The Estée Lauder Cos. Inc. is revving up its growth engine with a broader profile.
The firm’s net income surged nearly 28 percent in the third quarter, and sales weathered the stronger dollar, gaining 1 percent. The results sent Lauder stock up 7.3 percent to a high of $89.66 on Tuesday morning on the New York Stock Exchange. Shares later closed up four percent at $86.90. “One-third of the business is growing more than double digits,” president and chief executive officer Fabrizio Freda told WWD, adding that’s true by channel, brand, country and product category.
The company continues to broaden its reach outside department stores by acquiring niche brands, opening single-brand stores, expanding in the specialty channel and growing e-commerce sales. Lauder’s online sales are expected to grow in aggregate by 30 percent this year, according to the company. They will comprise about 8 percent of company sales this year.
The company also is working to jump-start growth at two of its largest brands, namely Estée Lauder and Clinique, in part by attempting to make them more attractive to Millennials. For Clinique, the plan includes emphasizing new makeup products at entry price points and skin-care offerings, including the upcoming launch of a cream version of Dramatically Different Moisturizing Lotion. The strategy for the Estée Lauder brand includes newly recruited spokesmodel Kendall Jenner, who will be the face of Modern Muse Le Rouge and upcoming makeup products. The brand is gearing up for its next major initiative, the New Dimension skin-care collection fronted by actress Eva Mendes, which will be launched in North America in July and worldwide in September.
Freda said the company’s multiengine machine has powered six years of high single-digit [sales] growth.
During the quarter, Lauder completed the acquisition of indie skin-care line GlamGlow and purchased artisanal fragrance brand Editions de Parfums Frédéric Malle, marking the third and forth niche brands that the firm acquired over the last six months. “These brands are the future of the company,” said Freda. “Look at the way we built MAC and Jo Malone.” He said Lauder will incubate the new additions with “gradual development that is very faithful to the spirit of each brand.”
Asked if Lauder is also in talks to potentially acquire Too Faced, as reported in WWD on Monday, Freda declined to comment. But when it comes to potential targets, he said, “We always scan the market for more opportunities.”
Citing the criteria for potential acquisitions, Freda said they need to be winning brands, fit the company’s priorities and fill white space within the portfolio.
Lauder said the company’s broader profile was evident in the third-quarter results.
For the quarter ended March 31, net income attributable to the company gained 27.6 percent to $272.1 million, or 71 cents a diluted share, compared with $213.2 million, or 52 cents a share, in the year-ago period. Net sales in the quarter ticked up 1 percent to $2.58 billion, from $2.55 billion in the prior-year period. Excluding the impact of foreign currency translation, net sales gained 8 percent. For the nine-month period, net income attributable to Lauder declined 1.1 percent to $935.9 million, or $2.42 a diluted share, compared with $946.4 million, or $2.40 a share.
Sales were essentially flat at $8.26 billion, compared with $8.24 billion in the year-earlier period. At constant currency, sales gained 4 percent. Lauder raised its estimates for the fourth quarter, and now expects constant currency net sales growth of 6 to 7 percent.
“It was a very good quarter,” said Stifel analyst Mark Astrachan. “[Lauder] resumed share gains in the global prestige beauty category.”
During the call with analysts, the company said it had deferred about $30 million in advertising and promotional spending from the third quarter to the fourth quarter. Astrachan said he’d like to see the company funnel some of that spending behind revitalizing the Estée Lauder and Clinique brands.