NEW YORK — The third quarter was a charm for The Estée Lauder Cos., which reported a 73.9 percent jump in profits for the period on Wednesday.
There was a slight blemish on the sales projection for the year, though, as the beauty firm now expects the economy, the war and SARS to restrict it to 4 percent annual growth, exclusive of currency translation. At the onset of the fiscal year, Lauder planned for a 5 to 6 percent upswing.
Net income attributable to the firm’s common stock shot up to $77.9 million, or 33 cents a diluted share, for the three months ended March 31. This compared with year-ago income of $44.8 million, or 19 cents.
Don’t talk to president and chief executive Fred Langhammer about quarters, though. He looks at the business by longer time frames, whether the quarters are good or bad. In a telephone interview, though, he admitted that "directionally," the third quarter was encouraging.
Wall Street apparently agreed. Results beat out analysts’ profit expectations of 28 cents a share by a nickel, and investors gave their stamp of approval by trading up shares of the firm $2.20, or 7.3 percent, to close at $32.50 on the New York Stock Exchange Wednesday.
Net sales for the period advanced 10.5 percent to $1.24 billion from $1.12 billion a year ago. Exclusive of the positive impact of foreign currency translation, net sales rose 5 percent.
The quarter benefited from nearly $10 million in pretax savings related to the globalization of the firm’s organization last year. Savings under the program should eventually top out at $40 million annually.
While Lauder continues to expect its fiscal year to produce earnings of $1.28 to $1.33 a share, the firm backed off somewhat on the sales front, despite the lowered sales plan. Net sales are slated for a rise of approximately 7 percent, which means a 4 percent increase on a constant currency basis.
Efforts to revitalize the Estée Lauder brand have shown positive results, said Langhammer, pointing to the brand’s improved share in U.S. department stores in the skin care and makeup areas, where much of its new product activity has been centered."We’re getting very good traction, so even with the difficult retail environment, the Lauder brand is performing very well," he said. It’s also "attracting a new customer into the franchise in addition to stimulating the existing customer." At least some of the newer faces buying Lauder products are thirtysomethings, said Langhammer.
"We’re just at the beginning of the evolution of the Lauder brand," he said. The fall launch of its new women’s fragrance, Beyond Paradise, is intended to add to the brand’s momentum.
Much of the focus at the firm has been on its two key brands, Estée Lauder and Clinique. "Nothing good happens if the two flagships aren’t growing," noted Langhammer, adding that smaller brands "have a very strong point of differentiation and they have lots of room to grow so they are driven more by the new emotional connection they’ve created with their target audience." MAC, Aveda and Bobbi Brown have all shown strength, he said.
Lauder is in the process of shifting its focus to more contact with the customer via advertising rather than promotions in the stores.
"If the…shopping malls have less traffic and we spent most of our resources in an environment that has less traffic, where’s the growth?" asked Langhammer on a conference call. "So with our new innovation drives we need to speak out to a broader audience and attract new customers, and this is the overall strategy and that will continue over the next few years."
Chief operating officer William Lauder said the firm was "pursuing alternative distribution opportunities" for existing brands, though they are not yet meaningful to the larger brands such as Clinique and Estée Lauder. Asked specifically by an analyst if Kohl’s Corp. was a possibility, Lauder declined to comment.
The firm branched out Wednesday with the completion of its acquisition of Paris-based Laboratoires Darphin. Terms were not disclosed. The prestige skin care firm sells products in more than 50 countries through high-end pharmacies in Europe and specialty stores worldwide.
Langhammer said in an interview, "Customers are more and more multichannel shoppers on a global basis. We have to pay attention to the dynamic of the global marketplace."Skin care sales during the quarter shot up 16 percent to $507.8 million, or 9 percent before currency translation. Makeup sales rose 4 percent to $491.4 million, or 1 percent in constant currencies. Fragrance sales were up 16 percent to $181.6 million, or 9 percent before currency translation. Hair care products produced a 7 percent sales rise to $53.2 million in the quarter.
By geographic region, the firm’s largest region, the Americas, had the least growth with a 4 percent upswing to $721.5 million. Europe, the Middle East and Africa produced a 24 percent sales incline for the three months to $361.5 million. In the Asia/Pacific region, sales grew 17 percent to $156.4 million.
For the nine months, earnings attributable to common stock improved 24.8 percent to $249.2 million, or $1.06 a diluted share. This compared with year-ago profits of $199.7 million, or 83 cents, a result that was depressed by $20.6 million, or 9 cents, from a change in accounting principle.
Sales for the year-to-date period were up 7.7 percent to $3.89 billion from $3.61 billion a year ago. Without the impact of currency translation, sales rose 5 percent.
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