LAUDER’S PROFITS UP 11.9%

Byline: Evan Clark

NEW YORK — An 11.9 percent jump in The Estee Lauder Cos. Inc.’s first-quarter earnings gave its stock a rosy hue Tuesday as the company’s shares closed the day at $40.81, up $3.50 on the New York Stock Exchange.
Net income for the period was $92.4 million, or 36 cents a share, against $82.6 million, or 32 cents, a year ago. Excluding a one-time aftertax charge of $2.2 million, or 1 cent a share, due to an accounting change, earnings for the cosmetics giant rose 14.5 percent. The results beat Wall Street estimates by a penny.
Sales for the period ended Sept. 30 increased 7.7 percent to $1.18 billion compared to $1.09 billion in the year-ago quarter. Excluding the impact of foreign currency translation, the company said its sales rose 10 percent.
Fred H. Langhammer, president and chief executive officer, noted in a statement that the company is “off to a strong start in fiscal 2001, paced by the continued outstanding performances in skin care and makeup.” Only its Tommy Hilfiger business in the U.S. and the effect of currency fluctuations marred quarterly results.
To build on its strong performance, the company is adding an innovation team in each product category that will focus on “bringing new ideas to market ahead of our competition,” Langhammer said on a conference call. Working in tandem with Lauder’s design teams, the new groups will take a mid- to long-term view and operate outside the short-term constraints of the marketing calendar.
The company, which expects to grow to about 500 retail locations from its current 250 in the next few years, is continuing to roll out new locations as acceptable sites become available. Langhammer said on the call: “We’re not in a hurry, we want to make sure we’re in the right area.” Overall, he said the retail strategy is “financially very attractive for us.”
In September, the company launched its Estee Lauder e-commerce site, marking the fourth Lauder brand to enter into e-tailing. Langhammer said the company is using the Internet “to expand the universe of each of our brands” by building a database that over the next five to seven years will include 20 to 30 million customers. The company currently has a database with information on more than 1.5 million customers.
He also noted that the company was well suited for translation to the Internet: “The people who are going to drive the Internet very effectively are the people who own brands. There’s now room for somebody in between.”
Sales by product category were as follows:
Skin care launches, including the Idealist Skin Refinisher from the company’s Estee Lauder division and the Anti-Gravity Firming Lift Cream from Clinique, drove the category’s sales up 12 percent to $395.2 million in the period.
Makeup revenues rose 7 percent over last year’s quarter to $431.3 million. The higher revenues reflect the initial shipments of High Impact Eye Shadow from Clinique and the rollout of Luxe Makeup by Prescriptives.
Hair care products sales nearly doubled, increasing 97 percent to $45.6 million, in the quarter. Langhammer noted in the statement that the company was benefiting from its “strategic focus on hair care, which is a tremendous growth opportunity.” The sales jump was driven by Clinique’s launch of its Simple Hair Care system and the ongoing growth of Aveda paired with the sales of Bumble and Bumble, a majority of which was acquired in June 2000. “This is first time we’ve introduced the hair care category into the department store universe,” the ceo said, calling it a “terrific opportunity.”
Fragrance sales, as expected, were excluded from the corporate growth and decreased 2 percent to $299.8 million. The softening sales of Tommy Hilfiger fragrances coupled with difficult comparisons with successful launches a year ago offset favorable results, including the rollout of DKNY for women and the continued growth of Estee Lauder’s fragrance Beautiful. In total, the company will have four new fragrances on the counter this holiday season.
The Americas region reported net sales up 9 percent to $783.1 million on the strength of new products; strong performances from existing products, with double-digit growth in most newer brands; contributions from the recently acquired Bumble and Bumble; and higher results in Canada. Langhammer said on the call, “In the U.S. all of our businesses are growing with the exception of the Tommy Hilfiger franchise.”
Sales decreased 1 percent in Europe, the Mideast and Africa on the weakness of most European currencies against the strong U.S. dollar. Langhammer told investors and analysts on the call that the United Kingdom, Spain, France, Italy and the Benelux countries all saw double-digit growth. Excluding the effect of currency translation, sales rose 9 percent over the year-ago period to $255.1 million.
Net sales in the Asia-Pacific region increased 16 percent to $139.5 million, led by positive performances in Korea, Taiwan, Australia and Thailand.
Langhammer emphasized Estee Lauder’s economic planning and structure, telling analysts on the call: “From our group, you can expect better results than the trends out in the retail market place.”

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