Estée Lauder Records Record Net Sales of $10.18 Billion for 2013

The Estée Lauder Companies Inc. reported a strong financial performance for its fourth quarter and fiscal year ended June 30, 2013. For the year, the company achieved record net sales of $10.18 billion, a 5% increase compared with $9.71 billion in the prior year. Excluding the impact of foreign currency translation, net sales increased 6%. For the fourth quarter, reported net sales increased 7% to $2.41 billion. Excluding the impact of foreign currency translation, net sales increased 8%.

Fabrizio Freda, president and CEO of The Estée Lauder Companies, said, “We concluded another outstanding fiscal year with a strong fourth quarter that saw high-single-digit sales gains and exceptional double-digit earnings per share growth. Fiscal 2013 marked another record year in which our company achieved a number of historic milestones: $10 billion in net sales, 15.2% operating margin and $1 billion in net earnings. We also delivered record earnings per share and operating cash flow.

“Looking at a broader picture, we once again posted sales growth that we believe was greater than global prestige beauty, and achieved strong across-the-board sales gains in each of our geographic regions and major product categories. This year we also advanced our strategic priorities, including enhancing our business in skin care, emerging markets and fast-growing distribution channels.

“We expect our strong momentum to extend into fiscal 2014. We will support our sales growth by launching outstanding products, further penetrating fast-growing emerging markets, expanding our distribution in fast growing prestige channels and reigniting our fragrance category. Consistent with our strategy, we intend to support our business with targeted investments aimed at enhancing the global reach of our brands and further building long-term brand equity. Finally, we expect to benefit from the investments we’ve made in capabilities and technology. We believe all of these factors should enable us to grow local currency sales 6% to 8% and achieve constant dollar double-digit earnings per share growth this year, and help progress us towards reaching our new long-term operating margin target of 16.5% in fiscal 2016,” Freda concluded.

During the fiscal year, sales growth was particularly strong in the company’s luxury brands, online and travel retail channels and overall in emerging markets, along with solid gains in several developed countries.

For the skin care segment, the company recorded net sales of $4.465 billion for its 2013 fiscal year, versus $4.225 billion for fiscal 2012, an increase of 6% on a reported basis and 7% in local currency. The skin care category is a strategic priority for the company, and it gained share in this category in certain countries where its products are sold.

In makeup, the company saw 2013 fiscal net sales of $3.876 billion, a 5% increase on a reported basis (6% in local currency) compared to 2012's $3.696 billion. Higher makeup sales primarily reflected strong growth from the company’s makeup artist brands. The increase in makeup operating income primarily reflected improved performance from the MAC brand, partially offset by certain heritage brands and an increase in investment spending.

For fragrance, the company recorded 2013 net sales of $1.310 billion, a 3% reported basis/4% local currency increase from 2012's $1.271 billion. Sales increases were generated from the recent launches of Zegna Uomo, DKNY Be Delicious So Intense, Tommy Hilfiger Freedom Men and Coach Love. Higher fragrance sales were also generated from luxury brands Jo Malone and Tom Ford. Fragrance operating income increased, primarily reflecting the success of certain luxury and heritage brand products, partially offset by certain of the Company’s designer fragrances.

The hair care segment saw 2013 net sales of $488.9 million, a 6% reported basis/local currency increase of 2012's $462.4 million. Hair care net sales growth was driven by Aveda, reflecting the continued success of its Invati line of products and the recent launches of Pure Abundance Style Prep and Be Curly Curl Controller. The category also benefited from expanded global distribution, in particular to specialty-multi retailers for Bumble and bumble and to salons for Aveda. Sales of Bumble and bumble brand products to salons were lower, and sales declined at Ojon due, in part, to a reduction of its business in the direct response television channel. Hair care operating results increased over 100%, primarily reflecting a favorable comparison to the prior year, which was impacted by other intangible asset impairment charges of $21.7 million.

For results by geographic region, the Americas saw net fiscal 2013 sales of $4.302 billion, a 5% increase over the $4.101 billion seen in 2012. The net sales increase in the region reflects growth from most of the company’s brands, particularly its makeup artist and heritage brands. The increase was primarily attributable to growth in the United States, while double-digit sales growth was recorded in Latin America. Net sales in Canada also increased, reflecting, in part, expanded distribution. Sales to department and specialty-multi stores were solid, and the company’s online business grew double-digits. During the fourth quarter of fiscal 2013 the U.S. retail environment began to experience slower growth. Operating income in the Americas increased sharply, reflecting improved results from the company’s makeup artist and luxury brands, as well as certain hair care and heritage brands, driven by a favorable category mix, partially offset by increased marketing spending.

For the Europe, the Middle East and Africa region, net sales increased 4% on a reported basis/6% in local currency from 2012's $3.603 billion to $3.758 billion. In constant currency, net sales increased in the majority of countries in the region. Economic difficulties in certain Southern European countries impacted beauty consumption, but the company 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 the United Kingdom and double-digit growth in the Middle East. The company’s net sales in the travel channel grew double-digits at retail, which was more than triple the increase in airline passenger traffic. Sales gains in the United Kingdom and the Middle East each benefited, in part, from strength in the company’s makeup artist brands. In constant currency, double-digit net sales growth was recorded in a number of areas, including South Africa, the Nordic countries and Turkey. These increases were partially offset by lower net sales, primarily in Russia, Spain and the Balkans. The company estimates that it gained share in certain countries within its distribution in this region during the year. Operating income in the region increased, led by travel retail, the Middle East and the United Kingdom, which was partially offset by lower results in Germany and Spain, as well as goodwill and other intangible asset impairment charges.

The Asia/Pacific region saw 2013 net sales of $2.121 billion, versus 2012's $2.011 billion, a 5% rise on a reported basis and 6% in local currency. In the region, the company’s strongest local currency double-digit sales growth was generated in China, Hong Kong and Thailand, primarily reflecting strong sales of skin care products. Results in China included sales to new consumers in expanded distribution in tier two and three cities. Sales at retail also continued to grow strong double-digits. Lower sales were experienced primarily in Korea reflecting difficult economic conditions and competitive pressures. The company expects to see continued weakness in prestige beauty in Korea. The company also estimates that for the year it gained share in certain countries, including China, within its points of distribution. In Asia/Pacific, operating income decreased, with higher results from China and Thailand being more than offset by lower operating results in Korea and Japan. The lower results in Japan reflect, in part, the effect of unfavorable foreign exchange rates.

In fiscal 2014, the Estée Lauder Companies expect the global prestige beauty to rise approximately 3–4%, reflecting continued weakness in certain Southern European countries and Korea. The company also continues to expect beauty market growth in the U.S. but at a slower pace than in fiscal 2013. The company’s goal remains to grow at least one percentage point faster than the industry by focusing on skin care and makeup and reigniting fragrance, bringing highly innovative products to market, capitalizing on regional opportunities and serving emerging market consumers. 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.

See the full 2013 fiscal report from The Estée Lauder Companies here.

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