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Estée Lauder profits up but sales held back by Europe

By Simon Pitman , 02-Nov-2012

Estée Lauder reported good sales growth in all regions except for Europe, where economic problems mean consumers are having to cut back on their spending.

The company reported that sales increased by 3 per cent to $2.55bn (Euros1.97bn), a figure that represented an increase of 6 per cent when discounting the negative impact of foreign currency translations.

The company said that sales were below expectations worldwide, but were particularly disappointing in Western Europe, while also stressing the fact that comparisons were complicated by the fact that loca currency sales increased by 14 per cent in the corresponding period for the previous year.

Net profits continue to show healthy growth

However, the results pleased the financial result on account of the fact that net profits rose by 8 per cdent to $299.5m, a figure that included a $0.4m charge related to restructuring.

“Our first quarter results demonstrate the solid fundamentals underlying our business and I am pleased and encouraged with our performance even in softer markets. Organic sales growth for the quarter was in line with our expectations, while earnings per share were better than planned," said Fabrizio Freda, CEO/

"In particular, strong growth in North America and China drove our sales gains and, when coupled with cost of sales improvements and effective expense management, we generated a significant operating margin increase."   

Hair care leads the way but fragrance suffers

Sales growth of 10 per cent to $113.9m made hair care the leading category, with the performance attributed mainly to the Aveda brand, following the launch of a two new lines, Invati and Pure Abundance Style Prep.

The mainstay skin care category showed an increase of 4 per cent to $1.13bn, which the company said was particularly healthy in view of the fact that sales for the category had grown by 25 per cent in the corresponding period last year.

Fragrance was the only category to show negative sales growth, down 3 per cent to $347.8m. a performance that was mainly impacted by lower sales of DKNY Golden Delicious, Estée Lauder Sensuous Nude and Coach Poppy Flower.

Europe struggles, as The Americas and Asia strengthen

In Asia Pacific sales were up 6 per cent to $542.5m, an increase of 7 per cent when facting in the negative impact of currency translations.

The company said that the performance was particularly strong in China, Hong Kong and Thailand, where the increases were primarily attributable to new consumers and increased distribution in tier two and three cities.

However, the performance in the Asia Pacific region was also held back by South Korea, where the combination of economic challenges, on top of an accutely competitive market, held the performance back.

Looking ahead the company said that it expects to see the situation in South Korea to continue to be challenging, with prestige beauty being particularly hard hit.

In the Americas, the performance was particular strong, with sales growing by 7 per cent to $1.18bn on the back of strong sales in the United States, whereas the picture in Europe, Middle East and Africa was less positive, with sales falling 4 per cent to $824.9m on account of lower consumer spend in Western Europe.

Looking ahead... 

"We are very mindful of the uncertain market dynamics in several countries and of the solid growth in others, but we are judicious in our resource allocation to maximize our results in this dynamic market situation," said Freda.

"We are confident that we have developed the necessary agility to manage our business effectively. We expect that we will grow our sales 6 to 7% in local currency this fiscal year, or double the rate of global prestige beauty, while raising the lower end of our earnings per share range.”

The company is forecasting that revenues for the second quarter will increase at between 6 and 7 per cent in constant currencies.