The Estée Lauder Companies today reported net sales of US$2.68 billion for its first quarter ended 30 September 2013, a rise of +5% compared with the US$2.55 billion achieved in the prior-year quarter. Excluding the impact of foreign currency translation, net sales increased +6%.
Net earnings for the quarter were US$300.7 million, compared with US$299.5 million last year. Diluted net earnings per common share were US$.76 – flat with the prior year.
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President and CEO Fabrizio Freda commented: “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 programmes.
“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.”
He added: “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 programmes.
“For the full fiscal year, we continue to expect to grow sales +6% to +8% in local currency, which is double our global prestige beauty estimate, and we are revising our earnings per share estimate to US$2.80 to US$2.87, after taking up the bottom of the range.”
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Net sales growth during the quarter was particularly strong for the group’s luxury and MAC brands, online and travel retail channels and overall in emerging markets. Many developed countries also reported solid gains.
Freda further underlined the strong performance of the group’s travel retail division during an earnings call with analysts. “Our retail sales growth [in travel retail] was more than twice the rate of passenger traffic growth,” he confirmed. “We saw a significant spike in Asia, most notably in Thailand, Japan and China, due in part to an increase in Chinese travellers. Our recent skin care innovations are selling well and our travel retail business should benefit from the addition of [our] new fragrances.”
Freda added: “As part of the ongoing efforts to expand our brand presence in this profitable channel, we opened 27 doors in the recent period. We also invested in expanding our global network of freestanding stores, having opened approximately 20 new ones this quarter, nearly all in international markets.”
He concluded: “Our retail in travel retail was +13% growth; our net sales were +9%…driven by time of launch of many initiatives such as Advanced Night Repair and Dramatically Different Moisturizing Lotion. So our travel retail business is growing double-digit and we forecast [that will continue] in the next quarters.”
In addition, the Lauder group said it had made further progress on its strategic goals and realised a solid improvement in cost of sales. As planned, the group increased global advertising spending versus the prior-year quarter to support its biggest innovations and existing products.
Skin care (+5%), described as a strategic priority for the group, gained share during the quarter. In particular, the company highlighted the performance of the new Estée Lauder Advanced Night Repair Synchronized Recovery Complex II, Advanced Night Repair Eye Serum Infusion and Clinique’s new Dramatically Different Moisturizing Lotion +. Luxury brand La Mer also contributed to sales growth.
Higher make-up sales (+4%) reflected strong growth in the group’s make-up artist brands and the recent launch of All About Shadow from Clinique. Smashbox and Tom Ford cosmetics also performed well.
The +6% increase in fragrance sales was attributed to the recent launches of Estée Lauder’s Modern Muse, Zegna Uomo and Michael Kors Sexy Amber. Again, Tom Ford and luxury brand Jo Malone delivered a positive performance.
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By region, net sales in the Americas increased moderately (+2%) although double-digit sales growth was recorded in Latin America. Europe, the Middle East & Africa grew by +8%, led by high-single-digit growth in the group’s travel retail business, and double-digit growth in the UK and Switzerland.
The net sales growth in travel retail reflected a “stronger retail environment for the Company’s products, particularly luxury brands”, the group noted. An increase in global airline passenger traffic was also acknowledged.
In Asia/Pacific (+7%), every country posted net sales increases except Korea, where Lauder expects to see continued weakness in prestige beauty. The group’s strongest local currency growth was generated in China, Hong Kong and Taiwan – each posting double-digit increases.
Results in China included sales to new customers in expanded distribution in tier two, three and four cities, and new skin care launches, the group confirmed.
Looking ahead to the second quarter and full year, the group continues to expect global prestige beauty to rise around +3-4%, tempered by continued weakness in certain southern European countries and Korea.
