By  on February 4, 2008

The Estée Lauder Cos. Inc.'s global sprawl helped shield the beauty firm — which reported a 7.7 percent increase in second-quarter profits Friday — from a weakening U.S. market.

The beauty firm is also expanding its presence in alternative channels. During a conference call with analysts Friday, Lynne Greene, global president of Clinique, said that Clinique will launch on QVC on Feb. 17. The brand's senior vice president of product development, Janet Pardo, will serve as Clinique's QVC pitchwoman. Greene noted that television shopping channels yielded $600 million in sales in 2006, and are growing at a rate of about 16 percent annually. The deal with QVC comes on the heels of Clinique's partnership with Allergan to create a specialized line of Clinique-branded products, which is slated to launch in doctors' offices this fall.

Referring to Clinique's entry into the professional channel and upcoming premiere on the small screen, Bear Stearns analyst Justin Hott said, "I like the places that Lauder is taking its brands. Lauder is thinking about the health of the business, not its legacy." Hott added that despite economic challenges, the firm's moves underscore that there are ample ideas for growth in the business.

Following the call, president and chief executive officer William P. Lauder said, "The strength of our business will continue to come from our brands outside North America." The company generates 53 percent of its sales outside North America.

International sales and a shift in the U.S. retail calendar increased net earnings in the quarter ended Dec. 31, by 7.7 to $224.4 million, or $1.14 a diluted share, from $208.4 million, or 99 cents, in the year-ago period. Sales climbed 16 percent to $2.31 billion from $1.99 billion a year earlier.

For the first half, the company's net earnings dipped 1.2 percent to $263.5 million, or $1.34 a diluted share, compared with $266.7 million, or $1.25, in the year-ago period, on sales that gained 12.1 percent to $4.02 billion from $3.58 billion.

On the environmental front, the company took steps to offset its carbon footprint. As of Dec. 1, the company's global operations division had entered into multiple agreements to ensure that all of the electricity it utilizes is generated from green sources.Lauder said the company now ranks 21st on the U.S. Environmental Protection Agency's list of Fortune 500 companies in alternative power usage. "The wind, hydro and solar power we are purchasing annually equates to a carbon dioxide reduction of over 35,000 tons, about the amount produced by driving 67 million miles," he noted.

The company, as did Elizabeth Arden Inc. on Thursday, noted that overall U.S. holiday sales were disappointing, particularly in department stores, the company's primary channel of distribution. Lauder said the company's total U.S. department store sales for the quarter declined 2.5 percent, but were offset somewhat by strong sales growth in other channels, including freestanding stores and the Internet.

"We believe as many observers do that the turmoil in the housing sector, higher oil and gas prices, an erratic stock market and constant talk about a possible recession will contribute to soft retail sales in the U.S. for the balance of our fiscal year," Lauder told analysts. "While we are also seeing pockets of softness in certain foreign countries, we believe our international business overall will remain solid, more than compensating for slowing domestic growth."

By region, second-quarter sales in the Americas rose 8.9 percent to $1.03 billion primarily due to the change in the U.S. retail calendar that shifted $40 million in shipments into the quarter, which partially offset a tough holiday season in department stores.

In Europe, the Middle East and Africa sales gained 22.5 percent to $933.2 million, led by the firm's travel retail business, and in Asia-Pacific, sales climbed 21.7 percent to $347.4 million with China, Hong Kong, Australia and Korea each posting double-digit increases.

By category, makeup sales gained 15.4 percent to $827.3 million, led by the shift in the U.S. retail calendar; skin care sales rose 18.6 percent to $831.2 million boosted by new launches, including Clinique's Acne Solutions Clear Skin System and double-digit gains from the La Mer brand; fragrance sales increased 11.9 percent to $520.5 million, and hair care sales gained 17.6 percent to $110.4 million.

In a move to slow the turnover of Clinique sales associates, Greene said last fall the brand implemented a test program in more than 70 doors, where Clinique's consultants were given expanded educational programs that offered them the opportunity for additional compensation. She reported that at test sites, sales growth was higher than the year ago period, and consultant turnover was reduced by a quarter. Greene said Clinique expects to expand the program during the coming 12 months.When asked if certain price tiers are more recession proof, Lauder, referring to high-end department stores, said, "The upper-end has been doing far better, but we're starting to see that consumer is struggling also." He added that while department stores struggle, momentum continues to gain in alternative channels, including the Internet, where the company is seeing double-digit increases across most of its sites.

The company is gearing up to welcome Fabrizio Freda, former president of the Global Snacks division of Procter & Gamble, on March 3 to the post of president and chief operating officer. The firm expects to name him ceo within 24 months.

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