Robust international sales drive growth at The Estée Lauder Companies - 21/08/08
Published: 21/08/08
Source: ©The Moodie Report
By Rebecca Mann
US. The Estée Lauder Companies has reported net sales of US$7.91 billion for its fiscal year ended 30 June 2008, a +12% increase over the US$7.04 billion reported in the previous year. Excluding the impact of foreign currency translation, net sales rose +8%.
The group reported net earnings for the year of US$473.8 million, compared with US$449.2 million last year. Diluted net earnings per common share for the year rose +11% to US$2.40 compared with US$2.16 reported in the prior year.
Chief Executive Officer William P. Lauder commented: "Our Company delivered strong sales gains and solid double-digit earnings per share growth in both the fourth quarter and full year.
“We effectively managed our business through diverse economic challenges, particularly in the US, by building on the strength of our brand portfolio. Importantly, our strategic investments enabled us to achieve a terrific worldwide performance, highlighted by outstanding double-digit sales and earnings growth from our international operations, where we are continuing to build market share and leverage opportunities in emerging markets.”
He added: "Our plan for fiscal 2009 is to enhance our strategies and initiatives to achieve greater levels of profitable growth. We believe that focusing investments on our high-growth brands, promising distribution channels and international markets will enable us to meet that goal.
“It is clear that our greatest strengths lie in our brands and in our employees; they are a highly effective combination that provide our consumers with the hallmark products and services that have made our Company a global leader in luxury beauty."
FOURTH QUARTER RESULTS
For the three months ended 30 June 2008, the Company reported net sales of US$2.01 billion, a strong +14% increase from US$1.76 billion in the fourth quarter of fiscal 2007. Excluding the impact of foreign currency translation, net sales rose +9%.
On a reported basis, as well as in constant currency, net sales increased in each product category and geographic region.
The Company reported an outstanding +36% increase in net earnings for the fourth quarter of US$120.2 million, versus US$88.6 million last year. Diluted net earnings per common share also increased +36% to US$.61, compared with US$.45 reported in the same prior-year period.
In the fourth quarter of fiscal 2007, the Company increased its investment spending to drive growth, acquire market share and expand geographically, especially in key international markets.
FULL YEAR RESULTS
For fiscal 2008, on a reported basis, as well as in constant currency, sales increased in all product categories within each of the Company's geographic regions.
- Skin Care As a percentage, skin care sales growth was strongest in the Asia/Pacific region, owing to new whitening products and higher sales in Greater China.
In addition to sales growth from certain existing products, the skin care category benefited from strong worldwide incremental sales of recent products, such as Idealist Pore Minimizing Skin Refinisher and Cyber White EX by Estée Lauder, and Acne Solutions Clear Skin System and Redness Solutions from Clinique.
The category's growth reflected double-digit gains from the Company's La Mer brand, due in part to the momentum from the recent launch of The Eye Concentrate.
Operating income rose, primarily reflecting improved results internationally. The overall operating results in this category were adversely impacted in the prior year by expenses related to the Company's pharmacy channel business.
- Make-up The make-up category posted solid double-digit sales growth internationally and a single-digit increase in the Americas. Double-digit growth in the Company's makeup artist brands contributed more than 65% of the incremental sales.
The strong gains in the make-up artist brands were generated by solid product performances, additional market and door expansion, and new freestanding retail stores. Also contributing to the growth were incremental sales from the recent launches of Estée Lauder Signature Hydra Lustre Lipstick and Supermoisture Makeup from Clinique.
Operating income increased, primarily reflecting strong international growth, partially offset by lower results in the US from certain of the Company's core brands, as well as costs related to the establishment of new points of distribution for the MAC brand.
Additionally, make-up operating income reflects a valuation reserve for the impairment of certain financial instruments in connection with the divestiture of the Stila brand in fiscal 2006.
- Fragrance In absolute dollars, fragrance sales growth was strongest in the Company's European region, primarily driven by newer fragrance offerings, followed by gains in Asia/Pacific and the Americas.
Fragrance sales were tempered by the soft retail environment in the US. While current year sales compared favourably to the prior year, the Company continues to face challenges in this product category, primarily in the US.
Contributing to the sales growth were products such as Sean John Unforgivable Woman, Dreaming Tommy Hilfiger, DKNY Be Delicious and Estée Lauder Pure White Linen Light Breeze.
Operating income in the fragrance category increased, reflecting higher international growth from certain core brands as well as improved results from some of the Company's developing brands. These positives were partially offset by lower results from the Company's designer fragrance business, due to incremental spending in support of new product launches as well as existing fragrances.
- The Americas Sales growth reflected overall gains in Canada and Latin America, as well as the inclusion of the Ojon brand. Gains were also achieved in the US from the Company's make-up artist and hair care brands, and internet distribution.
These increases were partially offset by lower sales from certain of the Company's core brands. The Company believes the soft retail environment in the US during the year, particularly in the department store channel, as well as competitive pressures, negatively impacted certain of the Company's brands. These challenges have been mitigated through sales in alternative channels, such as freestanding retail stores, the internet, self-select distribution and direct-response television.
Operating income in the Americas declined versus the prior-year period, primarily reflecting a difficult retail environment coupled with the investments and higher intangible asset amortization related to the Company's hair care business previously mentioned.
Operating results also reflected higher costs of global information technology systems and infrastructure. In addition, the Company established new points of distribution for existing brands, incurred costs to streamline certain business activities to generate future efficiencies, and recorded a charge for the impairment of certain financial instruments mentioned above.
- Europe, the Middle East & Africa In constant currency, net sales increased sharply in virtually all countries in the region. The higher sales were led by double-digit growth in the Company's travel retail business and the UK, as well as strong gains in France, Germany and Italy.
Strong double-digit sales increases were also achieved in certain emerging markets, including Russia and Eastern Europe.
Operating income increased, primarily due to improved results in travel retail, the UK, Italy, the Balkans and Spain. Partially offsetting these increases were lower results in Russia and India, reflecting spending to support market expansion in these emerging countries.
The overall operating results in this region were adversely impacted in the prior year by expenses related to the Company's pharmacy channel business.
- Asia/Pacific This region generated significant constant currency sales growth with every country posting increases. Strong double-digit growth was generated in China, Hong Kong, Korea and Malaysia.
Japan, the Company's largest Asian market, continued to improve with sales rising mid-single digits. In China, the Company's largest emerging Asian market, most of the Company's brands recorded double-digit retail sales growth, including strong like-door growth.
Operating income in the region increased substantially, with all countries experiencing profit growth for the year. Improved results were led by Japan, Hong Kong, China, Australia and Korea.
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