Core offerings — such as Estée Lauder’s Advanced Night Repair — and acquisitions are driving sales growth at the Estée Lauder Cos. Inc.
The beauty company reported a 12 percent increase in net earnings to $298 million as net sales jumped 8 percent to $2.86 billion in its fiscal third quarter. Half of that sales growth was driven by incremental sales from recent Lauder acquisitions Becca Cosmetics and Too Faced, the company said. Diluted net earnings per common share were up 13 percent to 80 cents.
By category, all segments except hair care posted net sales gains for the quarter. Skin care was up 3 percent to $1.1 billion; makeup 9 percent to almost $1.3 billion, and fragrance 22 percent to $336 million. Hair care was down 2 percent to $126 million.
Skin-care sales, which have seen a broad slowdown, were driven in large part by sales in China and travel retail, according to Lauder chief executive officer Fabrizio Freda. “It has been driven by the strong growth in China again, and the Chinese consumers, which are ardent consumers of skin care.”
Innovation is also driving sales in the segment, Freda said, calling out Clinique’s Fresh Pressed Vitamin C launch as a success. “[Gains are] also driven by…innovation on hero franchises like…Advanced Night Repair, which we continue to expose to new consumers,” Freda said. “Young consumers — Millennials — are more and more interested in instant-benefit skin care and the focus of our innovation is more and more in this area….The best example is of the Moisture Surge Hydration [moisturizer] from Clinique.”
Mainstays such as Double Wear foundation and Advanced Night Repair — lines where Lauder has recently worked to develop different product iterations — are doing well to attract consumers in specialty retail, according to Freda. “[They] are proving extremely attractive for Millennials when distributed in Millennial channels,” Freda said.
Broadly, Lauder’s skin-care sales were driven by double-digit gains at La Mer, as well as growth from the Lauder brand in travel retail and China, where the Advanced Night Repair and Revitalizing Supreme lines sold well. Glamglow also posted double-digit sales growth, from additional product assortments and expanded consumer reach. In skin care, Clinique was still down.
Makeup sales were driven by portfolio newcomers Too Faced and Becca as well as Smashbox, Tom Ford and Estée Lauder. At Tom Ford, lip color, such as the Tom Ford Soleil Color Collection, contributed to growth. At the Lauder brand, the Double Wear and Pure Color Envy product lines sold well.
While MAC’s North America performance continues to be “up and down,” according to chief financial officer Tracey Travis, the brand is up globally.
MAC is about to launch in Ulta Beauty doors — it should be in 100 by year-end — and that is expected to bring in new, Millennial customers, according to Freda, who said shoppers coming into Lauder brands through Ulta will not be cannibalizing sales from other channels. He added that wherever MAC has the foot traffic, the brand is doing well.
“When MAC is distributed in locations where the traffic of Millennials is down, that’s where we’re seeing the problem,” Freda said.
At Ulta, “100 doors is just the beginning,” Freda said. “If it is successful, we will go deeper, but that’s not the only thing that needs to happen.” He ticked off reactivating the brand in department stores, building traffic to freestanding stores and adding even more online growth as important for the brand’s North America strategy. MAC is Lauder’s fastest-growing online brand, Freda said.
Fragrance sales increased because of gains at Jo Malone London, Tom Ford and Le Labo and incremental sales from By Kilian, which Lauder acquired in 2016. Jo Malone posted double-digit sales increases in every region. Tory Burch Love Relentlessly and Michael Kors Wonderlust also contributed positively.
Hair-care sales were negatively affected by a difficult comparison because of the prior-year quarter’s product launches, the company said.
Lauder is projecting fiscal 2017 sales growth of between 6 percent and 7 percent at constant currency, with about 2 percentage points coming from recent acquisitions. Constant currency earnings per share growth is expected to be between 8 percent and 9 percent, before charges.