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Estée Lauder Reports $1.99 Billion Q4 Net Sales

The Estée Lauder Companies Inc. reported $1.99 billion in net sales for its fiscal second quarter ended December 31, 2006, a 12% increase over the $1.78 billion reported in the prior-year quarter. Excluding the impact of foreign currency translation, net sales rose 9%. Diluted net earnings per common share from continuing operations for the quarter rose 42% to $.99 compared with $.70 reported in the prior year. Net earnings and diluted net earnings per share for the quarter including discontinued operations each increased substantially compared with the prior-year quarter.

"Our strong top line growth reflected gains in all major product categories within each geographic region, as well as favorable foreign currency movement," said William P. Lauder, president and CEO, The Estée Lauder Companies. "At the same time, the company's cost savings initiatives and disciplined expense control aided the bottom line. As a result, we generated a 260 basis point increase in operating margin this quarter and better than expected earnings per share growth.

"Our strong earnings and cash flow give us the opportunity to accelerate and increase our investments in our business, enabling us to grow for the long term. Taking a shorter term perspective, the solid first half and our confidence in our business for the balance of the fiscal year permits us to raise our full year earnings per share estimate to $2.10 to $2.20."

According to the company, the skin care, makeup and fragrance categories were adversely impacted by fewer department store doors during the current-year quarter as compared to the prior-year quarter, resulting from the merger of Federated Department Stores, Inc. and The May Department Stores Company.

Net sales of skin care products benefited from the recent launches of Advanced Night Repair Concentrate Recovery Boosting Treatment by Estée Lauder, and Repairwear Lift and All About Eyes Rich from Clinique. The continued success of Resilience Lift Extreme Ultra Firming Cremes and Advanced Night Repair Eye Recovery Complex by Estée Lauder also contributed to growth.

Makeup sales and operating income for the quarter increased, primarily reflecting solid growth from the company's makeup artist brands. The recent launches of Resilience Lift Extreme Ultra Firming Makeup SPF15 and High Gloss Lip Gloss from Estée Lauder along with High Definition Lashes from Clinique contributed solid incremental sales.

Fragrance sales increased compared to the prior year, reflecting strong growth in Europe and the Americas and an easy comparison to the prior-year quarter when the category decreased 11%. The recent launches of DKNY Red Delicious, DKNY Red Delicious Men, Pure White Linen and Unforgivable by Sean John contributed positively to the category's sales, as did Youth Dew Amber Nude from Tom Ford for Estée Lauder.

Sales of hair care products and services increased, primarily due to higher sales at Aveda and Bumble and bumble. Higher sales at Bumble and bumble were primarily due to strong like-door growth and new points of distribution. Aveda net sales growth was due to the recent shipments of Be Curly Shampoo and Conditioner, the international launch of Damage Remedy hair care products, and the recent acquisition of a distributor. Net sales are expected to grow between 6% and 7% in constant currency for the current fiscal year. Diluted earnings per share from continuing operations is now projected to be between $2.10 and $2.20. The company continues to expect to deliver approximately $30 million in incremental savings in the current fiscal year ending June 30, 2007, under its cost savings initiative implemented in fiscal 2006.

On a product category basis, in constant currency, sales in hair care and makeup are expected to be the leading sales growth categories, followed by skin care and fragrance. Geographic region net sales growth in constant currency is expected to be led by Asia/Pacific and Europe, the Middle East & Africa, followed by the Americas.

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