Byline: Sidney Rutberg

NEW YORK — Emphasizing the strong performance of Tommy Hilfiger’s Tommy and Tommy Girl fragrances, Estee Lauder Cos. reported a 36 percent increase in third-quarter earnings on a 4 percent sales gain.
Net earnings for the quarter, ended March 31, increased to $38.3 million from $22.3 million. After preferred dividends of $5.9 million in each period, per-share income came to 27 cents, against 19 cents. Wall Street had been expecting 25 cents.
Lauder stock closed at 45, up 1 1/2, on the New York Stock Exchange Tuesday.
Sales increased to $791.4 million from $763.9 million. Adjusting for currency translation, sales would have been up 7 percent.
In the Americas region — comprising North, Central and South America — sales were up 6 percent to $465 million. The gains came from new product launches across all categories and growth from existing products, “particularly Tommy and Tommy Girl and solid performances from MAC and Bobbi Brown Essentials in the U.S.,” the company said in a statement.
The company also noted that at the end of the quarter, it had increased its majority interest in MAC to 70 percent from 51 percent.
The increases in the Americas were managed despite a “soft overall retail environment in the U.S.,” the company said.
Operating income in the region was off about 3 percent, principally because of higher promotional expenses.
Sales declined in Canada, and the company said in a conference call with analysts that the dip reflected the bankruptcy of the Eaton’s department store chain there. Lauder did not break out the Canadian figures from its overall results in the Americas.
In other geographical areas, particularly Europe and Asia, operating profits were strong, jumping 47 percent in Europe and 30 percent in Asia, analysts were told.
Analyst Peter Schaeffer of Dillon, Read & Co., said Lauder’s figures were strong in view of the impact of currency translation.
“Gross margins were higher than expected and expenses were lower than expected,” he said.
Gross profit for the quarter came to 78.9 percent of sales, compared to 78.6 percent a year ago. Expenses were 70.2 percent against 71 percent.
Schaeffer is projecting Lauder earnings per share of $1.44 for the current fiscal year compared with $1.17 in fiscal 1996.
Leonard A. Lauder, chairman and chief executive officer of the Lauder Cos., said in a statement that while retail business was “challenging,” it presented an opportunity “for us to gain market share, which is an essential component of our growth strategy.” He also noted that the “vitality” of the company’s businesses “will propel us to meet our fiscal year objectives and enjoy future success.”
In Europe, the Middle East and Africa, the company said, sales were up 9 percent excluding the impact of currency rates. However, because of the strength of the dollar against most European currencies, the reported sales increase was only 2 percent to $207.6 million.
Sales growth was led by strength in the U.K., higher sales in South Africa and Italy, and Palladio, a European joint venture included in this year’s quarter. The increases were partially offset by lower sales in Germany and France, where economic conditions continued to be difficult.
The increase in operating profits in the area was primarily due to better profits in Italy, the U.K., France and Eastern Europe, plus the company’s distributor and travel retail businesses.
Based on local currency, Asia/Pacific sales grew 7 percent, driven by increases in every market in the region except Hong Kong. Sales were particularly strong in Korea, Australia, Thailand, Taiwan and Singapore.
However, after currency translation, sales were off 1 percent to $118 million. The sharp increase in operating profit reflected strength in Korea, Singapore, Japan, New Zealand, Malaysia and Thailand.
Sales of fragrances were up 10 percent, led by Tommy and Tommy Girl. Growth was also propelled by the international debut of White Linen Breeze and the European introduction of Kiton. Pleasures also generated strong sales in the quarter despite a tough comparison with last year’s big rollout.
Sales of makeup products were up 8 percent in the quarter, fueled by the success of new products such as the Clinique division’s Long Last Soft Shine Lipstick and Lauder’s Indelible Lipstick. Higher sales at MAC and Bobbi Brown Essentials also helped the makeup category.
Skin care product sales slipped 3 percent, largely because of currency translation and difficult comparisons with year-ago launches. Adjusted for currency, skin care sales would have been ahead 1 percent. Despite the difficult comparisons, growth was recorded by Clinique’s Moisture On-Line and All About Lips and Lauder’s Fruition Extra and Advanced Sun Care.
In the nine months to March 31, net profits were up 20.9 percent to $160.9 million, or $1.20 a share, against $133.1 million a year ago. Sales were up 6 percent to $2.6 billion from $2.5 billion. Adjusting for currency translation, sales would have been ahead 9 percent.

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