Gains in skin care, travel retail, the Asia-Pacific region and online sales drove The Estée Lauder Cos. Inc. to a new quarterly revenue high — $4.01 billion.
In the fiscal second quarter, net sales were up 7 percent year-over-year. Net earnings were $573 million, up dramatically from $123 million in the prior-year period. Diluted net earnings per share were $1.55, compared to 33 cents the prior year.
The company’s Asia-Pacific region was up 17 percent year-over-year. China remains particularly strong for the business, executives noted on the company’s earnings call Tuesday.
According to Estée Lauder president and chief executive officer Fabrizio Freda, the success is the result of a multipronged strategy. “Programs of our brands are global…but they are executed in a very local, relevant way,” Fabrizio said. “Global brands, they can be very relevant locally in the way they speak to consumers.”
Lauder tailors its messaging to different types of Chinese consumers, Freda said, noting the country’s diversity. “We make huge efforts to understand all the aspects of diversity and to tailor to all the different populations the same way in the U.S., you would tailor to Hispanic of African-Americans or Caucasians with customization or personalization ideas.”
That thinking is layered over a region where young consumers are hungry for beauty and have more income to spend on the category, Freda noted.
Influencers are also a significant part of Lauder’s China equation, Freda noted. “We look at influencers as partners in developing our marketing programs,” he said. “They are capable of making our messages very locally relevant.”
Travel retail also remains a bright spot for Lauder. Freda brought up a new concept — “pretail” — on the earnings call, noting it was becoming a big way to shop for South Korean travelers. Shoppers who have plane tickets can buy beauty products online and pick them up on the plane, he noted, adding that pretail has the potential to roll into more markets, especially emerging markets like India, Russia, Brazil and China.
“The reason it’s promising is because where it’s executed well, it actually increases conversion…it’s convenient,” Freda said. But, it would require investments on behalf of retailers to execute, he noted.
Skin-care sales were Lauder’s largest subcategory in the quarter, up 16 percent to $1.7 billion. Growth was driven by the Estée Lauder brand, bolstered by the Advanced Night Repair franchise, as well as Origins and Clinique, globally. La Mer also posted double-digit growth, driven by higher sales of existing products and launches like The Treatment Lotion Hydrating Mask and The Luminous Lifting Cushion Foundation.
Clinique ID has been doing well, executives said on the earnings call. In an interview, Freda said it was likely Lauder would roll out that type of personalization in many brands and markets going forward.
Makeup sales were up 3 percent, to $1.56 billion, driven by Estée Lauder, MAC, Tom Ford and Becca, offset by lower sales from Clinique and Smashbox. Estée Lauder’s Double Wear franchise continues to post growth, and Tom Ford Beauty posted double-digit gains helped by lip and eye shadow. Operating income for the segment declined because of planned investments in Too Faced to support international expansion, the company said, combined with dips in makeup sales from Clinique and Smashbox.
Fragrance sales were down 5 percent, to $537 million in the quarter. The dip was because of changes in promotions over the holiday season from Estée Lauder, the company said, which was offset by growth in artisanal brands such as Jo Malone London, Le Labo, Tom Ford Beauty and By Kilian.
Broadly, sales for December and early January in the U.S. were soft, Freda noted, but he said he believed the slowdown was due to macro factors, like the stock market and government shutdown, rather than indicative of a slowdown in beauty.
“You see this from NPD and others, the market in the quarter was flat completely, driven by the December trend, and before the market was growing,” he said.
Hair-care sales were up 7 percent to $154 million, driven by new launches and growth from Aveda.
Lauder raised its guidance, projecting net sales between 5 percent and 6 percent versus the prior-year period, with diluted net EPS between $1.17 and $1.20. The company’s stock soared Tuesday, up 12 percent to $152.96 in mid-day trading.
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