Estée Lauder Exceeds Expectations
Earnings Per Share Rise to $.72 before Charges.
The Estée Lauder Companies Inc. yesterday reported net sales for its third quarter ended March 31, 2015 of $2.58 billion, a 1% increase, compared with $2.55 billion in the prior-year quarter. The Company reported a 200 basis-point increase in operating margin, and net earnings for the quarter rose 28% to $272.1 million, compared with$213.2 million last year.
Diluted net earnings per common share increased 30% to $.71, compared with $.54 in the prior year. For the quarter, the negative impact of foreign currency translation on diluted net earnings per common share was $.10. Excluding the impact of foreign currency translation, net sales increased 8% and diluted net earnings per common share rose 49%.
During the fiscal 2015 and 2014 third quarters, the Company recorded remeasurement charges of $5.3 million and $38.3 million, equal to approximately $.01 and $.10 per diluted share, respectively, both before and after tax, related to changes in Venezuelan foreign currency exchange rate mechanisms. The fiscal 2014 third quarter also included adjustments associated with restructuring activities.
Excluding all charges, net earnings for the three months ended March 31, 2015 were $277.4 million, and diluted net earnings per common share rose 12% to $.72, versus $.64 in the prior-year period. Information about GAAP and non-GAAP financial measures, including reconciliation information, is included in this release.
Fabrizio Freda, President and Chief Executive Officer, said, “We posted an excellent third-quarter performance, exceeding our constant currency sales forecast that, combined with disciplined expense management, we leveraged into sharply higher earnings per share. Compelling product innovations, targeted advertising and marketing investments and selective distribution expansion drove double-digit constant currency sales growth in many of our brands.In our fiscal fourth quarter we expect continued strong top-line growth, and plan to increase investment spending to further propel momentum and strengthen our future business. The momentum and agility we have created with the execution of our strategy continues to give us the ability to leverage global opportunities in fast growing areas of prestige beauty, while managing changing market dynamics.”
Net sales and operating income in each of the Company’s product categories were unfavorably impacted by the strength of the U.S. dollar in relation to most currencies. Total operating income in constant currency increased 32%.
- Skin care: net sales decreased due to the negative impact of foreign currency translation and lower sales of significant products that were launched in the prior-year period. Incremental sales were generated from recent launches, such as Advanced Night Repair Eye Synchronized Complex II and Re-Nutriv Ultimate Diamond products from Estée Lauder, as well as the Clinique Smart custom-repair serum and the Clinique Sonic System Purifying Cleansing Brush.
- Makeup:Higher makeup sales primarily reflected strong growth from the Company’s makeup artist brands and the recent launch of Beyond Perfecting foundation and concealer from Clinique. Also contributing was the Pure Color Envy line of lip products and Perfectionist Youth-Infusing Makeup from Estée Lauder. Sales from makeup artist brands benefited from new product offerings, as well as expanded distribution in a number of channels, including freestanding retail stores. Sales in the category also reflect strong double-digit growth from Smashbox and the Tom Ford line of cosmetics.
- Fragrance:sales decreased due to the negative impact of foreign currency translation and lower sales of certain designer, Estée Lauder and Clinique fragrances.Michael Kors and luxury brands Jo Malone London and Tom Ford recorded strong double-digit sales gains as a result of new product launches and expanded distribution. Fragrance operating income increased over 100%, reflecting higher results from the Company’s luxury fragrance brands, as well as lower investment spending in certain brands compared to the prior year, which featured a higher level of launch activity.
- Hair Care:growth benefited from expanded global distribution, primarily in salons and freestanding stores for Aveda and from specialty-multi brand retailers and salons for Bumble and bumble. Hair care net sales growth also reflects the recent launches of Smooth Infusion Naturally Straight by Aveda and the expansion of Bumble and bumble’s Hairdresser’s Invisible Oil line of products. Hair care operating income decreased, primarily reflecting higher investment spending to support new product launches and freestanding store expansion.
Sales in the Company’s online business grew strong double digits. In constant currency, sales grew strongly in Canada and Latin America. Operating income in the Americas declined due to the negative impact of foreign currency translation, higher general and administrative costs, acquisition-related fees and lower sales in heritage brands. These decreases were partially offset by higher results from makeup artist brands and certain hair care and luxury brands and lower charges related to the remeasurement of net monetary assets in Venezuela.
In constant currency, net sales increased in all countries in Europe, the Middle East & Africa. The Company estimates that it continued to outperform prestige beauty in many markets. All countries recorded constant currency growth, led by double-digit gains in the United Kingdom, France and a number of emerging markets, including Russia, the Middle East, Turkey, South Africa and Central Europe. The higher sales in China were primarily from increased sales from certain heritage brands as a result of expanded distribution and new product introductions.
The Company expects to grow ahead of the industry by focusing on fast growing opportunities in product categories, channels and countries. The Company also expects to leverage its strong sales growth and increase its cash flow from operations.
Net sales are forecasted to grow between 3% and 4% in constant currency. Reflecting the strength of the U.S. dollar, foreign currency translation is now expected to negatively impact sales by approximately 5% versus the prior-year period. The impact of the accelerated retailer orders is expected to reduce the fiscal 2015 full year sales by approximately 3%.