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Estée Lauder Plans to Outpace Market in Year Ahead

The beauty firm grew sales 10.3 percent in fiscal 2012, double the rate of the prestige market, and it plans to keep up the pace.

The Estée Lauder Cos. Inc. aims to leave its prestige beauty peers in the dust, and continue to grow faster than the overall market this year.

This story first appeared in the August 15, 2012 issue of WWD.  Subscribe Today.

The beauty firm grew sales 10.3 percent in fiscal 2012, double the rate of the prestige market. Lauder plans to keep up the pace in the year ahead: The company’s sales are forecasted to increase between 6 and 8 percent, ahead of projected market growth of 3 to 4 percent, according to the company.

“We have been growing double [the pace] of the industry and faster than our competition,” Lauder’s president and chief executive officer Fabrizio Freda told WWD. “We are focused on being the fastest-growing company.” To do that — along with offsetting the impact of any uncertainty in international markets — Lauder is working to identify the most promising areas across categories, consumer segments and countries and retail channels, said Freda. On the channel front, Lauder, a longtime staunch supporter of department stores, is strengthening its ties with Sephora. For instance, this fall the company will test its flagship Estée Lauder brand, a venerable symbol of the prestige market, at 25 Sephora doors in North America.

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A number of Lauder’s peers have had a tough go of it lately — ranging from leadership changes at Coty Inc. and Avon Products Inc., to intense scrutiny from Wall Street on top management at Procter & Gamble Co., and acquisition rumors circling Clarins.

Asked how Lauder has managed to avoid the fray, Freda said, “Success is a beautiful motivator to make an organization happy and focused. Success is acting as a group.”

The motivational tool seems to have worked.

Lauder reported on Tuesday that fourth-quarter net earnings attributable to the company gained 24.6 percent to $51.2 million, or 13 cents a diluted share, compared with $41.1 million, or 10 cents a share. Sales for the three months ended June 30 rose 9.3 percent to $2.25 billion, compared with $2.06 billion in the prior year.

For the year, net earnings attributable to the company gained 22.3 percent to $856.9 million, or $2.16 a diluted share, up from $700.8 million, or $1.74 a share. Sales increased 10.3 percent to $9.71 billion. The company once again increased its long-term operating margin target, raising it to 15.5 to 16 percent by fiscal 2015, up from 14.5 to 15 percent by fiscal 2014.

The news sent Lauder’s share price up 9.3 percent to close at $60.13 on the New York Stock Exchange Tuesday.

The company continued to pursue its strategy of focusing on fewer, more impactful new product launches. Lauder also continued to dial up advertising levels for the third year in a row. The company spent $2.5 billion on advertising in 2012, or 25.3 percent of sales.

“We will continue to increase advertising overall,” said Freda, adding the company will invest more across magazines, digital and TV in 2013. He said Lauder’s increased use of digital and TV advertising has allowed it to reach a broader base of consumers and therefore woo shoppers from the mass market to its brands, particularly Clinique, Estée Lauder and MAC Cosmetics. TV spots behind Clinique Even Better Clinical, according to Freda, have had “a huge impact in attracting people from mass to prestige.” And ads for Clinique Chubby Stick have helped to keep that trend going. During the company’s earnings call with Wall Street analysts, Freda said, “We continue to source business from mass.” To underscore his point, he noted that, for the second year in a row, the prestige sector is growing at a faster clip than mass-market beauty.

Freda said the company will continue to focus on skin care and Asia, but at the same time ramp up makeup innovation and prestige hair care. “We want to give power to every part of the portfolio and grow broadly in every part of the world,” he said. At the same time, Lauder is outpacing its cost-cutting plans. It ended the year by amassing a total of $708 million in cost savings since the strategy began in 2009. By the end of fiscal 2013, it plans to have generated $760 million to $785 million in savings, up from its original projection of $450 million to $550 million.