NEW YORK — Due to a onetime charge stemming from its decision to put its Jane brand up for sale, Estée Lauder Cos. said its second-quarter earnings declined 12.7 percent, but the company raised fiscal 2004 guidance following brisk holiday sales as well as on the strength of its travel and retail businesses.

This story first appeared in the January 30, 2004 issue of WWD. Subscribe Today.

Overall, when excluding the onetime charge, the beauty giant’s quarterly financial performance exceeded Wall Street’s forecasts with sales surging in all product categories and in all regions.

The New York-based company reported net profits for the three months ended Dec. 31 that decreased to $95.7 million, or 41 cents per share, from $109.6 million, or 44 cents per share, in the same period last year. Results include a $30.6 million charge related to the exiting of Jane, the color cosmetics brand it acquired in 1997. Excluding the onetime charge, earnings from continuing operations climbed to $126.3 million, or 54 cents per share, from $110.2, or 44 cents per share, in the prior year. The increase in continuing operations to 54 cents per share beat analysts consensus estimates of 48 cents.

New products and strong performances in its retail and travel businesses drove sales for the quarter up 15 percent to $1.62 billion from $1.41 billion in the prior year. Excluding the impact of foreign currency translation, sales rose 9 percent.

For the six months profits declined 5.6 percent to $ 172.7 million, or 75 cents per share, from $183 million, or 73 cents per share. On an ongoing basis, profits rose to $204 million, or 88 cents per share while sales for the first half rose 12.2 percent to $2.97 billion from $2.64 billion.

“We are firing on all cylinders,” Fred Langhammer, president and chief executive told WWD. “We have been investing in strategies, in new initiatives and in new product innovation and rollouts, internationally. And this is showing in our results.”

One of the initiatives includes bringing its brand to a broader channel. Dan Brestle, a group president of Lauder, drew a distinction between the decision to divest Jane and plans to launch a new brand in Kohl’s, a midtier department store. He said the Kohl’s venture will involve testable, demonstratable products in a new channel, free of competition. The Jane brand is youth-oriented and low-priced and operates in the highly competitive mass market, which requires a certain critical mass for success.

Langhammer said he was particularly pleased with the MAC Cosmetics and Bobbi Brown Cosmetics performances as well as with Clinique’s holiday sales and new products with the Estée Lauder brand.

“It’s a pretty good scene,” he said. “All product categories were growing, and most of them by double digits in all regions.”

As reported, Lauder signed a deal with Beyoncé Knowles to appear in Tommy Hilfiger advertising on a women’s fragrance being launched this fall.

As Langhammer gets ready to embark on his new role as Lauder’s chairman of global affairs beginning July 1, it looks like he will leave his post as chief executive with the beauty giant in stellar shape. Asked where Lauder could improve in 2004, Langhammer said it was hard to choose. Instead, he spoke of the company’s opportunities, such as growing its fragrance business in Europe.

“We will stick with our strategy and continue to build on the momentum,” Langhammer explained. “If the economy improves, and there are no major hiccups, we should be in pretty good shape.”

Wall Street was pleased with Lauder’s results and outlook, sending shares of the company up by $1.99, or 5 percent, to close at $41.90 on New York Stock Exchange trading.

Amy Low Chasen, an analyst with Goldman Sachs, said in her research note that “Lauder is well poised to continue posting strong results in the near future. The improving U.S. economy should aid results as should improving profitability for the retail business.” She also noted she expected continued strength in the profitable MAC and Bobbi Brown businesses.

By product category, skin care sales for the quarter increased 19 percent to $572.1 million on a reported basis and 12 percent before currency translation. Results reflect rollouts from the Lauder brand as well as strong sales by Clinique, Le Mer and Darphin. Makeup sales rose 12 percent to $527.1 million in dollars and 7 percent in local currencies. In addition to strong double-digit growth from MAC and Bobbi Brown, higher sales reflect introductions of High Impact Mascara from Clinique as well as Ideal Matte Refinishing Makeup SPF 8, MagnaScopic Maximum Volume Mascara and Artists Lip and Eye Pencils by EL.

Fragrance sales increased 16 percent to $446.4 million and 9 percent in constant currency, benefiting from Beyond Paradise, Aramis Life, Clinique Happy Heart and Clinique Simply. The increase also reflect improved results in its travel retail business. Sales of hair care product rose 5 percent to $63 million, due to growth in Bumble and bumble, which saw double-digit increases, offset by tough comps in Aveda.

By region, sales in the Americas rose 3 percent to $804.7 million, reflecting growth in most brands and freestanding retail stores. In Europe, the Middle East and Africa, sales jumped 34 percent to $586.7 million, which was a 20 percent increase in local currencies. The company’s travel retail business continued its recovery, with sales growing substantially. In the Asia-Pacific region, sales grew 19 percent to $227.7 million, which was 8 percent in local currencies.

Looking ahead, the company boosted its fiscal 2004 earnings forecast to a range of $1.50 to $1.55 per share, which is up from a prior estimate of $1.45 to $1.50. Current Wall Street earnings expectations are pegged at $1.51. Sales are expects to grow between 10 and 12 percent on a reported basis and 7 to 8 percent on a constant currency basis. Fragrance is expected to be the leading sales growth category, followed by makeup, hair care and skin care.

“We had an excellent performance in the first half, and as a consequence we felt with the momentum we have we can achieve these numbers,” Langhammer added.