A slowdown at MAC Cosmetics put a damper on numbers at The Estée Lauder Cos. in the first fiscal quarter.
Lauder’s net earnings declined to $294 million, compared to $309 million in the prior year period. Net sales were up 1 percent, to $2.87 billion from $2.83 billion year-over-year. Diluted earnings per share were 79 cents, down from 82 cents in the prior-year period. The company also recorded $31 million in restructuring and other charges related to restructuring plan Leading Beauty Forward.
Adjusted for the effects of foreign currency, net sales were up 2 percent.
Makeup sales for the quarter were $1.17 billion, compared with $1.62 billion in the prior-year period. Operating income for that segment dropped to $149 million, from $189 million for the quarter in 2015. Skin care sales were $1.102 billion, down from $1.109 billion for the first fiscal quarter of 2015. Operating income for that segment increased 12 percent. In fragrance, net sales increased 7 percent to $442 million, from $413 million in the prior-year period, with a 9 percent operating income increase. Hair care sales inched up 1 percent, to $136 million from $134 million in the year-ago period, with operating income for the segment doubling.
Double-digit gains at Tom Ford and Smashbox, as well as growth at Estée Lauder and Clinique were responsible for the slight uptick in makeup sales for the quarter. Tom Ford’s sales came from lip color sales, while Smashbox’s increases were driven by sales at specialty multi-brand retailers. Estée Lauder’s Double Wear and Pure Color Envy lines are doing well, too, as well as Clinique’s Superbalanced silk makeup broad spectrum SPF15.
MAC, which Stifel analyst Mark Astrachan estimates makes up 22 percent of total sales, is declining. Lauder said that gains from other brands were offset by lower sales at MAC, “reflecting the decline in foot traffic in U.S. mid-tier department stores and certain tourist-drive MAC freestanding stores.” The decline in makeup operating income reflects the lower MAC North America sales, the company said.
La Mer made double-digit gains in the quarter because of new product introductions, including the Moisturizing Soft Lotion. Origins also experienced growth because of increases in facial masks, the company said. At Aveda, the Tulasara skin-care line drove sales. Lower skin care sales at Estée Lauder and Clinique continue to offset gains by other brands. Lauder said that growth from recent acquisitions also contributed positively.
Fragrance sales were up because of double-digit gains at Jo Malone London and Le Labo, and incremental sales from By Kilian. Tom Ford also had solid growth. Hair care gains came from Bumble and Bumble products, as well as select global expansion.
“Our first quarter sales grew in line with our expectations, while disciplined expense management delivered earnings per share that exceeded our guidance,” said Lauder chief executive officer Fabrizio Freda. “Our small to mid-sized brands were strong contributors to sales as were the travel retail channel and many developed and emerging markets. As expected, this growth was partially offset by continued macro challenges, a decline in retail traffic in U.S. mid-tier department stores, the results of the slowdown in the Middle East, continued softness in Hong Kong, and difficult comparisons with the prior year in the United States and France.”
For the full year, Lauder is reaffirming its guidance of 6 to 7 percent growth, with diluted net EPS of $3.20 to $3.30.