The Estée Lauder Companies Inc (ELC) today reported net sales for its fiscal second quarter, ended December 31, 2013 of $3.02bn, a 3% increase compared with $2.93bn, year-on-year.

 

The Company’s net sales growth in travel retail primarily reflected a stronger retail environment for the Company’s products, particularly luxury brands, an increase in global airline passenger traffic and expanded distribution.

 

According to Lauder, comparisons between the current fiscal year and the prior year second quarters were affected by the accelerated sales orders shifted into the Company’s fiscal 2013 second quarter from its third quarter in advance of the Company’s January 2013 implementation of SAP [as part of its Strategic Modernization Initiative (SMI)].

 

For the six months ended December 31, 2013, the Company reported net sales of $5.69bn, a 4% increase from $5.48bn in the comparable prior-year period.

 

As previously reported, ELC broke through the $10bn net sales barrier in its fiscal 2013 (ending June), while net earnings also broke through $1bn for the first time.

 

FIERCE RIVALS

Estée Lauder’s fiercest rival, the L’Oréal Group, reported €5.45bn (US$7.4bn) in sales for the third quarter of the calendar year (to September 2013) and $15.4bn in sales for H1 2013.

 

Fabrizio Freda, President and Chief Executive Officer [left], said: “Our fiscal second quarter sales growth was in line with our expectations, despite softer than expected markets in some geographies.

 

“Key drivers of our sales gains in the quarter were the United States and the United Kingdom, our luxury and makeup artist brands, and online and travel retail channels. These factors and continued strength overall in emerging markets more than compensated for soft results in certain European countries and solid but slowing Chinese market growth.

 

“With half of our year behind us, we are narrowing our full fiscal year sales estimate to 6% to 7% in local currency, reflecting softening in some key markets.”

 

 

Skincare

Lauder says that the skin care category is a ‘strategic priority’ and the Company is ‘well positioned’ to capitalise on its innovative products. The Company gained share during the quarter in this category in certain countries where its products are sold.

 

Lauder says sales reflect the recent launches of the Company’s new Advanced Night Repair Synchronized Recovery Complex II from Estée Lauder and Dramatically Different Moisturizing Lotion + from Clinique.

 

Continued strong growth from the Company’s luxury skin care brand, La Mer, was more than offset by lower sales of certain heritage brand products that were launched in the prior-year period.

 

Operating income declined, including the shift, because of increased investment spending behind recent major product launches.

 

Makeup

In Q2, higher makeup sales primarily reflected growth from the Company’s makeup artist brands, certain product offerings from Estée Lauder and the recent launch of All About Shadow from Clinique. Increased sales from Smashbox and the Tom Ford line of cosmetics also contributed to the category’s growth.

 

Fragrances

For the second quarter fragrance sales increases were generated from the recent launches of Estée Lauder Modern Muse and the Michael Kors Fragrance Collection.

 

Higher fragrance sales were also generated from luxury brands Jo Malone, including its new Peony and Blush Suede fragrance, and Tom Ford.

 

Fragrance operating income decreased, as higher holiday marketing investments behind new launches were partially offset by the success and profitable progress of certain luxury brands.

 

 

Americas

Net sales in the United States increased in Q2, reflecting growth from certain of the Company’s makeup artist and luxury brands, partially offset by declines at certain heritage brands. Sales of the Company’s online business grew double digits.

 

Double-digit sales growth was recorded in Latin America, due, in part, to price increases in Venezuela as a result of rising inflation. Net sales in Canada declined.

 

Operating income in the Americas rose, reflecting the increased sales and a more measured approach to spending.

 

Europe, the Middle East & Africa

Net sales increased in each product category and in the majority of countries in the region for the fiscal second quarter of trading . The Company estimates that it continued to outperform prestige beauty in many markets.

 

The net sales increase was led by double-digit growth in a number of areas, including the Company’s travel retail business, Russia, South Africa, Turkey and Israel, and high-single-digit growth in the United Kingdom.

 

Lower net sales in Switzerland, the Nordic countries and France were due, in part, to the accelerated retailer orders, as previously mentioned.

 

Asia/Pacific

Net sales decreased in the region, primarily reflecting lower local currency sales in China, Taiwan and Korea, in Q2. The Company’s strongest local currency growth was generated in Australia, Japan, Hong Kong and the Philippines.

 

Net sales in China included sales to new consumers in expanded distribution in tier three cities and new skin care product launches.

 

The lower sales in Korea reflected continuing difficult economic conditions and competitive pressures. The Company expects to see continued weakness in prestige beauty in Korea, albeit at a more moderate pace.

 

The Company estimates that it gained share in certain countries, including China, within its points of distribution during the quarter.

 

In Asia/Pacific, operating income declined, with China, Hong Kong and Taiwan reporting double-digit decreases, primarily reflecting the impact from the accelerated retailer orders. Lower operating results were also posted in Japan and Thailand, partially offset by higher results in Korea and Australia.