By  on May 7, 2008

The Estée Lauder Cos. Inc. continues to set its sights abroad, as strong international sales bolstered the firm's third-quarter sales, despite sluggishness in the U.S., which resulted in a dip in profits.

The firm plans to ratchet up spending in key international markets, including Europe and Asia, said chief executive William P. Lauder.

"We will overallocate resources to these faster growing markets," Lauder told WWD. "We are going to spend money where we can get the biggest return."

Hampered by the spending pullback of cash-strapped consumers in the U.S., net income for the three months ended March 31 fell 4 percent to $90.1 million, or 46 cents a diluted share, compared with $93.9 million, or 45 cents a share, a year earlier.

Third-quarter sales gained 11.2 percent to $1.88 billion from $1.69 billion.

For the first nine months, the company's net earnings dipped 1.9 percent to $353.6 million, or $1.80 a diluted share, from $360.6 million, or $1.71 a share, a year earlier, on sales that gained 11.8 percent to $5.9 billion from $5.28 billion.

The Estée Lauder Cos.' earnings call on Tuesday was the first for Fabrizio Freda, the former president of the Global Snacks Division of Procter & Gamble Co., who joined Lauder in March as president and chief operating officer with the understanding that he will move up to ceo within two years.

Freda has spent his first few months at the company on a whirlwind, global listening and learning tour. His visits with retailers, company employees and customers have included stops across the U.S., and in Russia, Asia, the Middle East and Europe, said a company spokeswoman.

Speaking to analysts on Tuesday, Freda said, "In the first few months, I am observing, listening and learning as much as possible, as fast as possible. I am working to understand how our strengths can be leveraged and how to address our key opportunities."

Freda went on to outline his initial five areas of focus. They include: putting the customer first and surpassing customer expectations; leveraging creativity and innovation; strengthening the firm's financial discipline, addressing underperforming businesses and benchmarking internationally and externally; continuing to drive the firm's strategic modernization initiative that is already under way, and, lastly, to accelerate growth in traditional prestige channels and new, fast-growing ones."I understand that the challenges we face in the United States are substantial," acknowledged Freda. "That said, with the strengths of our company, I'm confident we can overcome them. Our brand portfolio is like no other, with strong consumer recognition and reputation for quality."

Since the Estée Lauder Cos. unveiled its ceo succession plan last fall, two group presidents have left the prestige cosmetics firm. In late November, Philip Shearer departed for Groupe Clarins and last week Patrick Bousquet-Chavanne resigned from his post.

When asked by an analyst where the company plans to recruit executives to fill these vacant roles, Lauder said, "We are looking to find the very best talent for our company inside or outside of our company. We believe we've got a great deal of talent inside our company where we will be able to fill these spots."

He added that in light of the departures, both he and Freda are also looking for ways to reorganize the current organizational structure to build a more effective one. He said he does not anticipate the new structure to look vastly different from the current one.

By region, third-quarter sales in the Americas gained 2.8 percent to $880.9 million. The company noted that softness in department stores was partially offset by growth in alternative channels, including the Internet and TV retailing.

In Europe, the Middle East and Africa, sales rose 17.2 percent to $701.5 million, driven in part by double-digit growth of the firm's travel retail business, and in the Asia-Pacific, sales climbed 26.4 percent to $297.4 million, with strong gains in China, South Korea and Hong Kong, according to the company.

By category, makeup sales gained 11.4 percent to $755.7 million, led by double-digit gains internationally and the company's makeup artist brands; skin care sales rose 13.1 percent to $756.8 million, fueled by Asia in particular; hair care sales were up 1.1 percent to $98.2 million, and fragrance sales increased 7.9 percent to $259.1 million.

Referring to the fragrance business, Lauder said, "We're taking a number of very aggressive initiatives to find a way to make sure we bring our fragrance category performance at least up to par with our total corporate performance, if not up to par with the performance of our competitors."To that end, he said the firm has hired McKinsey & Company to conduct a benchmarking study that looks at the company's performance metrics as well as the those of its competitors, in an effort to operate more effectively and efficiently.

Referring to the fragrance business, Lauder said, "It's time to stop, press the reset button and start again with a new way of doing business that is more competitive."

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