USA. The Estée Lauder Companies has ended its fiscal year 2005 (to 30 June) with net sales of US$6.34 billion, a +9% increase over the US$5.79 billion reported in the previous year.
Excluding the impact of foreign currency translation, net sales rose +7% for 2005.
For the full fiscal year, the group reported net earnings from continuing operations of US$406.1 million, up +8% from US$375.4 million in 2004. Diluted earnings per common share from continuing operations for the year rose +10% to US$1.78 from US$1.62 reported in the prior year.
Fiscal year 2005 results included a special tax charge related to the company’s intention to repatriate, in fiscal 2006, US$500 million of extraordinary intercompany dividends under the provisions of The American Jobs Creation Act of 2004 (the “AJCA”). This action resulted in an incremental tax charge, recorded in the fourth quarter, of US$27.5 million, or US$.12 per diluted share.
Excluding the special tax charge, net earnings from continuing operations for fiscal year 2005 increased +16% to US$433.6 million, and diluted earnings per share from continuing operations increased +17% to US$1.90.
Net earnings and diluted earnings per share for the year increased +19% and +20% respectively, compared with the prior year, including discontinued operations.
President and Chief Executive Officer William Lauder commented: “This year we achieved yet another significant milestone by ending the year with sales well over the six billion dollar mark. The strong local currency sales growth we turned in translated into significant bottom line growth, demonstrating our ability to follow through on our commitment to create value for our stockholders. We will continue to manage our company with that commitment foremost in our minds.”
He added: “We are optimistic about the coming year, and we see opportunities to expand our global leadership in prestige beauty. Launches across product categories and regions augur well for us not only in the coming fiscal year but in future years as well, enabling us to optimise the strength of our brand portfolio and leverage our global distribution capabilities.”
FOURTH QUARTER RESULTS
Net sales for the quarter ended 30 June 30 2005, increased +10% to US$1.54 billion, compared with US$1.40 billion in the fourth quarter of fiscal 2004. Excluding the impact of foreign currency translation, net sales increased +8% in the fourth quarter. On a reported basis, net sales in the quarter in skin care and make-up increased +10% and +11%, respectively. Fragrance sales rose +9%, while hair care was up +2%.
Net sales increased in each geographic region, with +13% growth in Europe, the Middle East & Africa, +9% in the Americas and +6% growth in Asia/Pacific. In constant currency, net sales increased in each major product category and geographic region.
The company reported net earnings from continuing operations for the fourth quarter of fiscal year 2005 of US$66.6 million versus US$71.3 million in the same prior-year period.
FULL-YEAR RESULTS BY PRODUCT CATEGORY
Net sales of skin care products for the year increased +10% to US$2.35 billion on a reported basis and rose +7% in local currencies. The higher sales reflected recent launches from Estée Lauder of Future Perfect Anti-Wrinkle Radiance Creme SPF 15 and new products in the Re-Nutriv line and Perfectionist line, such as Perfectionist (CP+).
Strong sales by Clinique of Superdefense Triple Action Moisturizers SPF 25, certain Repairwear products and the 3-Step Skin Care System, and The Lifting Face Serum & The Lifting Intensifier from La Mer also contributed to growth.
The inclusion of the company’s new American Beauty and Good Skin(TM) brands added incremental sales to the skin care category. This increase was partially offset by lower sales of certain existing products.
Make-up net sales for the year rose +13% to US$2.42 billion on a reported basis and increased +11% in local currencies. Solid growth was generated from the combined sales of the company’s make-up artist brands, as well as from Superbalanced Compact Makeup SPF 20 and Colour Surge Eye Shadow from Clinique.
New products such as Lash XL Maximum Length Mascara, Tender Blush, Pure Pops Brush-on Color and AeroMatte Ultralucent Pressed Powder from Estée Lauder contributed to the sales increase. The make-up category also benefited from the inclusion of the company’s new American Beauty and Flirt! brands. Lower sales of certain existing products partially offset these positive results.
Fragrance sales increased +3% to US$1.26 billion on a reported basis and increased slightly in local currencies compared to the prior year. Fragrance sales benefited from the current-year launches of DKNY Be Delicious and DKNY Be Delicious Men, True Star from Tommy Hilfiger, Lauder Beyond Paradise Men and Happy To Be from Clinique.
These increases were partially offset by lower sales of certain Tommy Hilfiger fragrances, Estée Lauder Beyond Paradise, Aramis Life and Clinique Simply.
Operating income improved in skin care, make-up and fragrance due to the net sales growth. Hair care operating income decreased reflecting an increase in operating expenses related to the growth of the business in the USA, as well as the opening of new points of distribution in Korea and Japan, partially offset by increased sales.
FULL-YEAR RESULTS BY GEOGRAPHIC REGION
In the Americas, net sales for the year increased +7% to US$3.38 billion. The increase was due to strong sales from the company’s make-up artist and hair care brands, higher sales from the company’s Aramis and Designer Fragrances business, the inclusion of sales of BeautyBank products, and higher results in Canada, which offset challenges among certain core brands and prior-year launches.
All major product categories in this region had sales growth. Operating income in the Americas increased primarily due to higher sales resulting from an overall improvement in the retail environment, strong product launches and growth from newer brands.
In Europe, the Middle East & Africa, net sales increased +13% from the prior year to US$2.12 billion, and rose +7% in local currency. The company’s travel retail business continued its strong recovery in the current year compared with the prior year.
In constant currency, the company experienced sales growth in most countries, led by travel retail, the UK, Spain and Portugal, partially offset by lower sales in France, Italy and Germany.
Operating profitability increased reflecting higher operating income in the company’s travel retail business, Spain, the UK and Switzerland, partially offset by lower results in France and Russia.
Asia/Pacific net sales grew +8% over the prior year to US$835.5 million. On a local currency basis, this region’s net sales rose +4% led by strong growth in China, Hong Kong and Taiwan. These increases were partially offset by lower sales in Japan and Korea.
Operating profit in the region increased reflecting higher results primarily in Hong Kong, Taiwan, Thailand and Japan, while lower results were reported in Korea and China.
ESTIMATE OF FISCAL 2006 FIRST HALF AND FULL YEAR
Effective 1 July 2005, the company adopted the new accounting rule requiring the expensing of stock based compensation. In accordance with the rule, prior year results have not been restated.
Net earnings guidance for the fiscal 2006 first half and full year includes a charge of US$.10 and slightly more than US$.14 per diluted common share, respectively, to reflect the costs associated with the expensing of stock options.
Full fiscal year 2006 guidance includes an estimated impact of potential store closures and or business disruptions related to the pending merger of Federated Department Stores, Inc. and The May Department Stores Company. The company believes this action may begin late in fiscal 2006, resulting in an estimated impact to reported earnings per share of two to three cents.
Net sales for the first half of fiscal 2006 are expected to grow between +7% and +8% in dollars, including a benefit of approximately 50 basis points due to foreign currency exchange, versus the first half of fiscal 2005. Geographic region net sales growth in constant currency is expected to be led by Europe, the Middle East & Africa, followed by the Americas and Asia/Pacific.
On a product category basis, in constant currency, hair care and make-up are expected to be the leading growth categories, followed by skin care, while fragrance is expected to decline slightly. The company expects diluted earnings per share for the first half to be essentially flat, including the US$.10 impact from expensing stock options.
For fiscal 2006 the company’s reported net sales are expected to grow between +5.5% and +6.5% versus fiscal 2005, with essentially no foreign currency translation impact.
At the same time the company expects to achieve diluted earnings per share of between US$1.95 and US$2.00 for the fiscal 2006 year, which includes the above mentioned US$.17 per share impact from expensing stock options as well as the potential impact of the pending Federated Department Stores, Inc. and The May Department Stores Company merger.
Geographic region net sales growth in constant currency is expected to be led by Asia/Pacific, followed by the Americas and Europe, the Middle East & Africa.
On a product category basis, in constant currency, hair care and mak-eup are expected to be the leading sales growth categories, followed by skin care and fragrance.
MORE STORIES ON THE ESTEE LAUDER COMPANIES
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