US. The Estée Lauder Companies has reported net sales of US$1.50 billion for its first fiscal quarter ended 30 September, compared with US$1.49 billion in the prior year.
Excluding the impact of foreign currency translation, net sales decreased slightly.
In the US, sales for the quarter in each product category were tempered by weakness at certain retailers, lower sales from autumn promotional programmes and, to a lesser extent, the closure of stores in the Southern region caused by severe weather conditions. General consumer response to higher energy costs was also cited as a factor.
The group reported net earnings from continuing operations of US$61.8 million, compared with US$95.7 million last year. Diluted earnings per common share from continuing operations for the quarter were US$.28 compared with US$.41 reported in the prior year.
Accordingly, the group has confirmed it is accelerating several actions as part of its strategic imperatives to further support its long-term financial objectives.
As part of this plan to increase its return on investment and profitability, Lauder will sell its Stila brand, which was acquired in 1999. Accordingly, Stila is being accounted for as a discontinued operation.
Other make-up artist brands, such as MAC and Bobbi Brown, are described as “well positioned to meet the Company’s strategic objectives”.
As part of its ongoing cost discipline, Lauder has identified additional savings opportunities that it expects to realize in fiscal 2006. Those savings include streamlined process and organizational changes in line with its brand portfolio management objectives, and aggressive reduction of indirect procurement and non-critical spending.
These initiatives are expected to deliver between US$40 and US$45 million in incremental savings in the current fiscal year ending 30 June 2006, and improve the company’s profitability going forward.
President and Chief Executive Officer William Lauder commented: “This quarter we faced several challenges that resulted in flat net sales and lower earnings. Some of these challenges were external in nature while others stem from company-specific issues which we are addressing.
“I am optimistic that the programmes we have in place for the remainder of the fiscal year, along with the immediate actions we are taking, lay the groundwork for further strengthening our leadership position and continuing our record of solid growth.
“As we focus our resources on the greatest opportunities for growth, I expect our performance to improve during the balance of the fiscal year and that we will be well positioned to achieve our revised full year financial objectives.”
RESULTS BY PRODUCT CATEGORY
Net sales of skin care products for the quarter were relatively unchanged on a reported basis at US$523.4 million, compared with the prior period, and declined -1% in local currencies. In last year’s first quarter, skin care net sales grew +13%.
Skin care benefited from higher sales from new or recent launches by Estée Lauder in the Perfectionist line, such as Perfectionist (CP+), Superdefense Triple Action Moisturizers SPF 25 by Clinique and Modern Friction by Origins. Net sales also reflected a lower performance of certain existing products such as Future Perfect Anti-Wrinkle Radiance Creme SPF 15 and the White Light line of products by Estée Lauder as well as Active White Lab Solutions skin care products from Clinique.
Make-up net sales for the quarter rose +3% to US$604.9 million on a reported basis and increased +3% in local currencies. This category was up against a difficult comparison to the prior-year quarter which grew +23% and reflected major new product launches.
Growth was generated from the company’s MAC brand, as well as from new or recently launched products like Repairwear Anti-Aging Makeup SPF 15 and Colour Surge Butter Shine Lipstick from Clinique, and Individualist Natural Finish Makeup from Estée Lauder.
Lower sales of certain existing products like Superbalanced Compact Makeup SPF 20 from Clinique and Lash XL Maximum Length Mascara by Estée Lauder partially offset these positive results.
The fragrance category continues to be challenging. Net sales in the quarter on a reported basis decreased -6% to US$293.2 million compared with the prior period and declined -6% in local currencies. Fragrance sales benefited from the continued success of DKNY Be Delicious and the recent launches of True Star Men from Tommy Hilfiger and DKNY Be Delicious Men.
These increases were more than offset by lower sales of certain Tommy Hilfiger fragrances, Estée Lauder Beyond Paradise and Lauder Beyond Paradise Men.
RESULTS BY GEOGRAPHIC REGION
In the Americas, net sales for the quarter were relatively unchanged at US$881.0 million. Net sales benefited from the success of new and certain existing products, primarily in the make-up and hair care categories, and growth from most developing brands. These results were offset by the timing of planned product launches for later in the fiscal year, lower fragrance sales, weakness at certain retailers, and lower sales from promotional programmes in our core Estée Lauder and Clinique brands, which continue to be challenged.
To a lesser extent, the current quarter was also negatively impacted by the closure of stores in the Southern part of the US, which were caused by severe weather conditions, as well as the general consumer response to higher energy costs.
In Europe, the Middle East & Africa, net sales decreased -1% from the prior-year period to US$417.5 million, and declined -1% in local currency. This region was up against a difficult comparison to the prior-year quarter which grew +29%.
In constant currency, the lower sales were led in Spain, the UK, Italy and Austria. Sales in certain markets in this region were also adversely impacted by temporary disruptions due to the transition to a new regional inventory centre in Belgium. The logistical issues associated with this centre have been addressed and the company expects it to be operating as originally planned by the end of its fiscal second quarter.
Partially offsetting these results were higher sales in Germany and the company’s travel retail and distributor businesses.
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Asia/Pacific net sales grew +5% over the prior-year quarter to US$198.6 million. On a local currency basis, this region’s net sales rose +2%, led by double-digit increases in China and Hong Kong.
These increases were partially offset by lower sales in Japan, Thailand and Korea. Operating profit in the region decreased, reflecting lower results in Hong Kong, Taiwan, Malaysia and Thailand, as well as China, where we continue to invest in new brand expansion and business opportunities, partially offset by improved results in Australia.
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