The Estée Lauder Companies has reported third quarter net sales (to March 31) of $2.55bn – an 11% rise compared with $2.29bn last year.
Discounting foreign exchange impacts, ELC said net sales rose by 12%, alongside a 270 basis-point increase in operating margin and a net earnings increase of 19% to $213.2m, compared with $178.8m last year.
Specific references to ELC’s travel retail business in the Europe, the Middle East & Africa division noted high-single digit travel retail sales, which ELC says were primarily achieved thanks to higher sales from the company’s luxury brands, an increase in global airline passenger traffic and expanded distribution.
On the domestic front, operating income increased, as higher results from the UK, Switzerland, France and Russia was balanced by lower operating results in Spain and certain Eastern European countries. Special mention was also made in general reference to travel real progress by the Aveda hair care brand.
Fabrizio Freda, President and CEO.
Fabrizio Freda, President and CEO (shown here) commented: “Our excellent results this quarter reflect our multiple engines of growth across product categories, countries and channels, enabling us to achieve strong local currency sales growth in every geographic region.
“Sales came in higher than our expectations and we again exceeded our earnings per share forecast. These results were driven by the broad global demand for our diverse prestige beauty brands, the strength of our emerging markets, accelerated growth in certain developed markets and solid progress in skin care.”
ELC reported an extraordinary exchange rate rebalancing following changes made by the Venezuelan Government to its currency exchange rate regulations.
This complicated exercise resulted in ELC being obliged to record a remeasurement charge of $38.3m, both before and after tax, equal to approximately $10 per diluted share.
The Tom Ford full-line store inside the DFS T Galleria in Waikiki, Hawaii.
Excluding charges, principally related to the Venezuela remeasurement, net earnings for the three months ended March 31, 2014 were $251.7m and diluted net earnings per common share were $64, versus $45 in the prior-year period.
Additionally, comparisons between the current and prior year third quarters were affected by the acceleration of $94m in sales shifted into the Company’s fiscal 2013 second quarter in advance of the January 2013 implementation of SAP as part of its Strategic Modernization Initiative (SMI).
This amounted to approximately $78m in operating income, equal to approximately $13 per diluted common share.
ELC makes the point that excluding the impact of the shift, the Venezuela remeasurement charge and restructuring activities, net sales in local currency and operating income for the three months would have risen by 8% and 18% respectively.
“Our outlook for the balance of the year remains positive and we expect to achieve our financial objectives,” said Freda said.
“We continue to forecast local currency sales growth of 6% to 7%, and we are raising our earnings per share guidance to $2.86 to $2.90, before charges and the effect of potential accelerated sales orders relating to our SMI go-live in July 2014.
The stunning looking Jo Malone store at Dubai Duty Free Terminal 2.
“Driving this performance will be new and recent product offerings across categories, particularly in skin care and makeup. For the remainder of the fiscal year we also expect our growth will continue to be fuelled by our success in high-growth channels and emerging markets, while enhancing our local relevance.
“Importantly, our mid-size brands continue to grow faster than the average, increasing their contribution to the company’s sales and profitability, while strengthening our portfolio.
“We are flexible in our investment spending, targeting opportunities that provide the highest returns, promote demand for our brands and foster global growth.
“At the same time, we are improving operating leverage and eliminating non-value added costs to further improve operating margins and profitability.”
ELC adds that the change in net sales and operating income for the quarter was favourably impacted by the prior year shift in orders from certain retailers, due to the company’s implementation of SAP several product categories.
Ever enduring: Clinique is one of the major players in the Lauder portfolio.
SKIN CARE GAINS SHARE
ELC said the strategically important skin care segment gained share during the quarter and the company believes it is well positioned to capitalise on its strong pipeline of innovative products.
It added that sales reflect the recent launches of the new Advanced Night Repair Synchronized Recovery Complex II and Micro Essence Skin Activating Treatment Lotion from Estée Lauder and Dramatically Different Moisturizing Lotion + and Even Better Essence Lotion from Clinique.
Sales from the reformulated Repairwear Laser Focus by Clinique and continued strong growth from luxury skin care brand La Mer also contributed to growth.
Interestingly, operating income increased sharply, including the shift, primarily reflecting higher-margin product launches from some of ELC’s heritage brands, as well as increased results from higher-end prestige skin care products.
Estée Lauder announced it was buying Smashbox back in May 2010.
STRONG MAKEUP PROGRESS
Higher makeup sales primarily reflected strong growth from ELC’s makeup artist brands and from recent launches, such as Pure Color Envy Sculpting Lipstick from Estée Lauder and All About Shadow from Clinique.
Sales from makeup artist brands benefited from new product offerings, as well as expanded distribution in line with ELC’s retail store strategy. Increased sales from Smashbox and the Tom Ford line of cosmetics also contributed to the category’s growth.
The increase in makeup operating income primarily reflected improved performance from the makeup artist brands due to the higher sales, and certain heritage brands.
LUXURY LED FRAGRANCES…
In fragrance, strong sales growth was achieved by luxury brands Tom Ford and Jo Malone. Sales gains were also generated from the recent launches of Estée Lauder Modern Muse, Tory Burch and the Michael Kors Fragrance Collection.
The fragrance operating loss nevertheless increased, due to the Venezuela remeasurement charge. Operating results also reflected higher net sales from recent launches, partially offset by higher investment spending.
Estée Lauder, Clinique and Lab Series clustered together at the Dongwha Duty Free downtown store in Seoul earlier this year.
SALES BY REGION
Meanwhile, the change in net sales and operating income in the company’s geographic regions was favourably impacted by the prior year shift in orders from certain retailers as previously mentioned.
This was as follows: Net sales: the Americas, approximately $29m; Europe, the Middle East & Africa, approximately $15m; and Asia/Pacific, approximately $50m.
Operating income: the Americas, approximately $23m; Europe, the Middle East & Africa, approximately $12m; and Asia/Pacific, approximately $43m.
Excluding the impact of the shift in orders, ELC says that reported net sales in the Americas, Europe, the Middle East & Africa and Asia/Pacific would have increased 5%, 11% and 2%, respectively.
At the same time, operating income in the Americas, Europe, the Middle East & Africa and Asia/Pacific would have increased/(decreased) 22%, 7% and (13)%, respectively.
Bobbi Brown and Estée Lauder in the Lotte Duty Free downtown flagship Store in Seoul, South Korea.
AMERICAS BUSINESS RISES
Net sales in the United States increased, reflecting growth from ELC’s makeup artist and luxury brands and certain heritage brands. Sales also increased in Latin America and Canada. Sales of the company’s online business grew double digits.
Operating income in the Americas also rose, reflecting the increased sales and ‘a more measured approach to spending’. Additionally, operating income in the region reflects the charge of $38.3m in the current-year period to remeasure net monetary assets in Venezuela.
EUROPE, THE MIDDLE EAST & AFRICA
In constant currency, net sales increased in each major product category and in virtually all countries in the region. ELC estimates that it continued to outperform the overall prestige beauty market in many markets.
The net sales increase was led by double-digit growth in a number of areas, including the UK, Germany, Switzerland, Turkey, France and Russia. Net sales growth in Switzerland and France were due, in part, to the accelerated retailer orders [as previously mentioned-Ed]. ELC adds that certain European countries continued to experience soft retail environments.
In travel retail, sales increased in the high-single digits, primarily reflecting the aforementioned higher sales from ELC’s luxury brands, an increase in global airline passenger traffic and expanded distribution.
Origins, as seen at Lotte Duty Free’s downtown Seoul flagship store recently.
Operating income also increased, as higher results from the UK, Switzerland, France and Russia were partially offset by lower operating results in Spain and certain Eastern European countries.
IMPORTANT ASIA PACIFIC GAINS…
In Asia, ELC said that constant currency net sales increased in the majority of countries in the region. The strongest growth was generated in China, Japan, Hong Kong, Taiwan and Australia.
The sales increase in China, Hong Kong and Taiwan reflected the shift in retailer orders. Sales were lower in Thailand, Korea and the Philippines. ELC estimates that it gained share in certain countries within its points of distribution during the quarter.
In Asia/Pacific, operating income increased, led by China, Japan, Korea and Taiwan. Results in China and Taiwan primarily reflect the impact from the accelerated retailer orders. Lower operating results were posted in Hong Kong and the Philippines.
ELC +6% TO $8.24BN IN 9M
Taking the results for the full nine months ended March 31, 2014, ELC reported net sales of $8.24bn, a 6% increase from $7.77bn in the comparable prior-year period.
Excluding the impact of foreign currency translation, net sales increased 7%. Net sales also grew in each of ELC’s geographic regions and product categories.
Estée Lauder’s Modern Muse, as seen at DFS’ inaugural Masters of Fragrances event in Abu Dhabi last month.
The company reported net earnings of $946.4m for the nine months ended March 31, 2014, a 2% increase compared with $925.8m in the same period last year. Diluted net earnings per common share for the period increased by 2% to $2.40, compared with $2.35 reported in the prior-year period.
[This fiscal 2014 nine-month result included the aforementioned Venezuelan remeasurement charge of $38.3m-Ed].
THE 2014 OUTLOOK
Looking forward, ELC is positive: “The Company expects global prestige beauty to grow approximately 3% to 4%, tempered by continued softness in certain European countries and Korea, and slower near-term growth in China and the United States.
“The Company expects to further improve its gross and operating margins by leveraging its strong sales growth and continuing to reduce non-value-added costs.
“Net sales are forecasted to grow between 6% and 7% in constant currency. Foreign currency translation is expected to negatively impact sales by approximately 1% versus the prior-year period.
“Diluted net earnings per common share, including the charge related to the Venezuela remeasurement and the effect of potential accelerated retailer orders, are projected between $2.90 to $2.97.
[TOP IMAGE: ELC’s luxury skin care brand La Mer also contributed to growth – shown here at the DFS T Galleria in Waikiki].
[PHOTO Credits: DFS; David Hayes, TRBusiness ©].