate of worldwide prestige beauty, owing to the success of our highly innovative products, marketing prowess and personalized services. Despite pockets of economic uncertainty around the globe, our sales growth was broad-based, with strong gains in every geographic region and product category and many distribution channels. Financial discipline throughout our company enabled us to bring much of our sales growth to the bottom line. Our operating margin increased 120 basis points to a record 14.2%—exceeding our original forecast—and operating cash flow reached an all-time high of $1.1 billion. These superb results reflect the success of our focused growth strategy and effective business model.
“Our strategy is working, we believe it is sustainable and we continue to further strengthen our leadership in prestige beauty. Leveraging the global reach of our diverse and powerful brand portfolio, we plan to continue to focus our efforts and resources in the most promising areas for prestige beauty, including emerging markets, travel retail and digital. At the same time, we expect to generate further cost savings and improve profitability as we move forward. While we are positive about our long-term outlook we are cautious of further weakening in certain global markets. Nonetheless, we are confident in our growth prospects and we are extending our financial goals to fiscal 2015 and raising our operating margin target to 15.5–16%,” Freda concluded.
The company’s performance was due to solid overall business, particularly from its largest brands. The company reported sales gains in each of its product categories and geographic regions. Net sales also grew in each major product category within each region. Sales growth was particularly strong in travel retail and overall in emerging markets, along with solid gains in several developed countries.
The company’s skin care division saw a 14% bump in net sales from 2011 to $4.2 billion in 2012. The skin care category is a strategic priority for Estée Lauder, and the company gained share in this category during the year in certain countries where its products are sold. Skin care sales growth was strong, particularly in view of the 15% growth in the prior year. Operating income increased sharply, primarily reflecting improved results from higher-margin product launches in certain of the company’s heritage brands, as well as from higher-end prestige skin care products. These improvements were partially offset by an increase in investment spending to support major launches and existing franchises. For the makeup category, the company reached $3.69 billion in net sales for 2012, up 10% from 2011 and built upon the 13% growth in the prior year. The category’s growth was primarily generated from strong gains in the company’s makeup artist brands, primarily reflecting new product offerings, and its operating income increased, primarily reflecting improved results from the company’s makeup artist brands. These results reflect an increase in investment spending to support the company’s makeup artist brands and certain heritage brands. Fragrance sales increased in each region for the company, with net sales up 3% to $1.27 billion despite the category being up against a prior year comparison of 9%. The company estimates its share in fragrance declined, which reflects its current strategic focus on improving profitability rather than driving sales and share gains. Fragrance operating income increased 24%, primarily driven by recent product launches, improved cost of goods and a more strategically focused approach to spending. And in the hair care category, the company reported net sales of $462 million, up 7% over 2011 figures. The category’s net sales growth was driven by solid gains from Aveda and Bumble and bumble, and hair care operating results increased over 100%, primarily reflecting the higher sales, as well as a lesser amount of goodwill and other intangible asset impairment charges, compared to the prior year related to the Ojon brand.
For the fourth quarter, or three months ended June 30, 2012, the company reported net sales of $2.25 billion, a 9% increase from $2.06 billion in the comparable prior-year period. Excluding the impact of foreign currency translation, net sales increased 12%. On a reported basis, as well as in constant currency, net sales grew in each of the company’s geographic regions and major product categories. Sales also increased in each product category within each region, except fragrance in Asia-Pacific. The company’s fourth quarter sales growth reflects mid-single digit gains in the U.S., as well as solid local currency increases in most European countries and double-digit growth in travel retail. In Asia-Pacific, growth was led by strong double-digit increases in China and Hong Kong. The company also reported net earnings of $51.2 million for the fourth quarter, a 25% increase from the $41.1 million last year. Diluted net earnings per common share increased 26% to $.13, compared with $.10 reported in the same prior-year period.
In its outlook for 2012, the company notes it has benefited from the strength in global prestige beauty, particularly in North America, China and travel retail. The company’s growth has outpaced global prestige beauty and should continue to grow faster than the industry. While The Estée Lauder Companies’ business is performing well, certain Western European countries, Korea and Australia are seeing increased weakness due to ongoing economic uncertainties and volatility in financial markets. Separately, the Company is also cautious of macroeconomic factors that may temper the growth trend of the Chinese economy. For the upcoming full year, The Estée Lauder Companies’ net sales are forecasted to grow between 6–8% in constant currency.