Byline: Diane E. Picard

NEW YORK — Despite a 3 percent decline in sales in the Asia/Pacific region, Estee Lauder Cos. said Tuesday first-quarter earnings rose 17.3 percent to $61.8 million, or 47 cents a share, meeting Wall Street estimates. In the 1996 quarter, the company earned $52.7 million, or 39 cents.
Sales for the three months ended Sept. 30 were ahead 3.2 percent to $900.6 million from $872.8 million. Gross margins grew to 77.3 percent of sales from 77.1 percent. Selling, general and administrative expenses were flat at 64.6 percent of sales.
Estee Lauder stock rose 5 3/16 Tuesday, closing at 45 on the New York Stock Exchange.
In Asia, double-digit sales increases in most markets were overshadowed by lower sales in Japan and Hong Kong because of difficult retail environments, the company said. Due to the continued strength of the U.S. dollar against most Asian currencies, reported net sales in the region decreased 10 percent to $144.3 million.
Operating profit in Asia was down, primarily because of depressed results in Japan, Hong Kong and Taiwan, reflecting conservative consumer spending.
Amy Low, an analyst with Goldman Sachs, noted the weak performance in Asia was the result of premature advertising spending in the region.
“Looking ahead, I expect a flat to slightly up sales performance in Asia in the second quarter,” she said.
Overall, Low said she expects Lauder to earn 64 cents a share in the second quarter, compared with 54 cents a year earlier. She expects per-share earnings of $1.75 for the year, compared with $1.46. Earnings for 1996 were adjusted to reflect the company’s November 1995 initial public offering.
Looking to the holiday selling period, Low said she expects sales of Clinique’s Happy and Lauder’s Pleasures for Men to continue to lead the business. In January, the company is expected to launch foundations from the Lauder and Prescriptives divisions, and in spring introduce the Tommy Hilfiger Athletics men’s fragrance.
First-quarter fragrance sales were up 18 percent to $271.1 million, driven by sales of Pleasures for Men and Happy, strong worldwide sales of Tommy and the ongoing rollout of Tommy Girl, the company said. Makeup sales inched ahead 3 percent to $327 million due to the introduction of Clinique’s Superbalanced Makeup, the continued strength of Lauder’s Indelible Lipstick and Futurist Age-Resisting Makeup, and higher sales from MAC Cosmetics and Bobbi Brown Essentials.
Overall, skin care sales slipped 3 percent, excluding the effect of currency translations. Skin care sales decreased 7 percent to $302.5 million after currency translation. The company noted the decline reflected the concentration of skin care sales in the Asia/Pacific region, as well as difficult comparisons because of the highly successful launch of Fruition Extra in the same quarter last year.
In the Americas, sales were ahead 4 percent to $562.3 million. The increase came from sales of new products, including Pleasures for Men and initial shipments of Happy. Sales were also boosted by solid performances from Origins, MAC Cosmetics and Bobbi Brown Essentials in the U.S., along with higher results in Canada. Operating income increased as a result of higher sales and better operational efficiencies.
In Europe, the Middle East and Africa, net sales increased 19 percent, excluding the effect of foreign currency exchanges. On a local currency basis, virtually all markets turned in solid performances; most markets delivered strong double-digit sales growth, led by the U.K., Spain, Germany, France and the distributor and travel retail businesses. In Europe alone, sales were ahead 9 percent to $223.9 million due to the strength of the dollar against most European currencies. First-quarter operating profitability decreased, compared with the prior year’s quarter, a result of the timing of certain expenses to promote product launches.

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