NEW YORK — You can call Estée Lauder Cos. a $5 billion company.
For the first time in its history, Lauder’s sales in 2003 breached the $5 billion mark, increasing 7.9 percent to $5.12 billion from $4.74 billion.
This story first appeared in the August 18, 2003 issue of WWD. Subscribe Today.
The milestone was among a string of good news from Lauder Thursday as the company said it returned to profitability in the fourth quarter of 2003 versus a year ago and that it expects profit growth to continue in 2004.
Lauder generated profits of $53 million, or 20 cents a diluted share, for the three months ended June 30. The turnaround to profits happened despite a one-time pretax charge of $22 million, or $13.5 million aftertax, related to a pending settlement of a price-fixing lawsuit against it and other cosmetics makers and retailers.
The net profit reverses a year-ago quarterly loss of $25.4 million, or 13 cents, including restructuring charges of $117.4 million and an accounting charge of $20.6 million, or 8 cents. Excluding the special items, the firm’s earnings increased 29.1 percent to $66.5 million, or 26 cents a diluted share, versus income of $51.5 million, or 19 cents.
The growth reflects strong gross margin improvement, product innovation, gains in selling expenses and the benefit of restructuring in the prior year while at the same time increased investment in advertising, sampling and merchandising, the company said.
In addition, the firm said it achieved $35 million in restructuring benefits in 2003 and added $25 million in supply-chain cost savings.
“In 2003, we had success with great introductions supported with focused advertising,” Fred Langhammer, president and chief executive officer, said in a telephone interview Thursday. Going forward, he said the plan is to stay on course with advertising and promotions coupled with product innovation across all brands.
Langhammer said 30 percent of 2003 sales were generated from products introduced over the past three years. In addition, he said the U.S business climate is starting to improve as well as conditions in Asia and Europe.
It is that formula for success through the frequent introduction of new lines, plus the company’s solid fundamentals — a strong product lineup, distribution enhancements and more focused executions — that allow it to forecast higher profits and revenues in 2004.
William Steele, an analyst with Banc Of America Securities, described Lauder’s fourth quarter as “solid” and said he is expecting continued strength. “Clearly they are investing behind their brand, launching new products, expanding margins and increasing earnings, which are all good things from an investment perspective. They are making solid progress and investing a majority back into the brand, which is helping to drive the 8 percent sales increase.”
Skin care, hair care and makeup lifted the company’s quarterly net sales 8.3 percent to $1.22 billion from $1.13 billion in the fourth quarter. Excluding the impact of foreign currency translation, sales increased 3 percent in the quarter.
“I am pleased our solid second-half results capped off a strong annual performance,” Langhammer said on a morning conference call. “We have seen momentum increase throughout the year, as our brand-building investment strategies and cost-saving initiatives came to fruition. Sales grew in all geographic regions and product categories despite uncertainty around the world.”
For 2003, Lauder delivered earnings toward the high end of guidance, with profits of $319.8 million, or $1.26 a diluted share, a 66.6 percent increase when compared with income in 2002 of $191.9 million, or 70 cents.
In a breakdown of its revenues, Lauder said sales of skin care products for the year increased 11 percent to $1.89 billion on a reported basis and rose 7 percent before foreign currency translations. The higher sales reflect the launches of the Repairwear treatment collection and Advanced Stop Signs by Clinique. Makeup sales for the year rose 7 percent to $1.91 billion in dollar terms and increased 4 percent in local currency. In addition to solid growth from its makeup artist brands, the higher sales reflect the launches of Colour Surge Lipstick and Dewy Smooth Anti-Aging Makeup SPF 15 from Clinique, MagnaScopic Maximum Volume Mascara, So Ingenious Multi-Dimension Liquid Foundation and Loose Powder and new and existing products in the Pure Color lip and nail line by EL.
Fragrance sales on a reported basis increased 4 percent to $1.06 billion and were flat in constant currency terms. The increase reflects solid growth from the travel retail business. Hair care product sales rose 6 percent to $228.9 million, resulting from increases at Aveda and Bumble and bumble.
By region, sales in the Americas advanced 3 percent to $2.95 billion, due to new and some existing products and growth from virtually all developing brands. In addition, operating income rose because of its prior restructuring initiatives. In Europe, the Middle East and Africa, sales rose 19 percent to $1.51 billion and 8 percent excluding the impact of currency fluctuations. Operating profits increased due to higher results in the United Kingdom, Spain, Italy and Greece. Sales in the Asia-Pacific region climbed 8 percent to $657.8 million and 3 percent in local currencies.
Langhammer said the company’s commitment to breakthrough innovation and product leadership will continue to be a priority in 2004, noting he expects hair care and fragrance to lead growth, followed by skin care and makeup, including the new fragrance Beyond Paradise from the Estée Lauder brand, which will be on counters this month, and Clinique’s Simply, which will be rolled out in the U.S. next month.
He also said that in view of the changes in consumers’ shopping habits, the firm is embarking on a strategy to seize opportunities in alternate distribution channels. “We are in the process of developing a number of brands to allow us to capitalize on these opportunities around the globe,” he said, noting this strategy calls for “meaningful investment during the development phase” for which the firm set aside funds in 2004.
The company predicted earnings in 2004 to range between $1.45 and $1.50 a share on a 7 to 8 percent increase in sales. For the first half, Lauder forecast earnings to run between 78 cents to 81 cents a share as it continues to invest in advertising, sampling and merchandising and support significant launch activity on a 8 percent to 9 percent sales increase.
“I do feel better about recent trends,” Langhammer said. “June and July sell-throughs in department stores improved in the mid-single-digit range and I am seeing our own stores sales doing very well with mid-teen increases over the period.”