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Estée Lauder Profits Jump 15.4% in Q2

The company said second-quarter sales grew 9.9 percent.

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The Estée Lauder Cos. Inc. is training a wary eye on Europe and China while pursuing its ever-more customer-centric strategy.

This story first appeared in the February 6, 2012 issue of WWD.  Subscribe Today.

In reporting a 15.4 percent increase in second-quarter profits and releasing third-quarter guidance, Lauder said it anticipated a slowdown in the rate of sales growth in Western Europe and in China — a statement that sent its shares down 2.3 percent.

Lauder is increasingly in a position to tailor its assortment to gain customers wherever they might be geographically.

Fabrizio Freda, Lauder’s president and chief executive officer, said in a telephone interview that technology has impacted how the company operates by enabling it to drill down on information that helps it understand customers by geographic region and shopping patterns. It’s all part of a change in the firm’s planning methodology that was featured in Lauder’s four-year strategic plan, which was implemented in 2009.

One example of how the fine-tuning in logistics has boosted sales is in the travel retail category.

According to Freda, “We have a clear understanding of how many Chinese shop in certain places, whether a MAC store in Times Square or the Galeries Lafayette in Paris. We know when they show. We have a clear calendar of the tourist movement….”

Freda explained that with that enhanced knowledge, the firm can plan its product offering so that it’s tailored to the clientele. He noted that Brazilian shoppers often buy MAC eyewear products. So where there is a heavy concentration of Brazilian tourism during any given part of the year, wherever that may be, the firm will have a higher inventory of eyewear products to cater to that shopper as well as have sales associates present who speak Brazilian Portuguese. In addition, marketing materials such as brochures and displays would also be in the language native to the tourist.

In another example, Freda said: “If we know when a lot of Chinese will be traveling, [then] before that period we will advertise certain products [in their home region] and then sell it wherever they are traveling to.”

The company also coordinates advertising and sales flow throughout the travel process to ensure multiple points of contact from where travelers leave to the different stopovers to the ultimate destination, according to the ceo.

Looking ahead, Freda said the firm “always looks at acquisitions” around the world, and would consider making a move when the right opportunity comes up. For now, he emphasized that there is no indication or likelihood of one on the horizon. “Our focus is on [ensuring] our brands continue to grow,” he said.

In the short term, however, the ongoing financial woes in the Euro zone and slower China growth are expected to impact Lauder.

The company projected diluted earnings per share of between 28 cents to 32 cents, excluding restructuring charges, compared with analysts’ consensus expectations of 41 cents.

For the three months ended Dec. 31, earnings attributed to Lauder were $396.7 million, or $1 a diluted share, from $343.9 million, or 86 cents, a year ago. The results include pre-tax charges of $6.1 million for restructuring activities. Per share data has been adjusted to reflect the firm’s two-for-one common stock split last month.

Sales in the quarter grew 10 percent to $2.74 billion from $2.49 billion. While the most volume in the quarter was still from the Americas, with Europe, the Middle East and Africa a close second, the rate of growth skyrocketed in the Asia/Pacific region by 21 percent.

Freda said during the investor call, “Our terrific performance was broad-based across geographies, categories and brands.…Spending by affluent consumers remained buoyant this quarter, particularly for the kind of affordable luxuries that we offer. Sales of our higher-end brands including La Mer, Bobbi Brown, Jo Malone and Tom Ford enjoyed sharp double-digit growth globally.”

He also noted the firm’s increases in advertising expenditures, which will be ramped up in the third quarter to coincide with major launches as well as for continued support of existing franchises. One introduction Freda noted is the new skin care product from the Estée Lauder brand developed for the European market called Revitalizing Supreme Global Anti-Aging Creme. The new product is based on “exclusive technology” and consumer research on what European women want in a multitasking cream, Freda said.

Given the firm’s first-half performance to date and reflecting on positive momentum expected for the full fiscal year, the company increased its local currency sales forecast to between 9 and 10 percent, as well as revised its diluted earnings per share up to $2.16 to $2.23, before restructuring charges. The previous guidance was between $2.12 and $2.23. The diluted EPS range reflects the two-for-one common stock split last month.

Shares of Lauder closed down at $57.48 in trading Friday.

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