Estee Lauder brands

The Estée Lauder Cos. said sales gained 5 percent over the holiday quarter, fueled by a massive jump in skin care sales.

“We are proud to have returned to growth in our second quarter, earlier than we anticipated, demonstrating the enduring success of our multiple engines of growth strategy,” said Lauder president and chief executive officer Fabrizio Freda in a statement. “The powerful engines of skin care, fragrance, Asia Pacific, travel retail in Asia and global online fueled our performance despite the increasing complexity of the pandemic.”

Freda said 10 of Lauder’s brands grew during the quarter, and that the business was able to develop relationships with new customers from holiday shopping events. Online sales were particularly strong, and even though most stores were back open despite the coronavirus pandemic, foot traffic was down, Lauder said.

Lauder did not release specifics around increases in online sales, but in an interview with WWD, executive vice president and chief financial officer Tracey Travis said they increased by “outstanding double digits.” 

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Skin care sales for the quarter spiked 28 percent year-over-year, to $2.8 billion. Shares closed up 7.8 percent to close at $272.81 on Friday.

“Skin care has been a growth category for us for the last couple of years and has performed the best during the pandemic, but really performed quite strongly during the second quarter during the key shopping moments and holiday,” Travis said. “It reflects the relevant innovation that we’ve done behind our skin care brands, our successful hero strategy. Certainly that benefited both the Estée Lauder and La Mer brands, but also brands like Origins.”

Lauder’s skin care sales were fueled by Estée Lauder, La Mer and Clinique, as well as Dr. Jart+, which contributed 7 percent to net skin care growth, the company said. For the Estée Lauder brand, double-digit gains were led by mainland China, where Lauder said the brand was the top-selling beauty brand during Tmall’s 11.11 Global Shopping festival. Sales were also propelled by the new Advanced Night Repair Synchronized Multi-Recovery Complex and existing hero products.

At La Mer, sales in China were also a major contributor to growth. The brand grew double digits in every region, led by Asia Pacific, and also posted gains in travel retail sales. La Mer’s sales were driven by hero products Crème de la Mer, The Concentrate and The Treatment Lotion. Lauder noted that La Mer was the top-selling luxury beauty brand during Tmall’s 11.11 shopping event.

Clinique’s growth was driven by “solution-based” products, like Even Better Radical Dark Spot Corrector+ Interrupter, the Acne Solutions line and the classic three-step system.

For the quarter, skin care sales significantly eclipsed makeup, which saw a 25 percent contraction in the quarter to $1.2 billion. That decline was attributed to the coronavirus pandemic, which has caused foundation and lip category sales to slip.

Fragrance sales were up 6 percent year-over-year to $618 million, driven by double-digit gains at Tom Ford Beauty, as well as strength at Jo Malone London and Le Labo. Travis said sales were driven by both juice and home fragrance, including candles and diffusers. “It was both — Tom Ford…as well as Le Labo and Jo Malone, all came out with new fragrances that did particularly well,” Travis said. “And obviously candles, home fragrances and diffusers have been doing well, certainly for Jo Malone and Le Labo.” 

Hair care sales fell 5 percent to $154 million due to declines at Bumble and bumble.

The company’s net sales were $4.85 billion for the quarter ended Dec. 31, up from $4.62 billion in the prior-year period. Net earnings were $873 million, up 56 percent year-over-year from $557 million. In the prior-year period, Lauder had recorded an impairment charge related to Too Faced, Smashbox and Becca.

For the six-month period ended Dec. 31, Lauder posted a 1 percent drop in sales, to $8.42 billion, with net earnings of $1.4 billion, a 21 percent year-over-year increase.

Geographically, sales were driven by the Asia Pacific region, which saw a 35 percent increase over the holiday quarter to almost $1.8 billion in sales. Sales for Europe, the Middle East and Africa slipped 2 percent, to just over $2 billion, and sales in The Americas fell 15 percent, to just over $1 billion.

Lauder is planning some owned-store closures, as well as department store counter rationalizations, Travis said. So far, the company has approved the closure of 68 owned doors globally, with plans to close an additional 62 doors when leases expire later this year. 

“We are rationalizing our footprint given the performance and the fact that we don’t think the productivity will recover in those stores,” Travis said, noting that store closures were part of Lauder’s post COVID-19 business acceleration plan. 

In terms of department store counter reductions, Lauder is looking across brands’ performance to determine which counters should close, Travis said. Some outposts are being shuttered because Macy’s and Nordstrom are shutting stores. 

In Asia, Lauder is ramping up manufacturing operations. The company is building a manufacturing facility in Tokyo meant to increase speed to market in Asia that is slated to be operational in late 2022. Lauder is also working on an innovation center in Shanghai that will open in 2022. 

The company has $5.5 billion in cash that will be used for share repurchases, but also could be used for M&A, Travis said. “We certainly have the balance sheet to support strategic acquisitions, like Dr. Jart+,” Travis said, adding that the company regularly assesses opportunities. 

Divestitures could be on the table, too. “We always look at rationalizing the portfolio from a divestiture standpoint,” Travis said, noting that the rationalization process applies to stores, counters and brands. 

WWD previously reported that Lauder was among the big corporations in beauty considering divestitures this year. Shiseido, another major beauty player, just inked a deal to sell some of its mass brands to a private equity firm in order to focus on prestige beauty, while Unilever also is said to be considering disposing of some of its brands.

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