NEW YORK — As the Estée Lauder Cos. Inc. delivered an 8 percent gain in profits from continuing operations in its second quarter, the beauty firm also kept up its belt-tighting as part of the company’s long-term cost-cutting initiative.
Its series of steps to trim costs during the quarter included a buyout offer to streamline personnel structure and its plan to sell the Stila business.
“This is a virtuous effort,” William Lauder, president and chief executive officer of the Estée Lauder Cos., told WWD, referring to the firm’s expense restraint.
“We expect it to be an ongoing and constant effort well into the future,” said Lauder.
With early strides in the quarter, the firm expects the effort to reap up to $45 million in fiscal 2006, with the bulk of those savings materializing in the second half of the year.
Sharp cuts in spending drove net earnings from continuing operations for the quarter ended Dec. 31 up 8 percent to $150.4 million, or 70 cents diluted earnings per common share, from $139.7 million, or 61 cents a share, in the year-earlier period.
Including a charge associated with the company’s Stila business, which as of Sept. 30 is recorded as a discontinued operation, net earnings fell nearly 41 percent to $81.7 million, or 38 cents per diluted earnings per common share, from $138.3 million, or 60 cents a share, in the same period last year.
The firm is currently in talks with potential buyers for the Stila brand, and expects to complete the sale of the cosmetics brand by the end of its fiscal year.
A solid holiday season and the growth of its international business, particularly travel retail, pushed sales for the quarter up 3 percent to $1.78 billion, up from $1.73 billion in the year ago period.
Lauder acknowledged that Federated Department Stores’ planned store closures will challenge the business, but said, over the long term, Estée Lauder Cos. should benefit from two strong national brands, such as Macy’s and Bloomingdale’s.
Federated will accelerate the pace of its planned store closures, shuttering 62 of the 82 stores scheduled to close. Estée Lauder Cos. anticipates the closures will impact sales $62 million due to lost sales and a general weakness in the market.
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“A sharper focus on fewer stores should translate to higher productivity per store,” said Lauder. “We are also committed to driving growth in other channels of distribution.”
Lauder reported that Beauty Bank business with Kohl’s Department Stores — now a portfolio of four brands — continues to develop “in a steady manner.”
During the quarter, on a reported basis, skin care sales rose 4 percent to $664.1 million, while makeup and hair care sales both increased 11 percent to $642.3 million and $79.2 million, respectively. Fragrance sales continued to slide, decreasing 11 percent to $407.9 million. Lauder said fragrances with a celebrity tie-in, such as Estée Lauder’s Pleasures backed by Gwyneth Paltrow and Youth Dew Amber Nude created by Tom Ford, generated robust sales over the holiday season. The Tommy Hilfiger fragrance portfolio continues to show weakness in the North American market.
Lauder said the firm will continue to look for ways to make the fragrance business more profitable, and that the category “continues to be strategically important.”
By region, sales in the Americas increased 1 percent to $878.8 million, outpaced by sales growth in Europe, the Middle East and Africa of 5 percent, to $658.9 million, and in Asia-Pacific of 2.7 percent to $246.2 million.
The company’s international business currently accounts for nearly 50 percent of the Estée Lauder Cos. sales and profits, said Lauder. The company has identified the U.K., France, Japan and China as key international market. It continues to focus on China, where it sells eight brands, such as La Mer, Bobbi Brown and MAC. Over the last year, the firm has increased its door count there to 56 stores from 41.
Lauder also expressed optimism about the company’s upcoming slate of product launches, which include the rollout of Rolling Youth Dew Amber Nude to broader distribution this month and the Tom Ford Estée Lauder spring collection.
The company expects net sales for the second half of 2006 to grow approximately 4 percent.