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Estée Lauder Q2 results show big jump in sales and net profit

By Simon Pitman , 05-Feb-2013

Luxury fragrance and cosmetic provider Estée Lauder has posted strong second quarter results, with all business categories and geographies reporting healthy gains, but the figures are skewed by advanced orders.

The company said that net sales increased 7 percent to $2.93bn, compared to $2.74bn in the corresponding period last year, a figure that was not impacted by foreign currency translations.

However, it was noted that a small portion of the sales in the second quarter, approximately $120m, was accounted for by advance orders associated with the company’s new SAP implementation, which is due to be introduced in the current quarter.

These figures, partly combined to give an increase of approximately 5 percent in net sales and approximately 2 percent in operating income, which the company said was still better than its forecast.

Softness in South Korea and Southern Europe

The net sales for the period also reflected a 10 percent increase in local currency revenues from international markets, and came despite what the company described as ‘softness’ in both the Southern European countries and South Korea.

The company’s profitability also rose significantly, beating its own forecast for the quarter, with operating margins up 50-basis-points, while net earnings for the period rose by 13 percent to $447.5m.

“These results demonstrate our ability to continue to grow, on top of the double-digit trends we generated in the prior year, even in the face of macro-economic headwinds and challenges in certain international countries,” said Fabrizio Freda, president and CEO.

“Organic sales growth for the quarter was in line with our expectations, while earnings per share exceeded our forecast.”

Skin care leads the way

Of the four principle business units, skin care showed the biggest gains, with sales during the quarter rising by 10 percent to reach $1.28bn, which the fragrance division had the smallest gain, with sales for the period up 4 percent to $458.8m.

The company noted that the recent launches of Perfectionist CP+R, Advanced Time Zone, Advanced Night Recovery Eye Serum Infusion and the Optimizer line of products, as well as higher sales of Advanced Night Repair Synchronized Recovery Complex had all helped to push skin care sales.

On a regional basis, the biggest gains were seen in the company’s smallest market, Asia Pacific, where reported sales were up 11 percent during the period to $687.6m. The smallest gain was seen in the Europe, Middle East & Africa market, where weak economic conditions in Europe pinned back sales growth to 4 percent, at $1.10bn.

Outlook for full financial year

Looking ahead, the company believes that its restructuring program will be a key driver behind efficiencies, while the pipeline of new innovations should lead to continued growth in the second half of the financial year.

“We expect continued solid growth in the U.S., many emerging markets and e-commerce and improving trends in travel retail. For the full fiscal year, we are re-affirming our sales growth forecast of between 6 percent and 7 percent in local currency, while raising our earnings per share guidance,” said Fabrizio.