The Estée Lauder Cos. Inc. reported a dip in earnings for its second fiscal quarter.
Earnings for the period were $428 million, compared with $447 million year-over-year. Net sales, however, were up 3 percent, to $3.21 billion from $3.12 billion in the year-ago period. Diluted net earnings per share, including restructuring charges, were $1.15, down from $1.19 year-over-year.
Lauder recorded $41 million in restructuring charges for the quarter from its Leading Beauty Forward plan, under which it plans to free up financial resources to reinvest in new training, development and organization models. The three-year plan, unveiled in May, is expected to result in $600 million to $700 million in restructuring and other charges and eliminate 900 to 1,200 jobs, about 2.5 percent of the workforce. For its second quarter, Lauder also recorded $19 million in charges related to updating its global technology infrastructure, it said.
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By segment, fragrance was the fastest-growing category for the quarter — up 6 percent to $497 million from $470 million in the prior-year period. Jo Malone, Tom Ford, Le Labo and Frédéric Malle all posted double-digit gains, according to the company. The category was also boosted from incremental sales of By Kilian, which Lauder bought in 2016. The category saw lower sales of certain Estée Lauder and designer fragrances.
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Makeup sales were up 4 percent, to $1.3 billion from $1.25 billion year-over-year. Tom Ford posted double-digit gains in every region, and Estée Lauder, La Mer and Smashbox also had sales increases. The category was also boosted by incremental sales from Becca and Too Faced, Lauder said. Makeup sales were offset by lower sales at Clinique, which Lauder said was affected by a poorly timed gift-with-purchase program, and MAC, which saw gains excluding the effects of foreign currency, but otherwise declined. MAC has been hurt by slow foot traffic in U.S. midtier department stores and fewer tourists shopping at its freestanding stores. Internationally, the brand is experiencing higher sales, according to the company.
Skin-care sales inched up 1 percent, to $1.25 billion from $1.23 billion in the year-ago period. Sales were boosted by double-digit gains in every region for La Mer. The Estée Lauder brand also saw strong sales of its Advanced Night Repair Intensive Recovery Ampoules and Revitalizing Supreme+, with double-digit gains in travel retail. Glamglow also saw double-digit sales growth. Those gains were offset by lower skin-care sales at Clinique and Origins. Clinique was affected by lower sales in the Asia-Pacific region specifically.
Hair-care sales declined 8 percent, to $137 million from $149 million. Lauder said the numbers were affected by a difficult comparison to Aveda launches in the year-ago period, but that the brand is launching initiatives later in the fiscal year.
“Our second-quarter sales growth accelerated as planned, reflecting the benefits of our portfolio diversity by brand, channel, product category and country,” said Lauder chief executive officer Fabrizio Freda. “Our small, midsized and luxury brands continued to lead growth, contributing strong sales increases and recent acquisitions added incremental sales. Additionally, among our large brands, Estée Lauder and MAC each grew in constant currency. We achieved strong double-digit growth in our most profitable channels including travel retail, online and specialty-multi. Sales growth accelerated in most product categories and every geographic region in constant currency. We have strategically invested in these growth engines to produce strong results, as well as position us for continued future success. For the quarter, our profits were higher than expected, reflecting our ability to leverage sales growth and manage expenses.
“During the quarter, we completed the acquisitions of Becca and Too Faced. We are excited by the opportunities these fast-growing brands bring to our company,” Freda continued. “Both brands complement our makeup portfolio, which is the fastest-growing category in prestige beauty, and strengthen our position in the specialty-multi retail channel globally. We have ample room to expand their consumer reach.
“We expect sales and profit growth to further accelerate in the second half of our fiscal year, due largely to strong product innovation, increased consumer coverage and improving trends in certain brands and markets. We plan to make targeted investments throughout the balance of the fiscal year to support and grow our brands,” he added.
Lauder is projecting constant-currency sales growth of 6 to 7 percent, including 1 percent in incremental sales from the acquisition of Too Faced, with constant-currency EPS gains between 8 and 9 percent.