Fabrizio Freda

Strong holiday sales and a weak dollar boosted company's profits by 34 percent in the second quarter.

Strong holiday sales and a weak dollar boosted the Estée Lauder Cos. Inc.’s profits by 34 percent in the second quarter. Now Estée Lauder is on a mission to encourage luxury consumers to keep on shopping with an increased advertising effort.

This story first appeared in the February 4, 2011 issue of WWD. Subscribe Today.

“The luxury consumer is again eager to shop, but is choosy about what she buys,” president and chief executive officer Fabrizio Freda told Wall Street analysts during an earnings call Thursday.

“In the second half of our fiscal year, we planned to invest additional resources in global advertising, particularly across digital media,” said Freda. “We will focus on our most promising new initiatives and biggest launches to pull consumers to our counters.”

To that end, the Clinique brand introduced half as many products in the fall compared with a year ago. But, according to Estée Lauder, those products generated nearly 50 percent more in sales, driven largely by the introduction of Clinique Even Better Clinical Dark Spot Corrector, which is now the brand’s top-selling item.

One of the major channels of focus for the company is digital, which Estée Lauder is integrating into its service model. At select Clinique counters, customers can use iPads to receive skin care assessments and then e-mail themselves a customized regimen.

The planned increase in advertising spending will be directed across the company’s biggest brands and regions, said Freda. He emphasized Estée Lauder will continue to invest in magazines and plans to increase advertising in TV for select brands, including Clinique, Estée Lauder, Aramis and Designer Fragrances. Freda said Estée Lauder is not moving away from gift-with-purchase as a promotional tool, but noted, “The frequency of gwp has decreased for some brands, and in some markets we’ve been more aggressive than others. It’s a gradual reduction.”

Estée Lauder’s fewer but better approach helped the beauty firm easily beat Wall Street estimates in the second quarter. For the three months ended Dec. 31, net income was $343.9 million, or $1.71 a diluted share, from $256.2 million, or $1.28, in the year-ago period. Sales gained 10.2 percent to $2.49 billion from $2.26 billion last year.

For the first half of the year, net income gained 34.8 percent to $535 million, or $2.67 a diluted share, from $396.9 million, or $1.99, in the year-ago period. Sales gained 11.9 percent to $4.58 billion, from $4.1 billion from last year. Estée Lauder raised its full-year guidance to a range of $3.40 to $3.60 diluted earnings a share, as well as increased the firm’s operating target to between 13 percent and 14 percent.

Skin care, a strategic focus for the company, was the star category in the quarter with sales up 14 percent to $1.03 billion. Freda, citing data from The NPD Group, said the company’s products accounted for 21 of the top 25 skin care items in U.S. department stores during the recent three-month period.

Fragrance staged a comeback of sorts, gaining 11 percent to $447.6 million.

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