By  on April 27, 2010

The Estee Lauder Cos. Inc., which more than doubled profits in the third quarter, aims to encourage consumers to return to luxury with an aggressive increase in marketing spending in the fourth quarter.

The bolstered marketing efforts come on the heels of a solid quarter. In the three months ended March 31, the company reported profits of $57.5 million, or 28 cents a share, compared with $27.2 million, or 14 cents a share a year ago.

Sales in the quarter increased 9.4 percent to $1.86 billion from $1.70 billion in the prior-year period. Shares Tuesday closed at $67.06, down $2.92, or 4.2 percent, in New York Stock Exchange trading.

“We believe consumers are beginning to reconsider luxury products,” president and chief executive officer Fabrizio Freda told analysts during the company’s earnings call Tuesday.

Lauder will increase marketing spending, which includes advertising, in-store merchandising and product sampling, by 35 percent in the fourth quarter. It’s on track to spend $100 million more by year’s end than in 2009, with most of the additional spending coming in the second half of its fiscal year.

To manage for recovery, Freda told WWD the company will continue to focus on “fewer, bigger initiatives concentrated on our most important brands, opportunities, regions and specific beauty concerns.”

He named Clinique’s Even Better Clinical Dark Spot Corrector as an example of the latter. Clinique, he said, “is our biggest brand and it’s the biggest global [beauty] concern: hyperpigmentation. We are investing a lot of money behind it.... Well-managed launches will be a driver of recovery.”

He added the company will continue to improve its high-touch service model, applying findings from Clinique’s overhauled counter at Bloomingdale’s 59th Street store in New York and from European pharmacies, where Lauder is designing smaller assortments by trimming underperforming stockkeeping units and focusing on bestsellers. The company also plans to retain its financial discipline. “The companies that go back to old habits will lose market share. We will keep these learnings with us,” said Freda.

To that end, during the quarter the company cut $140 million in costs and said it expects to achieve $300 million to $330 million in cost savings for the fiscal year.

During the quarter, the company said it saw sales growth in all product categories and across all geographic regions.

By category, the company’s skin care sales gained 15.6 percent on a reported basis to $819.8 million; fragrance sales increased 18.7 percent to $222.8 million; hair care grew 6.1 percent to $96.1 million, and makeup ticked up 2.3 percent to $710.8 million. Freda said in some cases other Lauder brands have assumed department store counters left vacant by when the Prescriptives brand was withdrawn from stores in January.

By region, Lauder’s sales in the Americas gained 3.1 percent on a reported basis to $829.1 million. In Europe, the Middle East and Africa, sales increased 13.5 percent to $662 million, and sales in Asia-Pacific rose 20.3 percent to $371.1 million. Lauder sells nine brands in China, most recently introducing Origins to the market. Freda said, “China, over time, will probably have many of our most significant brands….We will gradually build up the pyramid,” focusing on skin care makeup first. Fragrance, which is a smaller business in China, will expand more slowly, he said.

Lauder also plans to grow through acquisition.

“We’ve always said [mergers and acquisitions] are part of our strategy,” Freda told WWD, adding the company will pursue opportunities that widen its reach by category, distribution channel and in geographic scope. “Skin care and Asia are our priorities, but we also will look more broadly,” said Freda.

For fiscal 2010, Lauder forecasted net sales growth between 4 percent and 5 percent in constant currency.

Freda said, “We fully expect to capture a growing share of the growing pie [of beauty sales]. We are a growth company.”

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