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Estée Lauder Sales Dip in Quarter, but Growth Seen Ahead

The Estée Lauder Cos. saw sales fall in the second quarter, but expects a return to growth in the third quarter of its fiscal year, helped by holiday shopping in the U.S. and 11:11 in China.

The Estée Lauder Cos. may still be in the midst of a pandemic-related sales slump, but the company isn’t expecting it to last too long.

On Monday, the beauty business projected sales growth for the third fiscal quarter, which contains the holiday shopping season and China’s 11:11. For the most recent quarter, which ended Sept. 30., Lauder saw a continuation of COVID-19-related sales trends — online, skin care and China were solid, while makeup and IRL in-store shopping were not. Travel retail was essentially flat, the company said, as travel in Asia offset the broader international slowdown.

Net sales for the quarter ending Sept. 30 declined 9 percent to $3.56 billion, from $3.9 billion in the prior-year period. Net earnings were $525 million, down 12 percent year-over-year from $595 million.

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Fabrizio Freda, president and chief executive officer, said the numbers were “stronger than expected.”

Bright spots included skin care, which saw a 10 percent gain to more than $2 billion in net sales for the quarter; the Asia Pacific region, which posted more sales than the Americas, and e-commerce, which was up 40 percent, Freda said. Online sales on Lauder brands’ own web site were up 60 percent, Freda said.

“Based on the business we have with Ulta and Sephora and Macy’s and Nordstrom and our other partners, combined with the acceleration we’re seeing in, at this point we don’t see a need to sell products on Amazon. We obviously have a relationship with Amazon, we do use their cloud service, as many companies do for parts of our business, but in terms of selling on the platform, not at this time,” said Tracey Travis, the company’s executive vice president and chief financial officer, when asked if Lauder would consider Amazon given current e-commerce success.

Product sales were driven by innovation, Freda noted, which accounted for more than 30 percent of sales in the quarter. Lauder has also ramped up its data tools in recent years, and is deploying social listening and other means in order to tailor innovations more directly to what consumers want, Freda said on a conference call with analysts.

In an interview, Travis said that social listening has provided insights around skin-care rituals and other wellness habits consumers have focused on during the pandemic.

“Consumers are not only engaging more online, but they are spending more time with skin-care rituals. They’re using more skin-care products … we are seeing a more mature customer, they’re using more treatment-oriented products, so masks, serums, exfoliation,” Travis said. “People are more concerned about wellness and health — we’re certainly seeing that in some of the listening that we have done, and that translates in our categories at least in terms of pampering more.”

One category helped a lot by consumer interest in pampering was fragrance, Travis noted.

Fragrance sales declined 12 percent, to $406 million from $462 million in the prior-year period, but that is a big improvement from the 57 percent drop the company saw in the previous quarter.

“The fragrance category is considered a pampering category,” Travis said. “Early on we saw categories like home products, candles, bath and body being very strong. Then, we started seeing the juice … being very strong as well.”

Many of the major brands — Estée Lauder, Clinique, designer fragrances, Jo Malone London and Tom Ford — saw dips. But niche brands, including Le Labo, Kilian Paris and Editions de Parfums Frédéric Malle, grew in the quarter.

Strong innovations and the launch of Kilian and Frederic Malle into China during the quarter helped the category, Travis said. Freda referred to China as Lauder’s “second home market.”

Hair-care, another category that falls into pampering, saw a flat quarter, with $136 million in sales. Aveda sales increased, while Bumble and bumble sales decreased.

Makeup sales, which have struggled as consumers stay home and wear masks, slumped 32 percent, to $978 million from $1.4 billion. Lauder said COVID-19 has disproportionately affected makeup, especially categories like foundation and lip.

“We certainly have seen for Zoom business calls, for social occasions online, people wearing makeup. It’s not like people aren’t wearing any makeup…people are wearing less makeup than they do when they are going out every day,” Travis said. “We’ll start to see pickups in those categories when people actually start going out a bit more and socializing and start returning back to more normal activities.”

Geographically, the Americas were the hardest hit region during the quarter, with sales down 25 percent year-over-year to $873 million. Europe, the Middle East and Africa saw an 8 percent sales decline, to $1.5 billion, and Asia Pacific posted a 9 percent gain to $1.1 billion.

Travel retail was flat, due to upticks in Asia.

“Our global travel retail business was essentially flat as outstanding results in Greater China, particularly Hainan Island and Hong Kong, and sequential improvement in Korea, offset the effects of the significant reduction in international travel. Additionally, the growth of pre-tail and the increase in duty-free purchase limits in Hainan drove higher conversion rates,” Travis said.

Over in the U.S., Lauder’s first home market, Travis spoke the day before the U.S. election, but she didn’t expect the results to have a major impact on the company’s business.

“Certainly, this week we’ll watch the business very closely, I think there may be a bit of distraction as we’re all anxiously awaiting the results of the election, but no, I don’t think either party winning will have a meaningful impact on our business,” she said.

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