Estée Lauder Profits Gain in Q1

Beauty giant sees slower growth for total prestige market this year.

Estée Lauder products.

NEW YORK — The Estée Lauder Cos. Inc. is making the most of slowing growth in the global prestige beauty market.

This story first appeared in the November 2, 2012 issue of WWD.  Subscribe Today.

The beauty giant bested first-quarter profit expectations, but trimmed back the high end of its annual sales projection as weakness in Europe and South Korea weigh on the overall market. The company said sales would grow by 6 percent to 7 percent in local currencies this year. In August, Lauder said sales would grow 6 percent to 8 percent.

Fabrizio Freda, president and chief executive officer, told WWD Thursday that the global prestige market would expand a “reasonable” 3 percent this year, down from growth of 4 percent to 5 percent over the last couple of years. Lauder continues to expect to grow at twice the rate of the overall market, with strength in the U.S. as well as China, where the firm is branching out into secondary and tertiary markets.

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Southern Europe, which is digging out of a debt crisis, continues to be the major thorn in the side of prestige. Freda said the overall market is slowing in Italy, Spain, Switzerland, Greece, Portugal and France, and that Lauder is fighting back.

“In the south of Europe we are selectively investing in some of our winning brands and innovation in order to build market share,” Freda said. “We are growing in almost all of these markets…which means we are building market share.” The ceo predicted the Southern Europe prestige market would begin to grow again in 2014 and 2015.

In the U.S., Freda said the prestige market was welcoming in mass customers, who are trading up to take advantage of higher quality products and better service.

“If you go into a MAC store, you are 99.8 percent sure that you will get a great foundation shade,” the ceo said. “If you are shopping in the supermarket alone, it will be much more difficult to get the right shade.”

First-quarter profits attributable to Lauder increased 7.5 percent to $299.5 million, or 76 cents a diluted share, from $278.6 million, or 70 cents. Adjusted profits of 79 cents a share came in 2 cents ahead of the analysts’ consensus estimate of 77 cents.

Net sales for the quarter ended Sept. 30 rose 2.9 percent to $2.55 billion from $2.48 billion a year earlier.

Lauder now projects full-year earnings per share of $2.47 to $2.56, a slightly narrower range compared with the $2.44 to $2.56 previously forecast.