The Estée Lauder Companies Inc. reported net sales for its first quarter ended September 30, 2013 of $2.68 billion, a 5% increase compared with $2.55 billion in the prior-year quarter. Excluding the impact of foreign currency translation, net sales increased 6%. Net earnings for the quarter were $300.7 million, compared with $299.5 million last year and diluted net earnings per common share were $.76, which was flat with the prior year.
Fabrizio Freda, president and CEO of The Estée Lauder Companies, said, “I’m pleased that our sales growth was in line with our target, and we exceeded our earnings per share estimate for the quarter, despite softer-than-expected market conditions in certain countries. We achieved these results on the strength of our brands, many of which have introduced successful new innovations that we have supported with strong marketing programs. Our luxury brands, online and travel retail channels, and emerging markets continued to generate excellent results, lead our growth and contributed to broad sales gains in each of our geographic regions and major product categories. Looking ahead, we are well positioned for the important holiday shopping period, with the strongest slate of new fragrances in more than a decade, as well as other innovative products across our categories. We are focused on achieving superior top-line growth by driving sales momentum throughout the fiscal year with our product and service innovations, backed by creativity, product quality and comprehensive marketing programs. For the full fiscal year, we continue to expect to grow sales 6–8% in local currency, which is double our global prestige beauty estimate, and we are revising our earnings per share estimate to $2.80–2.87, after taking up the bottom of the range.”
Net sales growth during the quarter was particularly strong in the company’s luxury and MAC brands, online and travel retail channels, and overall in emerging markets. Many developed countries reported solid gains as well. The company made further progress on its strategic goals and realized a solid improvement in cost of sales. As planned, the company increased global advertising spending versus the prior-year quarter to support its biggest innovations and certain existing products.
The skin care category, which is a strategic priority for the company, recorded net sales of $1.171 billion for the quarter 5% reported basis/6% local currency increase over the same quarter 2012's $1.113 billion.The company gained share during the quarter in this category in certain countries where its products are sold. Sales gains reflect the launches of the company’s new Advanced Night Repair Synchronized Recovery Complex II from Estée Lauder and Dramatically Different Moisturizing Lotion + from Clinique, as well as the recent launch of Advanced Night Repair Eye Serum Infusion from Estée Lauder. Continued strong growth from the company’s luxury skin care brand La Mer also contributed to sales growth. Operating income declined, however, because of increased investment spending behind recent major product launches to accelerate sales growth, as well as new capabilities.
For makeup, net sales were $1.001 billion, a 4% reported basis/5% local currency increase from the same quarter 2012's $960.4 million. Higher makeup sales primarily reflected strong growth from the company’s makeup artist brands and the recent launch of All About Shadow from Clinique. Increased sales from Smashbox and the Tom Ford line of cosmetics contributed to the category’s growth, and the increase in makeup operating income primarily reflected improved performance from the MAC brand, partially offset by certain heritage brands.
In fragrance, the company reported net sales of $367.4 million, a 6% reported basis/6% local currency increase from Q1 2012's $347. million. Sales increases were generated from the recent launches of Estée Lauder Modern Muse, Zegna Uomo and Michael Kors Sexy Amber. Higher fragrance sales were also generated from luxury brands Jo Malone, including its new Peony and Blush Suede fragrance, and Tom Ford. Fragrance operating income decreased, as higher marketing investments behind new launches were partially offset by the success and profitable progress of certain luxury brands.
Hair care clocked in net sales of $124.8 million for the quarter, a 10% reported basis/10% local currency rise from the same quarter 2012's $113.9 million. Growth was driven by Aveda, reflecting the continued success of its Invati line of products. The launch of Dryspun Finish from Bumble and bumble also added incremental sales. The category growth also benefited from expanded global distribution, in particular to specialty-multi retailers for Bumble and bumble and to salons for Aveda. Sales declined at Ojon due, in part, to its exit from the direct response television channel, which is expected to be completed by the second quarter of fiscal 2014. Hair care operating results decreased, due, in part, to additional investments related to expanded distribution and an increase in advertising expenses during the current-year period.
For results by geographic region, the Americas reported net sales of $1.202 billion, a 2% reported basis/2% local currency increase over the same period in 2012. Net sales in the U.S. increased moderately, reflecting growth from certain of the company’s luxury, makeup artist, hair care and designer fragrances brands, partially offset by declines at certain heritage brands. Double-digit sales growth was recorded in Latin America, and net sales in Canada also increased. Sales to specialty-multi stores rose high-single digits, and the Company’s online business grew double-digits. Operating income in the Americas decreased, reflecting the planned higher marketing spending during the current-year period to support major product launches. The decrease also reflected lower sales on some base business in certain heritage brands in softer markets.
For the Europe, the Middle East and Africa region, the quarter's net sales came in at $891.2 million, an 8% reported basis/7% local currency increase from its Q1 2012. In constant currency, net sales increased in the majority of countries in the region, and the company estimates that it continued to outperform prestige beauty in many markets. The net sales increase was led by high-single-digit growth in the company’s travel retail business and double-digit growth in the U.K. and Switzerland. Germany and France generated solid growth, while sales in Southern Europe, where the retail environment continues to be challenging, were relatively flat. The company’s net sales growth in travel retail primarily reflected a stronger retail environment for the company’s products, particularly luxury brands, and to a lesser extent, an increase in global airline passenger traffic. Operating income decreased, as higher results from the company’s travel retail business and the Balkans were more than offset by lower operating results in most other countries, primarily due to increases in investment spending for recent major launches and initial costs associated with freestanding retail store expansion.
And for the Asia/Pacific region, the company's first quarter 2013 net sales were $581.4 million, representing a 7% reported basis/11% local currency rise over its Q1 2012's $542.5 million. In the region, every country posted net sales increases except Korea. The company’s strongest local currency growth was generated in China, Hong Kong and Taiwan, each posting strong double-digit increases. Results in China included sales to new consumers in expanded distribution in tier two, three and four cities and new skin care product launches. Sales at retail continued to grow strong double-digits. The lower sales in Korea reflected continuing difficult economic conditions and competitive pressures. The company expects to see continued weakness in prestige beauty in Korea. The company also estimates that it gained share in certain countries, including China, within its points of distribution during the quarter. In Asia/Pacific, operating income increased slightly, with higher results, primarily from China, Taiwan and Hong Kong, being partially offset by lower operating results in Japan and Vietnam.
The Estée Lauder Companies continues to expect global prestige beauty to rise approximately 3–4%, tempered by continued weakness in certain Southern European countries and Korea. The company continues to expect beauty market growth in the U.S., but at a slower pace than in fiscal 2013. The company expects to further improve its gross and operating margins by leveraging its strong sales growth and maintaining its successful pull advertising strategy, while continuing to reduce non-value added costs.