Estée Lauder Cos. reported a net sales increase of 3 percent to $3.1 billion for the second quarter, up from $3 billion in the prior-year quarter. The company’s net earnings increased 2 percent to $446.2 million, with diluted net earnings per share up 5 percent to $1.19.
Excluding the impacts of foreign currency, Lauder’s net sales increased 8 percent and earnings per share rose 15 percent. Net earnings per share were negatively affected by 11 cents because of foreign currency translation. The company’s stock was trading up more than 2 percent in midday trading, to $88.97.
Skin care posted $1.2 billion in net sales for the three months ended Dec. 31, down 3 percent from $1.3 billion year-over-year. Makeup posted a 6 percent increase in net sales, bringing in about $1.3 billion in the quarter from about $1.2 billion in the year-ago period. Fragrance was also up, growing sales 7 percent in the quarter to $470.6 million from $439.7 million in the prior-year quarter. Hair care grew 9 percent for the quarter, to $149 million from $137.1 million in the year-ago period.
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For the six months ended Dec. 31, Lauder posted $6 billion in net sales, a 5 percent increase from $5.7 billion in the year-ago period. Net earnings were $755.5 million, up 14 percent from $663.8 million year-over-year, and diluted net earnings per share increased 17 percent to $2, compared with $1.71 in the prior-year period.
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Lauder grew sales by 27 percent in emerging markets, not including China, and 9 percent in China, on a constant-currency basis, according to chief executive officer Fabrizio Freda. “In most emerging markets we have a very high market share of the existing prestige cosmetics business in that market,” Freda told WWD. “Out strategy is more to grow the prestige market in each emerging market, on top of growing our market share there.”
The strategy often includes starting with entry price point brands — so Clinique and MAC in Brazil, for example — and then layering on additional brands from there. In Asia, skin care comes first. “In the Asia markets, where skin care is the first category for conversion from mass to prestige, we normally start with the Estée Lauder brand,” Freda says. “For the long-term the priority is not going to be to enter new markets because we are in all of these markets. The priority is going to be to develop the prestige markets.”
In the second fiscal quarter, net sales in the Asia-Pacific region were flat, at $629.4 million. Lauder said it plans to be particularly cautious in Hong Kong going forward because a reduction in tourism from China is negatively impacting business for the Estée Lauder, Clinique and La Mer brands. Lauder grew online business in China by 80 percent in the quarter, Freda said.
Sales growth in North America, which was up 2 percent year-over-year to $1.23 billion from $1.2 billion, was driven by gains at Smashbox, Tom Ford, Jo Malone and Aveda. Clinique posted gains in makeup and fragrance, and Estée Lauder grew skin care. MAC sales rose in Brazil and in Mexico because of expanded distribution. The net sales growth also included incremental sales from acquisitions made during fiscal 2015.
Lauder posted a 5 percent net sales gain to $1.3 billion from $1.2 billion in Europe, the Middle East and Africa, driven by sales in the U.K., Germany, Italy, Russia, Turkey and the Middle East.
Aside from growing emerging markets, Lauder is focused on connecting with the Millennial consumer. The company is set to launch a new makeup collection, the Estée Edit by Estée Lauder, at Sephora in March in connection with Kendall Jenner and beauty blogger Irene Kim, in a move that targets Millennials.
“All of our brands without exception are speaking actively to Millennials and engaging with them at different levels,” Freda said. One of those levels is social media, which is key for MAC, Smashbox, Origins and Clinique, which developed a blog called the Wink that features beauty tips and a lifestyle section.
The company is expecting its efforts to pay off, and is forecasting a net sales increase in the third quarter of 2 to 3 percent year-over-year. Foreign currency translation is expected to negatively impact sales by 4 percent, but on a constant-currency basis sales are forecast to increase 6 to 7 percent. Lauder expects recent acquisitions to add 70 basis points to overall sales growth in the third quarter.
For fiscal 2016, the company estimates net sales will increase 4 to 5 percent year-over-year, and that foreign currency translation will negatively impact sales by 5 percent. On a constant-currency basis, net sales are forecast to grow between 9 and 10 percent. Diluted net earnings per share are projected to be between $2.98 and $3.05. Acquisitions are expected to add 50 basis points to overall sales growth.
Lauder added Rodin olio lusso, Le Labo, Editions de Parfums Frédéric Malle and Glamglow in fiscal 2015. In October, the business invested in the owner of Korean skin-care brand Dr. Jart+. Lauder, as usual, is watching the market for potential deals. “We’ll continue to look at the market and decide based on opportunities…acquisition for us is an ongoing strategy,” Freda said.
Estée Lauder Cos. reported a net sales increase of 3 percent to $3.1 billion for the second quarter, up from $3 billion in the prior-year quarter. The company’s net earnings increased 2 percent to $446.2 million, with diluted net earnings per share up 5 percent to $1.19.
Excluding the impacts of foreign currency, Lauder’s net sales increased 8 percent and earnings per share rose 15 percent. Net earnings per share were negatively affected by 11 cents because of foreign currency translation.
“Our strong constant-currency sales growth reflects our ability to effectively anticipate key consumer and market trends, including greater demand for products in the fast-growing prestige makeup category and luxury beauty tier, and the importance of a strong and growing online presence,” said Fabrizio Freda, president and chief executive officer, in a statement.
“We expect to continue to outperform global prestige beauty and we are raising the bottom of our full fiscal year constant-currency sales growth estimate to between 7 percent and 8 percent,” Freda said.
Skin care posted $1.2 billion in net sales for the three months ended Dec. 31, down 3 percent from $1.3 billion year-over-year. Makeup posted a 6 percent increase in net sales, bringing in about $1.3 billion in the quarter from about $1.2 billion in the year-ago period. Fragrance was also up, growing sales 7 percent in the quarter to $470.6 million from $439.7 million in the prior-year quarter. Hair care grew 9 percent for the quarter, to $149 million from $137.1 million in the year-ago period.
The company is set to launch a new makeup collection, the Estée Edit by Estée Lauder, at Sephora in March in connection with Kendall Jenner and beauty blogger Irene Kim, in a move that targets Millennials.