The Estée Lauder Companies Inc. reported net sales for its third quarter ended March 31, 2013 of $2.29 billion, a 2% increase compared with $2.25 billion in the prior-year quarter. Excluding the impact of foreign currency translation, net sales increased 3%. The company reported net earnings for the quarter rose 37% to $178.8 million, compared with $130.4 million last year.
Fabrizio Freda, president and CEO, said, “Organic sales growth this quarter was in line with our expectations and earnings per share were better than expected. Adjusting for the shift of sales orders related to our strategic modernization initiative (SMI) implementation, our local currency sales increased more than 5%. Despite macroeconomic headwinds, particularly in southern Europe and Korea, and short-term global supply planning issues related to SMI, we delivered solid growth ahead of the industry and a 20 percent earnings per share increase. The strength of our strategy and our ability to execute on it continues to produce consistent and reliable results.
“Looking at the remainder of fiscal 2013, we are on track to deliver another record year of solid sales and a double-digit increase in earnings per share. In our fiscal fourth quarter, we expect an acceleration of our top-line growth. For the full fiscal year, we are expecting sales growth of approximately 6% in local currency and are raising our earnings per share guidance, before charges, to $2.56 to $2.61. Our performance this year reflects a combination of our strong innovation pipeline and targeted investment spending behind the greatest opportunities to foster global growth. Our future is bright, and I am confident we are on track to attain our long-term financial goals. We intend to build upon our success by continuing to support major initiatives in our biggest brands and markets in order to further increase profitability and gain share.”
Globally, prestige beauty continues to experience mixed results and overall growth has slowed from the prior year, as the company expected. Nonetheless, Estée Lauder’s performance was broad based, generating local currency sales gains in each of its geographic regions and most product categories.
By product category, Estée Lauder saw its skin care net sales for the quarter at $1.015 billion; makeup net sales were $919.2 million; fragrance net sales were $233.2 million; hair care net sales $116.2 million; and with an other category coming in at $8.2 million in net sales, overall for the quarter, net sales came to $2.29 billion. Excluding the impact of the shifts of accelerated retailer orders due to the company’s implementation of SMI, reported net sales in skin care, makeup, fragrance and hair care would have increased 3%, 7%, 4% and 6%, respectively, and 5% in total. Also, operating results in skin care, makeup, fragrance and hair care would have increased/(decreased) 3%, 38%, 100+% and (12)%, respectively, and 22% in total.
The skin care category remains a strategic priority for Estée Lauder. The company gained share in this category during the quarter in certain countries where its products are sold. Higher makeup sales primarily reflected strong growth from MAC brand products, and new product introductions from Clinique, such as increased sales of the Tom Ford line of cosmetics, contributed to the category’s growth. In fragrance, notable sales increases were generated from higher-end fragrance products from Jo Malone and Tom Ford, as well as incremental sales from the recent launch of Coach Love. Hair care net sales growth was driven by Aveda, reflecting the continued success of its Invati line of products and other recent launches. The category also benefited from expanded global distribution, in particular to salons, but sales declined at Ojon, due, in part, to a reduction of its business in the direct response television channel.
By geographic region, Estée Lauder recorded net sales for the quarter of $988.1 million in the Americas; $847.9 million in Europe, the Middle East and Africa; and $455.8 million in Asia-Pacific. Excluding the impact of the shifts of accelerated retailer orders due to the company’s implementation of SMI, reported net sales in the Americas, Europe, the Middle East and Africa, and Asia-Pacific would have increased 4%, 4% and 6%, respectively.
In the Americas, the net sales increase in the region reflects growth from the company’s makeup artist brands and Aveda, and double-digit sales growth in Latin America was offset by sales declines in the U.S., reflecting the shifts of accelerated retailer orders, and Canada. For Europe, the Middle East and Africa, in constant currency, net sales increased in a number of countries in the region. Economic uncertainties in southern European countries impacted the beauty markets, but Estée Lauder continued to outperform the industry in many markets. In constant currency, double-digit net sales growth was recorded in a number of areas, including travel retail, the Middle East and South Africa. The company’s net sales in travel retail also grew double-digits. Sales at retail grew double-digits too, which was more than twice the increase in airline passenger traffic. These increases were partially offset by lower net sales, primarily in Switzerland and France, which included the impact of accelerated retailer orders, as well as Spain and the Balkans. In Asia-Pacific, the company’s strongest local currency sales growth was generated in Hong Kong, Thailand and Australia, primarily reflecting strong sales of skin care products. Lower sales were experienced in China and Taiwan, both of which reflected the accelerated retailer orders, as previously discussed, and results in China included sales to new consumers in expanded distribution in tier two and three cities. Excluding the shift in retailer orders, sales in China grew strong double-digits. Sales at retail also continued to grow strong double-digits. Meanwhile, Korea reflected difficult economic conditions and competitive pressures. The company expects to see continued weakness in prestige beauty in Korea, which also impacted the travel retail channel.
In regard to its outlook for fiscal 2013, Estée Lauder has benefited from the strength in prestige beauty in North America and China. While overall the company’s business is performing well, southern European countries and Korea continue to face weakness due to economic uncertainties. However, net sales are forecasted to grow approximately 6% in constant currency, and the company is raising the range of its diluted net earnings per share estimate, including charges associated with restructuring activities and the impact of the early extinguishment of debt, to $2.49 to $2.54. Overall, the company’s broad-based growth is expected to continue ahead of the prestige beauty industry for the full fiscal year.