NEW YORK — The Estée Lauder Cos. pleased investors by beating first-quarter expectations despite a drop in earnings.

Net profits attributable to the firm’s common stock receded 4.4 percent to $67.5 million, or 28 cents a diluted share, for the quarter ended Sept. 30. This compared with year-ago earnings of $70.6 million, or 30 cents.

Results beat out Wall Street’s expectations of 26 cents a share by a couple of cents. Investors, in turn, rewarded the beauty firm, based here, by pushing up its shares $1.70, or 6.2 percent, to close at $29.06 on the New York Stock Exchange Tuesday.

Lauder paid out $5.9 million in preferred stock dividends in both periods. Before the dividends and an accounting change, which reduced year-ago earnings by $20.6 million, profits slid 24.4 percent to $73.4 million from $97.1 million a year ago.

Sales inched up 4 percent for the quarter to $1.24 billion from $1.19 billion a year ago.

Fred Langhammer, president and chief executive officer, told WWD, that he continues to be "relatively optimistic." As for the upcoming holiday season, he noted: "There’s no visibility at this juncture. We have visibility on the programs and actions we’re taking." However, he added, the consumer’s mood has improved from last year, while big-ticket purchases such as cars and on home improvement have been "very buoyant." This bodes well, in the face of eroding consumer confidence, for smaller-ticket items such as those that Lauder sells, he said.

On a conference call with analysts, the ceo noted retail in July and August "was softer than we would have liked based on the traffic in the malls, but it was followed by a favorable comparison in September."

To combat the weak store traffic in the Americas, Langhammer noted: "We increased spending behind advertising, sampling and store events to help build momentum leading into the important holiday season." Selling, general and administrative costs during the quarter surged 10.7 percent to $766.4 million.

Sales rose 2 percent in the Americas, to $787.7 million, during the quarter. Growth in new and certain existing products as well as from most developing brands was partially offset by continuing softness on the domestic retail scene.Sales in Europe, the Mideast and Africa, were up 11 percent to $304.5 million, or a milder 5 percent before currency translation. Leading the way in sales were the U.K., Spain, Italy and Switzerland. This region also includes Lauder’s travel retail business, which is continuing its recovery from last year’s slump with a slight sales increase. The Asia-Pacific region’s sales stood on par with a year ago at $150.3 million, but dropped off 4 percent in constant currencies.

For the most part, sales of Lauder’s different product categories during the quarter picked up speed on both a local currency and reported basis. Skin care sales were up 6 percent to $421.7 million, or 4 percent in local currencies. Makeup sales pushed ahead 4 percent to $468 million, a 3 percent rise before currency translation. Fragrance sales advanced 1 percent to $296.5 million, but retreated 1 percent in local currencies. Sales of hair care products were up 1 percent to $50.4 million.

While trying to build momentum during the quarter, Langhammer noted: "We are understandably cautious about the retail environment in the U.S. going into the key holiday season." During the second quarter, Lauder is looking for sales in constant currencies to rise 5 to 7 percent. This would produce earnings of 38 to 41 cents a diluted share.

For the full year, the firm is projecting sales growth of 5 to 6 percent in local currencies with diluted earnings per share of $1.28 to $1.33. This implies profit improvement in the second half, which Langhammer acknowledged could concern analysts. Aside from new products, the ceo cited several areas from which this growth is expected to come.

For one, last year’s second-half gross margin was negatively impacted by production and purchasing adjustments that won’t be repeated, cost savings will accrue more heavily during the back half of the year and half as many new stores will be opened during the period this year, reducing some expenditures.

"I don’t expect things to get worse" during the back half, noted Langhammer. "I’m looking for moderate improvement of overall psychology in the marketplace."

Banc of America Securities analyst William Steele wasn’t as optimistic as the firm about the back half. He added, though, that Lauder has been "doing the right things from a base business point of view." These included consistently launching new products, investing in the brands and improving its balance sheet, which, he said, "lays the foundation for a healthy company longer term."

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