Lauder Remains Confident Despite Difficult Landscape

Last week, the Estee Lauder Cos. Inc. addressed the gloomy economic climate at its annual shareholder meeting.

NEW YORK — Under the blue-sky-painted ceiling of the St. Regis Roof Ballroom, the Estée Lauder Cos. Inc. addressed the gloomy economic climate outside, and reaffirmed its confidence in the beauty firm’s ability to weather tougher days ahead.

This story first appeared in the November 10, 2008 issue of WWD.  Subscribe Today.

At the company’s annual meeting with shareholders Friday morning, an energetic and mirthful Leonard A. Lauder, the company’s chairman, championed the strategy being drafted by his son, William P. Lauder, chief executive officer, and president and chief operating officer Fabrizio Freda, who joined the company in March.

“Leading the company through the current downturn is a real challenge, but they have addressed it with vigor,” said Lauder, noting that he was a child of The Great Depression. “I saw how my parents struggled and made it….Lauder as a company has gone through a number of recessions only to emerge stronger and more powerful.” He added, “I hope you will share my confidence in management. I know they will make it work.”

The beauty firm, which has continued to grow its presence overseas and in channels outside of U.S. department stores, ended fiscal 2008 on solid footing, said William Lauder.

For the full year, the company’s earnings increased 5.5 percent to $473.8 million, or $2.40 a diluted share, on a 12.4 percent rise in sales to $7.91 billion. Over the last five years, the company has increasingly set its sights abroad, growing its international business from 46 percent of total revenue to 59 percent today. William Lauder said the firm’s sales in emerging markets rose 35 percent in fiscal 2008, and that emerging markets now account for 9 percent of company sales.

In addition to expanding abroad, the company continued to look to alternative distribution channels, creating a cosmetics line for TV retailer HSN called Eyes by Design, introducing the professional-grade Clinique Medical line to dermatologists’ offices and opening more single-brand, stand-alone stores for brands like Bobbi Brown, MAC Cosmetics and Jo Malone. William Lauder noted that the company now has more than 575 freestanding stores. Online retailing also proved to be a bright spot, growing 40 percent for the year on a virtual network of 16 branded sites.

“We are a multinational, multichannel, multibrand company,” said William Lauder, adding that, together, the company’s 29 brands represent one-fifth of the $40 billion global prestige beauty business.

But the kickoff to fiscal 2009 has been rockier, as consumers pull back spending and avoid stores, emboldened by a steady stream of negative financial news. The company, as its peers also have stated, began to see sales soften in mid-September. The company plans to reduce spending by 2 to 3 percent in fiscal 2009. A number of the belt-tightening efforts include hiring freezes and reductions in travel, nonessential marketing spending and the cost of goods and distribution.

“Our mission is to create sustainable, profitable growth,” William Lauder told shareholders. During the meeting, shareholders voted in favor of all three provisions presented — namely, the election of directors, the company’s executive annual incentive plan and KPMG LLC as independent auditors — and posed a number of consumer-centric questions to management.

Leonard Lauder, whose tenure at the company hit the 50-year mark in February, prompted several attendees to lean forward in their seats when he said, “This may be the last time I’m standing up here [as chairman]” given that change is constantly afloat. “They may move me up into the greater good, but I’m having fun.”

After the meeting, he quipped that he plans to work full time at the company until the age of 97.