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Estée Lauder Maintains Strength for Its Q1 2012

Posted: November 1, 2012

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Regionally, for the Americas, sales growth improved a strong 8% upon the prior year, when sales grew 10% in constant currency. The net sales increase in the region 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 heritage and makeup artist brands, as well as increased sales in each of the company’s product categories. The higher sales also reflect strong local currency gains in Canada and Latin America. Sales in Brazil continued at a strong double-digit pace. Sales to North American department stores grew mid-single digits and sales of the company’s products online grew double digits, and operating income in the Americas increased sharply, primarily reflecting the strong sales gains.

In constant currency, net sales increased in most countries in the Europe, the Middle East & Africa region and in each product category, except fragrance. Economic uncertainties in some Western European countries impacted the beauty markets more than anticipated, but the company continued to generate growth in most of the markets. The region’s sales growth of 2% improved upon the prior-year quarter, when sales grew 19% in constant currency. In constant currency, double-digit net sales growth was recorded in a number of areas, including the Middle East, South Africa, Turkey and the Nordic countries, while solid sales gains were generated in the United Kingdom and Germany. In travel retail, the company experienced double-digit retail sales growth in the quarter, which was more than twice the increase in airline passenger traffic. Weakness in Korea and select retailer destocking impacted net sales growth. These increases were partially offset by lower net sales, primarily in Russia, Switzerland, France, the Balkans and Spain. The company estimates that it gained share in certain countries within its points of distribution in this region during the quarter, and operating income in the region increased, led by travel retail, Russia and South Africa, which were partially offset by lower results in Germany, Spain and Italy.

Local currency sales growth Asia/Pacific was generated in several countries in the region, with the strongest gains coming from China, Hong Kong and Thailand, primarily reflecting strong sales of skin care products. In China, the increase was primarily due to sales to new consumers in expanded distribution in tier two and three cities. The region’s sales growth of 7% improved upon the prior-year quarter, when sales grew 15% 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. The company expects to see continued weakness in prestige beauty in Korea, which also impacted the travel retail business there, and it estimates that for the quarter it gained share in certain countries, including China, within its points of distribution. In Asia/Pacific, operating income increased, with most countries posting higher profits. China, Taiwan, Thailand and Japan reported the largest increases, while lower results were recorded primarily in Korea.

For its outlook, the company has benefited from the strength in prestige beauty in North America and China. While overall the company’s business is performing well, certain Western European countries and Korea are seeing worse than expected weakness due to economic uncertainties. Specifically, in the context of its strategy, during fiscal 2013, the company expects to continue to increase gross margins and reduce operating expenses, which allows it to increase global advertising spending and finance SMI, while increasing profitability. Investment in advertising behind strong innovation should continue to create growth well beyond the industry average.

Find more specifics and additional information on this financial report from The Estée Lauder Companies here.