Byline: Jennifer L. Brady

NEW YORK--Fueled by powerful sales of its Estee Lauder Pleasures and Tommy Hilfiger fragrances last fall, Estee Lauder Cos. posted a 26.7 percent jump in third-quarter profits on an 8.7 percent increase in sales. The increase was after preferred dividends of $5.9 million in the latest quarter and $2.9 million a year earlier.
Income available to common shareholders grew to $22.3 million, or 19 cents a share, beating average Wall Street estimates of 17 cents. After going up 5 points Friday and Monday in anticipation of the earnings report, EstAe Lauder stock fell 1 3/8 to 36 5/8 on the New York Stock Exchange Tuesday. In the year-ago quarter, Lauder earned $17.6 million, but per-share figures are not comparable due to the advent of the company's initial public offering in November 1995. Before preferred dividends in both periods, net income was up 37.6 percent to $28.2 million from $20.5 million.
Peter Schaeffer, analyst at Dillon Read, said, "All in all, it's a great performance." He noted that the company saw terrific growth in fragrances, "which is probably the area that holds the biggest opportunity for them."
Schaeffer said selling general and administrative expenses were down 1 percent and gross margins were up 1.3 percent. He added that he expects the fourth quarter to be even more exciting, when he looks for Lauder to earn 18 cents a share against 9 cents in last year's quarter.
Schaeffer said he expects new product offerings and extensions to lead to a strong first half next year. He cited the introduction of the Hilfiger women's fragrance in the fall, new treatment foundations under the Clinique name, and new eye products in the Origins brand. "They will not disappoint," Schaeffer added.
Reflecting increases across all geographic areas and product categories, sales in the latest period came to $763.9 million from $702.8 million.
Excluding the effect of foreign currency translation, sales moved up 10 percent. Leonard A. Lauder, chairman and chief executive officer, said each of the company's U.S. divisions posted double-digit retail sales gains in the quarter. "Our efforts to globalize sourcing and manufacturing activities continue to improve gross margins, which, combined with efficiencies in our sales operations, have added two full points to our operating margin versus the prior-year quarter," Lauder noted. In the quarter, gross margins advanced to 78.6 percent of sales from 77.3 percent.
By product, the most robust sales increases were generated from fragrances, which were up 22 percent in the quarter. "Fragrance sales were driven by the continued success of Estee Lauder Pleasures and Tommy in the U.S. as well as the rollout of Pleasures to markets outside the country."
Makeup product sales moved ahead 15 percent, reflecting solid increases in MAC and the inclusion of the Bobbi Brown Essentials line, acquired in October 1995.
Skin care sales were up slightly to $338 million from $337.6 million, restrained by currency translation and tough comparisons last year.
Sales in the Americas were up 12 percent to $439 million. Operating profits saw a "substantial gain," with continued strength in product launches, growth from existing products and the incremental contribution from the Essentials line.
In Europe, the Mideast and Africa, sales rose 8 percent to $204.4 million. Sales were particularly strong in Belgium, Spain, Switzerland, Italy, South Africa and the travel retail business. The company said third-quarter operating income was up "significantly," with margin improvements throughout the region. Asia-Pacific sales climbed 9 percent on a local currency basis, boosted by gains in every market in the region. However, the company added that due to strength of the U.S. dollar, net sales were about flat at $120.5 million. Sales in Taiwan, Hong Kong and Korea led the group. In the nine months ended March 31, after a $4.3 million special charge tied to the company's IPO, income after preferred dividends was about flat at $81.4 million. The charge reflects the company's granting 164,000 shares of class-A common stock to its full time employees. Before preferred dividends, net earnings rose 26.3 percent to $133.1 million from $105.4 million. Sales gained 11.7 percent to $2.46 billion from $2.20 billion.

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