Estée Lauder’s stock shot up 8.1 percent to $86.97 after the beauty company delivered fiscal first-quarter earnings that beat expectations.
Lauder achieved net sales of $2.83 billion, an 8 percent increase over last year’s $2.63 billion and above the estimate of $2.78 billion. Net earnings came in at $309.3 million, a 36 percent jump over last year’s $22.1 million. The makeup categories led the way with a 14 percent increase on a reported basis year-over-year, but a 23 percent increase in constant currency.
The strong dollar took its toll on the company; excluding the impact of foreign currency net sales would have increased 15 percent. President and chief executive officer Fabrizio Freda said, “These results demonstrate the balance we have achieved, as well as our success in navigating significant currency headwinds and slower growth in certain markets, like Greater China, by focusing on opportunities within our control and strategically investing to further build our brands to drive future growth.”
The higher makeup sales were driven by strong double-digit growth from Smashbox and Tom Ford. Increased prestige makeup usage in Asia helped sales as well. Skin-care sales were pushed up by stronger sales from luxury brands La Mer and Origins. There were sales declines in Estée Lauder and Clinique that were partially offset by new product launches. The softness came from China and Hong Kong.
Fragrance enjoyed double-digit gains from Jo Malone London and Tom Ford, pushing the category to a 9 percent increase over last year. Hair care, which had a 5 increase over the prior year, benefited from expanded distribution. Aveda saved the day with its Smooth Infusion line.
Looking ahead, Estée Lauder has forecast that its net sales should grow between 8 and 10 percent for the full fiscal year of 2016. Net sales for the second quarter are expected to increase between 6 and 7 percent. Diluted earnings per share including the negative effects of foreign currency are projected to be between $3.10 and $3.17 for the full year.
Second-quarter earnings will be in the range of $1.04 to $1.08, lighter than the consensus of $1.20. The weaker-than-expected guidance can be partially blamed on foreign currency headwinds, which are expected to take earnings down by roughly 10 cents a share. Freda told WWD that the remaining amount of the downward guidance was due to increased spending for product launches for Clinique and New Dimensions for Estée Lauder.
“We are spending to support the continuation of these turnaround plans. We expect these investments will pay off,” said Freda.
Brazil may be facing an economic crisis and currency devaluation, but Freda said the MAC line is still growing more than 50 percent in the country. He believes it will be the company’s biggest market in the long term.
Looking ahead to the holiday season, Freda said the company has great gifts and expects strong online shopping. Overall online sales increased 26 percent and mobile sales account for more than one-third of global online sales and more than 5 percent of the sales in the U.K.