Fabrizio Freda

Estée Lauder Cos. Inc. and Coty Inc. reached the halfway point of their fiscal years with strong first-half performances and upbeat second-half outlooks.

Two of the biggest names in the beauty industry reached the halfway point of their fiscal years with strong first-half performances and upbeat second-half outlooks.

Both the Estée Lauder Cos. Inc. and Coty Inc. reported profit gains for the second quarter.

Lauder, fresh off its acquisition spree, reported second-quarter net income attributable to the company gained 1 percent to $435.7 million, or $1.13 a diluted share, compared with $432.5 million, or $1.09 a share, in the year-earlier period.

Coty disclosed that its second quarter adjusted net income jumped 47 percent to $163.2 million, or 45 cents a diluted share, compared with $111.3 million, or 28 cents a share, in the prior-year period.

Elizabeth Arden Inc., reporting after the markets closed, has reached the halfway point in a transitional year in which improvements aren’t expected until the fourth quarter, and it continues to struggle.

Arden incurred substantial losses as it continues to reposition its business in China and limit its exposure at retail and in its celebrity brands business. Even on an adjusted basis, its bottom line fell far short of analysts’ estimates.

Lauder’s net sales ticked up 1 percent to $3.04 billion, compared with $3.02 billion in the year-ago period. Excluding the impact of foreign currency, sales increased 5 percent.

Fabrizio Freda, Lauder’s president and chief executive officer, said the company’s results demonstrate “the ability to win in a very volatile world.” He noted that the string of acquisitions during the quarter — namely the upscale skin-care range Rodin Olio Lusso and niche fragrance maker Le Labo — helped to broaden Lauder’s portfolio and fortify its stance in the face of macroeconomic headwinds.

“We are proud of the portfolio we have created. We have expanded the reach of the Estée Lauder Cos. and increased its growth engine to make the company less susceptible to a changing world,” Freda told WWD following the earnings call on Thursday. The firm also has been testing new distribution channels. Its Aerin and Bobbi Brown brands are going onto Net-a-porter. The Aerin offering launched on the site on Wednesday and has already exceeded Net-a-porter’s expectations in terms of sales, and Bobbi Brown will be unveiled on March 16.

Lauder’s acquisitions have spilled over into the third quarter, with the company purchasing the facial mask brand GlamGlow and artisanal fragrance line Editions de Parfums Frédéric Malle.

“Over the years, we’ve acquired many small brands that today are formidable competitors in beauty,” Freda told Wall Street analysts during the earnings call.

Freda said he expects a number of key product launches to accelerate sales in the second half.

Coty’s net revenues decreased 5 percent to $1.26 billion, compared with $1.32 billion. Excluding the impact of foreign currency, sales were flat.

“It was a solid quarter and a very good first step in the right direction,” said Bart Becht, Coty’s chairman and interim ceo, during the company’s earnings call on Thursday.

He said Coty is working to cut costs with the aim of redeploying a portion of the savings back to its power brands, which account for 70 percent of the company’s revenues.

Becht emphasized to analysts that there is ample opportunity for Coty to cut “nonstrategic spending,” or items that the consumer does not see, such as the cost of producing a commercial, display materials or copyright fees.

“While power brands’ like-for-like net revenues grew only very modestly in the quarter and half year, we saw renewed strength on a fiscal year-to-date basis in Sally Hansen, Rimmel, Marc Jacobs, Chloé and philosophy, fueled by successful innovations,” Becht said.

He assumed the top post following the abrupt departure of Coty’s former ceo Michele Scannavini in late September. When asked by an analyst what he is looking for in a new ceo, Becht said the right candidate will have leadership skills, strategic vision and operational capability, as well as experience in the consumer products world. The company aims to have a permanent ceo in place at some point during the summer. For now though, Becht, who also is chairman of the family holding company JAB, said Coty is garnering the bulk of his attention. Executives at the company have described him as a hands-on manager who rules from the top. During the call he said, “Our number-one objective is to dramatically improve the efficiency of the business and restore profitable growth.”

On a reported basis, Arden recorded a net loss of $56.8 million, or $1.90 a diluted share, versus net income of $35 million, or $1.16, in the second quarter of 2014. Eliminating restructuring, asset impairment and other charges, the profit was 28 cents a diluted share, far below the 59 cents expected, on average, by analysts following the firm.

Sales in the quarter fell 20.2 percent, to $333.6 million from $418.1 million a year ago, and fell 16 percent on an adjusted basis at constant currency.

“In China, we are making tough decisions in support of a new distribution strategy to drive a healthier and more profitable business,” said E. Scott Beattie, chairman, president and ceo. “Aside from this market and the continued decline in sales of our celebrity fragrances, the remainder of our business, by and large, performed as expected during the quarter.”

He touted recent efforts to drive down costs and said the firm is moving forward with its plans to realize annualized savings of $40 million to $50 million.

On Thursday, the firm said that its Performance Improvement Plan, expected to exact pretax charges of between $65 million and $72 million from the final quarter of 2014 through the end of 2015, is now expected to result in charges of between $92 million an $99 million. Between $42 million and $44 million of these are expected to be cash charges, up from the $32 million to $36 million estimated to be in cash earlier.

The firm does expect sales increases at constant currency in its international segment during the second half of the fiscal year along with “continued declines in celebrity fragrances impacting the North American segment.” Gross margin is seen expanding “due to improved pricing, better sales mix, lower discounts and realization of reduced supply chain and product costs.”

Beattie noted that retail sell-through in the North American fragrance market “continues to modestly improve in the low-single digits for the everyday basic fragrance business, with retail inventories at our key mass accounts low or lower than this time last year.”

Shares of Coty shot up 12.2 percent to $21.24 on Thursday, while Lauder’s stock advanced 8.1 percent to $78.40. With beauty issues on the increase during the day, Arden shares rose 5.6 percent to $15.38 but fell 5.7 percent to $14.51 in the early stages of after-hours trading following the earnings report.

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