Two of the world’s most established brands, Clinique and Estée Lauder, are getting a boost from the Millennial consumer.
Renewed focus on the younger consumer has helped the Estée Lauder Cos. Inc. improve makeup sales at both of the venerable names.
Both brands saw improvement over the past year — Estée Lauder from sales of its Double Wear and Pure Color Envy product lines, and Clinique from its Beyond Perfecting foundation and concealer.
“A year ago, Lauder and Clinique were declining, now they are flat, so there has been significant improvement,” chief executive officer Fabrizio Freda said on the company’s earnings call Friday. “The good results and strong acceleration of makeup in both Lauder and Clinique was driven by Millennial programs that both brands deployed,” Freda told WWD.
For fiscal 2016, which ended June 30, Lauder’s makeup sales increased 9 percent to $4.7 billion from $4.3 billion in the prior year. In makeup, MAC, Smashbox and Tom Ford saw double-digit gains, while Bobbi Brown also posted sales increases. Higher sales from Estée Lauder and Clinique also pushed overall makeup sales numbers up, the company said.
“Foundation, lip products, kits and palettes have been very popular among all consumers,” said Lauder chief financial officer Tracey Travis. Innovations in the segment are under way, with Estée Lauder set to launch double-wear foundation in a push-up stick and MAC rolling out mascara with a customizable brush. Freda said that increasing makeup consumption from consumers in Asia is an indication that color cosmetics growth is likely to continue.
Lauder’s drive to reach Millennials is also behind a handful of distribution moves the company is planning, including an added focus on both Ulta and Sephora, where some of its brands have been distributed for years. Clinique, which is already in Ulta, will add more doors and enter J.C. Penney-based Sephora outposts, according to the company. The Estée Lauder brand will enter Ulta with about 30 Ulta doors, as well as online, Freda said. Origins is poised to rollout in the J.C. Penney’s-based Sephora locations.
“Millennial consumers are changing their shopping habits,” Freda said, suggesting that brands that don’t evolve may lose traction with the new luxury consumer.
For the quarter ended June 30, Lauder posted a decrease in net earnings with $93.5 million from $153 million in the prior-year period. Diluted net earnings per share were 25 cents, compared with 40 cents in the year-ago period. Lauder said the fourth quarter included the effect of restructuring and other charges, which affected earnings. Net sales for the quarter were $2.65 billion, a 5 percent year-over-year increase from $2.52 billion in the prior-year period. Excluding currency effects, net sales gained 7 percent.
For the full year, Lauder posted a 2 percent gain in net earnings, with $1.11 billion from $1.09 billion last year. The company had $11.26 billion in net sales, up 4 percent from the previous year. Excluding the impact of foreign currency translation, sales gained 7 percent. Diluted net EPS increased 5 percent to $2.96, from $2.82 last year. Lauder recorded restructuring and other charges of $134.7 million, $91.3 million after tax, or 24 cents per diluted share, in connection to its global technology infrastructure and Leading Beauty Forward initiatives for the fiscal year. The company announced leading beauty forward, a three-year restructuring program geared at freeing up financial resources to invest in new training, development and organizational models, in May. “We don’t expect to see any savings from the program until next year,” Travis said.
In fragrance, sales were up, gaining 5 percent to $1.49 billion from $1.42 billion. Jo Malone London and Tom Ford saw strong double-digit gains, while certain Estée Lauder, Clinique and designer fragrances experienced lower sales.
Hair-care sales increased 4 percent, to $554.2 million from $530.6 million for the year, boosted by the Invati Men, Shampure dry shampoo and Aveda Thickening Tonic launches.
Skin-care sales dipped 1 percent, to about $4.44 billion from $4.48 billion, the company reported. Estée Lauder and Clinique continued their skin-care declines, with those results offset from gains at La Mer and Origins.
Lauder said that for fiscal 2016, 24 percent of its sales came from new products and that online sales rose 27 percent on its earnings call. The business has also adjusted its advertising strategy, doubling the amount of cash it spends on digital advertising – up to 30 percent, from the prior year.
This year, Lauder is projecting a net sales increase of 6 to 7 percent, with diluted EPS between $3.20 and $3.30. For the next quarter, the company expects net sales to increase between 1 percent and 2 percent, with diluted EPS between 65 cents and 71 cents. The company has a goal of trying to exceed the growth of the overall prestige beauty market — expected to grow annually between 4 and 5 percent — by 1 percent, Travis said.
Freda emphasized the runway available to the company’s brands, saying: “Many of our small- and medium-sized brands are poised for global expansion.” Jo Malone, for example, is only in about half of the tier one airports in the travel retail business. “It needs to be in all tier one airports in the world soon,” Freda said. Lauder is also planning on adding e-commerce abilities for the brand in 10 new markets for fiscal 2017.
On the distribution side, Lauder plans to work with department store partners in order to translate online sales strength to the stores, according to Freda. He gave the example that as Macy’s embarks on its plan to shutter 100 doors, Lauder plans to work to grow sales in the remaining stores. While not Macy’s specific, Lauder’s department store plan includes increasing services to drive foot traffic, according to Freda, with things like “makeover lessons from expert advisers, for which there is strong demand,” he said. “We are in the process of creating more exciting and engaging merchandising,” he added.
“We will also seek geographic and channel opportunities to reach even more consumers, while keeping a sharp focus on like-door growth,” Freda said. “We expect new product launches, digital programs, social media engagement and focused M&A activities to drive constant currency net sales growth of 6 to 8 percent and double-digit EPS growth over the next three years, excluding restructuring and other charges, consistent with our long-term objectives.”
M&A-wise, Freda declined to provide specifics on the timeline during which Lauder might make an acquisition, but did speak about the company’s recently built luxury fragrance portfolio.
“It’s not about buying small brands — that’s not the strategy,” Freda said. “The strategy was to create a portfolio of high-end, artisanal fragrances that combined, could really change the market and make the fragrance market again a market of high-end, consumer demand-driven brands that can inspire the consumer in the world of fragrance.”
Looking forward, Lauder would be interested in brands that with strategic opportunities, according to Freda. “There has to be a brand that is really strong that we like, which is available, and then it has to be the right price,” Freda said. “The likelihood of making an acquisition depends on the availability of [excellent] brands. We see white spaces in Asia, we see white spaces in the U.S. [and in makeup and skin care].”