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The Estée Lauder Companies Inc. reported a solid financial performance for its first quarter ended September 30, 2012. For the quarter, the company had net sales of $2.55 billion, a 3% increase compared with $2.48 billion reported in the prior-year quarter. Excluding the impact of foreign currency translation, net sales increased 6% from a year ago. These results were delivered against a 14% local currency sales increase in the prior-year quarter and softer than expected markets, particularly in Western Europe. The company reported net earnings for the quarter rose 8% to $299.5 million, compared with $278.6 million last year. Diluted net earnings per common share rose 9% to $.76, compared with $.70 reported in the prior year.
The fiscal 2013 first-quarter results included charges associated with restructuring activities of $0.4 million. Additionally, in the quarter the company redeemed $230.1 million principal amount of its 7.75% senior notes due 2013. As a result, the company recorded a pre-tax charge to earnings of $19.1 million ($12.2 million after tax), for the impact of the extinguishment of debt, equal to$.03 per diluted common share. The fiscal 2012 first quarter results included charges associated with restructuring activities of$4.1 million. Excluding these charges in the first quarters of fiscal 2013 and 2012, net earnings rose 11% to $312.1 million. Diluted net earnings per common share rose 12% to $.79 versus a comparable $.70 in the prior-year period.
Fabrizio Freda, president and CEO of The Estée Lauder Companies, said, “In this new fiscal year, we continue to be guided by our winning strategy and commitment to profitable growth. Our first quarter results demonstrate the solid fundamentals underlying our business, and I am pleased and encouraged with our performance even in softer markets. Organic sales growth for the quarter was in line with our expectations, while earnings per share were better than planned. In particular, strong growth in North America and China drove our sales gains and, when coupled with cost of sales improvements and effective expense management, we generated a significant operating margin increase.
“Looking ahead, we continue to focus our resources on the most attractive areas of growth and on drawing new consumers into our business via successful product and service innovation and effective investment spending. We are very mindful of the uncertain market dynamics in several countries and of the solid growth in others, but we are judicious in our resource allocation to maximize our results in this dynamic market situation. We are confident that we have developed the necessary agility to manage our business effectively. We expect that we will grow our sales 6–7% in local currency this fiscal year, or double the rate of global prestige beauty, while raising the lower end of our earnings per share range,” Freda concluded.
The company’s performance was due to solid overall business, particularly from its largest brands. The company generated local currency sales gains in each of its product categories and geographic regions. Sales growth was particularly strong in the United States and overall in emerging markets, along with solid gains in certain developed countries.
The skin care category is a strategic priority for the company, and it 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 25% growth reported in the prior-year quarter. The Estée Lauder brand benefited from recent launches, as did the La Mer and Clinique, though these sales gains were partially offset by lower sales from certain existing products. Operating income increased double-digits for skin care, 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.
Makeup net sales increased, which built upon the 17% growth in the prior-year quarter. Higher makeup sales reflected recent launches from Estée Lauder and Clinique. Higher sales from Smashbox and certain products from the company’s makeup artist brands, along with the success of the Tom Ford Beauty line of cosmetics, contributed to the category’s growth. Lower sales from certain existing products partially offset these sales gains, but makeup operating income increased, primarily reflecting the higher sales.
In fragrance, notable sales increases were generated from the recent launches of DKNY Be Delicious So Intense, Coach Poppy Blossom, Estée Lauder Pleasures Eau Fraiche and Jo Malone Blackberry and Bay. These increases were more than offset by lower sales of DKNY Golden Delicious, Estée Lauder Sensuous Nude and Coach Poppy Flower, all of which were new launches in the prior-year period. Fragrance operating income increased, primarily reflecting a more strategically focused approach to spending as part of the company’s strategy to improve profitability. Operating income also reflects a favorable comparison to the prior-year period, which included higher spending in support of new launches of designer fragrances.
Hair care double-digit net sales growth was primarily driven by Aveda, reflecting the recent successful launches. The category also benefited from sales generated from expanded global distribution, in particular to salons and multi-brand specialty retailers, while lower net sales at Ojon were due, in part, to softness of its business in the direct response television channel. Hair care operating results increased significantly, primarily reflecting the higher sales, driven by new product launches and expanded global distribution.