By  on May 4, 2007

NEW YORK — The Estée Lauder Cos. Inc. delivered a 7 percent sales gain in its third quarter, as several international markets helped offset weakness in the U.S.

Bolstered by travel retail and Europe, net earnings from continuing operations for the quarter ended March 31 gained 48.4 percent to $93.8 million, or 45 cents a diluted share, from $63.2 million, or 29 cents, in the year-earlier period, which had included a charge of $51.6 million related to the firm's cost-saving initiative. Net sales for the quarter jumped 7.1 percent to $1.69 billion from $1.58 billion in the prior-year period.

"As we have stressed, we are truly a global company," the firm's president and chief executive officer William P. Lauder told analysts Thursday. "More than half of our sales were generated outside of the U.S. during the quarter."

Department store consolidation continued to challenge U.S. sales during the quarter, particularly in the wake of changing nameplates.

"What we're seeing is that when a retail store brand name has changed on the door, the local markets where there have been changes seem to be materially impacted in a different way in sales trend versus doors that have consistently had the same name on the door," said Lauder. "We see a seven-point spread in that difference across multiple different retail platforms."

The company said business outside department stores, or retailers not tracked by The NPD Group, was up 11 percent. Travel retail proved to be a bright spot in the quarter, increasing by solid double-digits aided by healthy passenger traffic and construction of airport terminals.

"Overall we believe there is a lot of untapped potential in the travel retail arena," said Lauder. "Just 30 percent of global travelers step foot in airport stores and only 10 percent of travelers make a purchase." Since 2005, the firm has launched nine brands in the channel and continues to expand geographically, he noted.

In the third quarter, all the Estée Lauder Cos. beauty categories — except for hair care — were adversely affected by Federated Department Stores closures.

Hair care — which accounts for 5 percent of the firm's total sales with Aveda and Bumble & bumble accounting for 95 percent of its hair care business — is showing consistent strength, Dan Brestle, the Estée Lauder Cos. chief operating officer, told analysts Thursday, adding it is the only major beauty category where the firm does not have a significant presence. Category sales climbed 20.9 percent, to $97.1 million, on a reported basis. Referring to Aveda's standing in the salon market, Brestle said, "Aveda is currently the number-three professional spa brand in the U.S., but we want to be number one."Skin care sales gained 9.5 percent, to $668.9 million, and makeup sales rose 6.9 percent, to $678.4 million, led by global double-digit growth of makeup artist brands Bobbi Brown and MAC Cosmetics. Lauder noted that during the quarter Bobbi Brown made its TV debut on QVC. "The products sold out in 45 minutes, making it the largest [single-hour] cosmetics launch in the network's 20-year history," he added.

Fragrance sales declined 2.5 percent, to $240.1 million, due to slower sales of certain existing products in North America, namely Tommy Hilfiger. In the year-earlier period, the launch of Sean John and the Estée Lauder brand's Amber Nude fueled fragrance sales 11 percent.

By region, sales in the Americas dipped 1.5 percent, to $856.9 million, hampered by retailer consolidation. International sales continued to outpace the Americas during the quarter. Sales in Europe, the Middle East and Africa gained 19.3 percent, to $598.4 million, and Asia-Pacific sales rose 13.8 percent, to $235.2 million.

Looking forward, the firm expects fiscal 2007 full-year sales to grow between 6 and 7 percent.

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