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Estée Lauder Posts Net Loss in 2002, No Big Uptick on Horizon

NEW YORK — Digesting its first year of sagging earnings in more than a decade, Estée Lauder Cos. is looking forward to moderate growth this year, though not "a major upsurge any time soon.<br><br>That’s the word from Fred Langhammer,...

NEW YORK — Digesting its first year of sagging earnings in more than a decade, Estée Lauder Cos. is looking forward to moderate growth this year, though not “a major upsurge any time soon.

That’s the word from Fred Langhammer, president and chief executive officer, who told WWD he expects “a better Christmas than we had last year.” In the quarters ahead, he noted, “We need to be prudent. Growth isn’t going to be easy to come by.”

Growth over the last fiscal year wasn’t easy to come by either.

In the fourth quarter, net losses, attributable to common stock, totaled $31.2 million, or 13 cents a share. This compared with year-ago profits of $14.6 million, or 6 cents.

Before previously reported restructuring charges, the quarter saw earnings drop 15.2 percent to $51.5 million, or 19 cents a diluted share, from year-ago profits of $60.7 million, or 23 cents.

Adjusted profits came in 1 cent ahead of Wall Street’s estimates of 18 cents.

The performance was enough to make investors trade up shares of the New York-based beauty firm 72 cents, or 2.6 percent, to $28.37 on the New York Stock Exchange Thursday.

Total sales for the period ended June 30 picked up 7.8 percent to $1.13 billion from $1.05 billion a year ago. Excluding the impact of foreign currency translation, sales were up 7 percent.

For the full year, profits after preferred stock dividends fell 40.2 percent to $168.5 million, or 70 cents a diluted share, from $281.8 million, or $1.16, last year.

Without restructuring and before an accounting change, profits slid 16.8 percent to $289.4 million, or $1.10 a diluted share. Last year’s adjusted profits mounted to $347.7 million, or $1.34.

Sales for the year inched up 1.6 percent to $4.74 billion from $4.67 billion a year ago. In local currencies sales rose 3 percent for the 12 months.

“In times like this it’s good to be diversified,” said Langhammer. Certainly Lauder’s wide product and geographical breadth protected the firm from overexposure to weak areas — such as the ailing fragrance business or financially troubled South America.

For the year, skin care sales rose 3 percent to $1.7 billion while makeup sales were up 4 percent to $1.79 billion. Excluding currency translation, both categories picked up an additional percentage point in sales gains.

Fragrance sales slid 6 percent, before and after currency translation, to $1.02 billion. The drop reflects overall softness in the fragrance business as well as continued weakness in the travel retail world. “From an industry standpoint, this has been the worst fragrance year in a decade,” said Langhammer on a conference call with analysts.

The smaller hair care business grew a more robust 19 percent over the year to $215.8 million.

Sales in the Americas region gained 1 percent to $2.88 billion. Increases in new and some existing products were offset by the soft retail environment. Tepid sales and an added investment in advertising, promotion and newer distribution channels pulled operating income for the region down.

Europe, the Mideast and Africa posted a 3 percent rise in sales to $1.26 billion, up 3 percent in local currencies. Operating profits decreased, due in part to the travel retail business, which is counted as part of the region.

Sales in the Asia-Pacific region climbed 2 percent to $610.6 million, up 9 percent in constant currencies.

Looking into fiscal 2003, Lauder pegged its first-quarter diluted earnings at 25 to 28 cents a share with a 2 to 3 percent uptick in constant currency sales.

Of the overall retail climate, Langhammer noted, “In the first six weeks here, in July and August, the business has not improved. In fact, it has slowed down a bit compared to the last quarter of the year.” Lauder, he said, has fared a little better than the trend.

As retailers proceed cautiously, he added, some shipments made in the first quarter last year should move into the second quarter.

For the full year, Lauder has projected diluted earnings of $1.28 to $1.33 with a 5 to 6 percent uptick in local currency sales.

Analysts on the call were concerned this didn’t leave the firm with sufficient “wiggle room.”

“I’m raising the hurdle and this management team is going to be paid against this hurdle,” replied Langhammer. “I don’t feel that we’ve been overconfident.”