The Estée Lauder Companies Inc. reported a strong financial performance for its second quarter ended Dec. 31, 2011, which was slightly ahead of the top of its previously stated guidance. For the quarter, the company had net sales of $2.74 billion, a 10% increase compared with $2.49 billion reported in the previous year's quarter. Excluding the impact of foreign currency translation, net sales also increased 10%. The company reported net earnings for the quarter of $396.7 million, a 15% increase compared with $343.9 million last year. Excluding returns and charges in the fiscal 2012 and 2011 second quarters, net sales for the three months ended Dec. 31, 2011 increased 10% to $2.74 billion and net earnings rose 13% to $401.1 million.
Fabrizio Freda, Estée Lauder Companies president and CEO, said, “The company’s strong second quarter results complete an outstanding first half performance. Our sales and profits this holiday season came in higher than planned and demonstrate the vibrancy of our brand portfolio in solid as well as soft economies. Our results were again broad based across brands, regions, categories and channels. The key drivers of our 10% sales growth were the U.S., China, travel retail and online. Importantly, we continued our consistent gross margin and operating margin improvements.
“Our flexible business model enabled us to outpace the global beauty industry. As planned, we will build on that trend with significant advertising and marketing spending behind existing product successes and upcoming introductions in the third quarter. Our underlying business continues to grow behind increased advertising and merchandising, despite softness in certain countries and currency headwinds. Reflecting our positive momentum, for the full fiscal year we are increasing our local currency sales forecast to between 9–10% and revising our earnings per share, before restructuring charges, to $2.16 to $2.23, after taking up the bottom of the range.”
The company’s strong performance was due to solid overall business, particularly from its largest brands. It had strong sales gains in every region, including the United States, and sales increased double-digits in Asia/Pacific. Sales also rose in virtually all product categories within each region. Sales growth was particularly strong in travel retail and emerging markets, along with solid gains in many developed countries.
By category, skin care saw net sales of approximately $17 million; makeup, approximately $9 million; fragrance, approximately $2 million; and hair care, approximately $2 million.
Makeup net sales growth reflected strong increases, primarily from the company’s makeup artist brands and certain heritage brands. The higher makeup sales reflected increases across a broad range of products, and the introduction of the Tom Ford line of cosmetics contributed to the category’s growth.
Fragrance sales decreased, with sales gains in the Americas and Asia-Pacific being more than offset by declines, primarily in Western Europe, due to economic uncertainty. Fragrance sales were up against a tough comparison to the prior-year period when the category grew 11%.
Hair care net sales increased, led by higher sales from Aveda, which included the recent launch of its Invati line of products. Bumble and bumble also posted strong sales growth, primarily reflecting the success of its expanded retail and salon distribution and the launch of Concen-Straight. These gains were partially offset by sales declines at Ojon, due in part to softness in the direct response television channel.
By geographic region, the company’s net sales for Asia-Pacific were approximately $25 million; Europe, the Middle East and Africa, approximately $3 million; the Americas, approximately $2 million.
Net sales growth in the Americas was primarily attributable to a strong holiday retail environment in prestige beauty channels in the United States, which benefited from winning new product offerings from the company. The improvement also reflects strong growth from the company’s heritage and makeup artist brands, as well as increased sales of higher-end prestige skin care products. Further, growth reflects prestige beauty outpacing mass, due in part to the company’s strong innovations and personalized service. The higher sales also reflect strong double-digit gains in Latin America, which benefited from growth in emerging markets, such as Brazil, and sales of the company’s products online increased double digits while its sales to department stores grew high-single digits.
For Europe, the Middle East and Africa region, in constant currency, net sales increased in most countries in the region and in each product category, except fragrance. Also, its travel retail business continued to generate strong double-digit net sales growth in the quarter, resulting from successful product launches, higher global airline passenger traffic and a stronger conversion of travelers into purchasers. In constant currency, double-digit net sales growth was recorded in a number of areas, led by the Middle East, Italy and Turkey. These increases reflect strong demand for the company’s products, even in relatively soft retail environments. These increases were partially offset by lower net sales in a few countries, led by Russia, due to destocking by a retailer.
The company generated strong double-digit local currency sales growth in the Asia/Pacific region, with increases in all countries except Japan and Singapore. The strongest gains were generated in China, Korea, Hong Kong, Australia and Thailand, primarily reflecting strong sales of skin care and makeup products.Net sales growth in Korea, Australia, Thailand and New Zealand included approximately $25 million related to increased orders from certain of the company’s retailers.
For the six months ended December 31, 2011, the company reported net sales of $5.21 billion, a 14% increase from $4.58 billion in the comparable prior-year period. Excluding the impact of foreign currency translation, net sales increased 12%. On a reported basis, as well as in constant currency, net sales grew in each of the company’s geographic regions and product categories. The company also reported net earnings of $675.3 million for the six months, a 26% increase from the $535 million in the same period last year.
During fiscal 2012, the Estée Lauder Companies will continue to execute its winning strategy and expects continued strong results. The company expects to continue to grow faster than the global prestige beauty industry. At this time, the company’s outlook assumes some softening in global prestige beauty, particularly in certain European countries, Japan and Australia, due to recent economic uncertainty and volatility in the financial markets. The outlook also assumes a slowing growth trend of the Chinese economy. The company believes it has been able to offset the impact of these events as a result of its strategy to mitigate weaknesses in certain areas with strengths in others, demonstrating its ability to grow ahead of prestige beauty in both soft and strong environments.