Shares of The Estée Lauder Cos. Inc. hit a new 52-week high after the company posted third-quarter earnings results that beat Wall Street’s estimates.

This story first appeared in the May 3, 2013 issue of WWD.  Subscribe Today.

For the three months ended March 31, net income rose 37.1 percent to $178.8 million, or 45 cents a diluted share, from $130.4 million, or 33 cents, a year ago. Excluding restructuring charges, net income rose 19 percent to $177.8 million, or diluted EPS of 45 cents, in the quarter, compared with 35 cents in the year-ago period. The results were ahead of management’s guidance range of 28 cents to 38 cents and ahead of Wall Street’s expectations of 34 cents. Net sales rose 1.9 percent to $2.29 billion from $2.45 billion.

For the nine months, net income rose 14.9 percent to $925.8 million on a 4.2 percent sales gain to $7.77 billion.

Investors liked the results as shares of Lauder rose 2.6 percent to close at $70.60. The stock hit a high of $71.78 in intraday trading.


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By category, hair-care sales rose 8 percent to $362 million. Makeup was second at 5 percent to $2.93 billion, with skin care third, up 4.6 percent to $3.41 billion. Fragrance inched up 1 percent to $1.04 billion.

Fabrizio Freda, president and chief executive officer, told analysts during a conference call, “With most of fiscal 2013 now behind us, we are confident we can achieve double-digit earnings per share growth for the fourth year in a row.”

The company raised EPS guidance, before charges, to $2.56 to $2.61 from earlier projections of $2.51 to $2.59 in February, when it reported second-quarter results.

As expected, due to global economies, sales grew in emerging markets and were softer in some parts of Southern Europe and South Korea. Still, prestige beauty remains a top category that continues to outperform, particularly in Italy, Spain and Greece. By region, sales in Asia-Pacific rose 6.5 percent to $1.69 billion, while sales in the Americas gained 5.1 percent to $3.31 billion. Sales in Europe, the Middle East and Africa grew 1.8 percent to $2.78 percent.

In an interview, Freda spoke of the continued growth opportunities in China.

“Affordable luxury, which includes high-quality cosmetics, is an affordable expense compared to hard luxury,” he said, noting that this should continue due to the growth of the middle class in China.

Consumers there are still superinterested in skin care, the “most important category for women in Asia,” the ceo said. He added that now there’s also growing interest in the fragrance category, which wasn’t the case two years ago.

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Freda explained that Chinese consumers are just starting to learn about fragrance as they begin to adopt some of the Western consumer preferences. The male consumer in particular represents a strong market for the company. Like their female counterparts, men are interested in skin-care routines, much more so than their peers in other geographic regions. “Men’s skin care is a growing category in Asia, I believe men will also start using fragrances,” Freda said.

Freda noted that while Korea remains the biggest prestige market by percentage, it’s seeing competition from local brands that, while mass in distribution, are garnering the attention of many consumers who are trading down due to the recession there.

Ivan Fernandez, president of Europe, the Middle East and Africa region, noted in the telephone interview that in Latin America overall and particularly in Brazil, the “fastest growing brand is MAC.” By category, makeup is growing the fastest in the region, with particular emphasis on eye and lip color. Another growth category is fragrance, Fernandez said.