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Beauty Beat: Estée Lauder Continues To Report Strong Gains

The Estée Lauder Cos. began the new fiscal year much as it ended the last one - with healthy bottom- and top-line gains.

NEW YORK — The Estée Lauder Cos. began the new fiscal year much as it ended the last one — with healthy bottom- and top-line gains.

For the first quarter ended Sept. 30, the New York-based beauty giant reported a 4.9 percent gain in net income to $77 million, or 33 cents a diluted share, from $73.4 million, or 28 cents, a year ago. Lauder’s earnings per share beat the Wall Street forecast by 1 cent.

Net sales for the three months pushed up 8.8 percent to $1.35 billion from $1.24 billion last year, as the company experienced sales growth across all product categories, in most geographic markets and from currency fluctuation, as well. In local currencies, sales increased 6 percent.

“We’re off to a great start, continuing the momentum we achieved last year,” said chief executive officer Fred Langhammer on a conference call with analysts. “Business picked up nicely in June and it seems to be continuing. Terrific growth from our strong product pipeline, double-digit growth from our retail stores and a pickup in our travel retail sales all contributed to the performance this quarter.”

Also on the call, the company confirmed that, as reported, it had formed a strategic alliance with Kohl’s Corp. to create and manage color cosmetics and skin care departments in Kohl’s stores beginning in fall 2004.

Lauder also confirmed that it is investing $15 million in fiscal 2004 primarily to develop the new business with the Menomonee Falls, Wis.-based department store chain. Chief operating officer William Lauder said on the call that the $15 million will predominantly go to brand and product development and research, as well as compensation for the Beauty Bank division created for the alliance. As reported, it is thought that the Lauder brands for Kohl’s have the potential of generating well over $100 million in retail sales within two years.

Wall Street responded by lifting Lauder’s shares $1.06, or 2.9 percent, to finish at $37.82 in New York Stock Exchange trading Tuesday.

Commenting on the deal with Kohl’s, Goldman Sachs analyst Amy Low Chasen wrote in a research note that she believes “the Kohl’s alliance has potential to contribute to growth in fiscal 2005 to fiscal 2007, but it is not without risks. We are a bit surprised that the two companies are not testing the concept in a few select doors before rolling it out more broadly.”

However, Chasen added that the partnership should “help drive Estée Lauder’s growth in the U.S. over the next several years as the concept is rolled out and as long as Kohl’s continues to open new doors.” She noted that, recently, Kohl’s comparable-store sales “are currently only averaging up low-single digits.”

By product category, recent launches of wrinkle and refinishing creams elevated sales of skin care products 10 percent to $462.9 million, or 7 percent before giving effect to currency translation. Makeup sales rose 6 percent to $494.1 million, or 4 percent in local currencies; fragrance sales grew 12 percent to $331.1 million, or 9 percent in constant currency, and hair care products saw sales improve 9 percent to $54.8 million.

Looking ahead, Lauder said first-half sales are forecast to grow 8 to 10 percent in dollars, or 6 to 7 percent in constant currency, which should provide first-half diluted earnings of 78 to 81 cents.

Avon Net Surges in 3Q
NEW YORK — Avon Products Inc. on Tuesday posted a 47 percent jump in third-quarter earnings, results that exceeded the high end of the company’s earlier guidance.

It also raised its earnings expectation for the full year.

For the three months ended Sept. 30, income skyrocketed 47 percent to $133.1 million, or 56 cents a share, from $90.3 million, or 38 cents, in the year-ago quarter. The consensus estimate among analysts polled by Thomson Financial/First Call was 54 cents. The quarter’s earnings per share included a 2 1/2 cents per share benefit from a tax audit settlement and receipt of an Internal Revenue Service refund, offset by 1 1/2 cents per share of expenses related to the redemption of a convertible bond issue in July.

Total revenue rose 11.3 percent to $1.63 billion from $1.46 billion, which included sales of $1.61 billion versus $1.45 billion last year. The increase represented the highest quarterly growth rate in nearly nine years, and was driven by a 15 percent increase in beauty sales and a 10 percent gain in the number of active representatives.

Andrea Jung, chairman and chief executive officer, said in a statement, “We’re very pleased to have delivered another quarter of standout growth on the broad-based strength of our global direct selling operations, giving me confidence that we can continue our positive momentum through the fourth quarter and into 2004.”

She noted that international operations led the solid performance with a “healthy 15 percent increase in sales and a 19 percent gain in operating profit.”

The U.S., Avon’s largest market, tallied sales growth of 7 percent and a 9 percent advance in sales of beauty products on promising early results from two launches in the quarter, Anew Clinical and Mark.

Based on operations worldwide, and a more favorable exchange rate outlook, the company raised 2003 full-year targets a nickel, to $2.65 to $2.70 a share from earlier guidance of between $2.60 and $2.65.

The company said sales of Avon Wellness brand in the U.S. sustained momentum with more than 20 percent growth. The company appointed 16,000 Mark representatives between its launch in early August and the end of the quarter, and that number is growing.

The European region posted sales growth of 23 percent, with Russia again delivering “standout performance” with sales up 60 percent. In Latin America, sales were up 14 percent, while in the Pacific region sales rose 7 percent. China generated sales growth of 30 percent.

For the nine months, income gained 18.1 percent to $403.5 million, or $1.69, from $341.6 million, or $1.42, last year. Total revenues increased 9 percent to $4.77 billion from $4.37 billion, which included sales of $4.72 billion from $4.33 billion.

Shares of Avon inched up 3 cents to close at $67 on Tuesday in New York Stock Exchange trading.

— Vicki M. Young