The luxury consumer has at least one true believer.
Fabrizio Freda, president and chief executive officer of the Estée Lauder Cos. Inc., said that even though the well-heeled aren’t spending like its 2006 or 2007, they have regained their verve.
That plays right into Lauder’s sweet spot in the prestige market, where a bet that more advertising would rouse shoppers paid off with a stronger-than-expected 35.8 percent rise in first-quarter profits.
“The luxury consumer is back to normal,” the ceo told WWD. “They are not anymore in panic mode. They are going back to normal behaviors. They still pay a lot of attention to value and their choices.”
Lauder is also seeing mass-market shoppers trade up.
“In some of these new launches, like Clinique Even Better Clinical [Dark Spot Corrector], where we have customer data, where we know who is buying the product, we know that consumers who previously were buying in mass are now purchasing Clinique for the first time,” Freda said.
The brand has been promoted though a multipronged ad campaign including print, digital, TV and public relations efforts. Although the company is investing more in advertising, total advertising and promotional spending has not increased relative to sales. Instead the funds are shifting away from gifts and samples.
Freda is relatively bullish on the holiday season, but sounded a note of caution that continued high unemployment could weigh on business in early 2011.
Earnings attributable to the beauty firm shot up to $191.1 million, or 95 cents a diluted share, from $140.7 million, or 71 cents, a year earlier. Sales for the quarter ended Sept. 30 rose 14.1 percent to $2.09 billion from $1.83 billion.
Adjusted profits of 97 cents a share came in 20 cents ahead of analyst estimates.
For the full year, Lauder boosted profit projections to $2.90 to $3.10 a share, up from the $2.62 to $2.90 predicted in August.
Investors liked what they saw and sent Lauder’s stock up $6.76, or 10.5 percent, to $71.17. Shares hit a new 52-week high of $74.31 in intraday trading before coming off their peak.
It appears that Lauder played its cards better than Avon Products Inc. and Revlon Inc., both of which fell short of quarterly profit expectations last week and partially blamed increased investments in advertising.