Travel retail boosts Estée Lauder’s record $11bn annual result

By Kevin Rozario |

Double-digit sales growth in the duty free and travel retail channel helped Estée Lauder Companies (ELC) achieve total annual sales of $10.97bn in fiscal 2014 (ended June).

 

DF&TR outstripped the +8% overall increase at the US-based beauty house. Fabrizio Freda (below), President and CEO of ELC, says: “Fiscal 2014 was another outstanding year for our company. We achieved record results across many metrics, including sales, operating margin, earnings per share and operating cash flow.

 

“Our emerging markets, make-up and luxury brands, and our online, freestanding store and travel retail channels led our growth.”

 

ELC claims that its top line growth was nearly double that of prestige beauty and was broad-based across regions, product categories and channels.

 

BY REGION

Based on reported revenue (not constant currency) the Europe, Middle East & Africa region grew fastest at +11% [the only region in double-digits] with sales now topping $4bn (at $4.164bn) and closing in on the Americas which generated $4.572bn (see chart below and click to enlarge).

 

EMEA – in which division Lauder’s DF&TR business resides – is estimated by ELC to be outperforming prestige beauty in many markets.

 

In DF&TR, sales increased by double digits “primarily reflecting higher sales from new launch initiatives, an increase in global airline passenger traffic and expanded distribution, as well as the impact of accelerated retailer orders” says the company. Excluding the accelerated retailer orders, travel retail sales increased in high single digits.

 

 

There was also double-digit growth in a number of other areas including the UK and emerging markets such asTurkey and Central Europe, while solid gains were generated in Germany and France. However, ELC notes that “certain European countries continued to experience soft retail environments”.

 

Sales from travel retail and the UK also drove operating income (+15% for the region) but these were partially offset by lower operating results in France and the Middle East. Nevertheless, EMEA now generates almost $1bn ($938.3m) in operating income.

 

In the Americas, sales growth hit +6% due to growth from make-up artist and luxury brands and certain heritage and designer fragrance brands that reflected new product introductions. The increase was helped by the expansion of Smashbox at speciality multi-brand retailers and department stores, plus expansion into new retail channels by certain hair care brands.

 

Asia Pacific grew by +5% (at constant currency it was +9%). Net sales rose in every country in the region, except Korea with the strongest double-digit growth coming from China, Japan, Hong Kong and Singapore, while Australia achieved high-single digit gains.

 

BY PRODUCT CATEGORY

Among the +$1bn categories of skincare, make-up and fragrance, reported growth was fairly even at +7%, +9% and +9% respectively (see chart below and click to enlarge).

 

Sales gains in skincare reflected launches such as Advanced Night Repair Synchronized Recovery Complex II and Micro Essence Skin Activating Treatment Lotion from Estée Lauder, as well as higher sales from its Nutritious line.

 

 

Recent launches from Clinique, such as Dramatically Different Moisturizing Lotion+ and Even Better Essence Lotion, along with the reformulated Repairwear Laser Focus and initial shipments of Clinique Smart Custom-Repair Serum, contributed to the growth. Higher sales from La Mer also helped.

 

In make-up there were double-digit sales increases from Smashbox and the Tom Ford line of cosmetics (right) while in fragrance there was strong double-digit growth from Tom Ford again, and Jo Malone. Gains were also made by Estée Lauder’s Modern Muse, the Michael Kors Collection and Tory Burch.

 

However, fragrance operating income declined by -13% mainly due to higher investment spending behind major launches.

 

OUTLOOK FOR FISCAL 2015

In fiscal 2015, ELC estimates growth at a much lower level than in fiscal 2014. The company expects the global prestige beauty market will grow approximately +3% to +4% and it believes it can stay slightly ahead of that “by bringing highly innovative products to market and focusing on the fastest growing countries, product categories and channels”.

 

ELC also notes that some retailers [including some in the DF&TR channel] accelerated their sales orders in connection with the company’s rollout of the last major wave of SMI in July 2014 in certain of its locations.

 

While these additional orders benefited fiscal 2014 results, the company expects there to be a corresponding adverse effect on its first quarter and full-year fiscal 2015 results and it has taken this into account in its outlook.

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