This summary is based on the second quarter fiscal 2008 earnings call conducted by The Estee Lauder Companies Inc. (EL: chart) on February 1, 2008.
Management:
President, CEO: William Lauder
Exec. VP, CFO: Richard Kunes
IR: Dennis D’Andrea
COO: Daniel Brestle
Global President of Clinique: Lynn Green
Key Investors Issues
- EPS were $1.14 a share compared to 99 cents a share last year.
- Net profit rose to $224.4 million versus $208.4 million a year ago.
- Sales rose to $2.31 billion from $1.99 billion last year.
Second Quarter Highlights
The company reported net earnings of $224.4 million, an 8% increase compared with $208.4 million last year.
- Net earnings per common share rose 16% to $1.14 compared with $.99 reported in the prior year.
- Sales and operating income in the skin care, makeup and fragrance categories were favorably impacted in the United States by the ordering patterns of department stores as a result of a one week shift in the retail calendar from the company’s fiscal first quarter.
- Sales increased in all product categories within each of the company’s geographic regions.
The net sales growth in skin care products was particularly strong in view of the 9% sales gain in the category in last year’s second quarter.
- The current quarter growth was fueled by double-digit increases in all geographic regions.
- Net sales benefited from the additional spending in the fiscal first quarter behind the company’s brands to maintain momentum into the holiday season.
- In addition to sales growth from certain existing products, the skin care category benefited from strong worldwide incremental sales of recent products such as Idealist Pore Minimizing Skin Refinisher by Estée Lauder and Acne Solutions Clear Skin System from Clinique. The category’s growth reflected strong double-digit gains from the Company’s La Mer brand, due in part to the momentum from the recent launch of The Eye Concentrate.
- Operating income increased reflecting the strong worldwide sales gains.
Makeup sales growth was impressive despite facing a difficult comparison to the prior-year second quarter when sales grew 12%.
- The increase was led by solid gains internationally. Sales in the Americas were up primarily due to the effect of the shift in the U.S. retail calendar.
- Double-digit growth in the company’s makeup artist brands contributed more than 65% of the incremental sales. The strong gains in the makeup artist brands were generated by solid product performances, additional market expansion, and for the MAC brand, new freestanding retail stores. The increase also reflects the positive contributions of new and existing products from certain core brands.
- Operating income increased, reflecting strong international growth, partially offset by weakness in certain brands in the United States.
In absolute dollars fragrance sales growth was strongest in the company’s European region, primarily driven by newer fragrance offerings.
- While current quarter sales compared favorably to the same prior-year period, the company continues to face challenges in this product category, primarily in the United States.
- Contributing to the sales growth were recent launches, such as Sean John Unforgivable Woman and Estée Lauder pleasures delight, as well as the introduction of Dreaming by Tommy Hilfiger, primarily in certain international countries. The successful introduction of Tom Ford for Men also generated incremental sales, as well as the continued strong performance of DKNY Be Delicious.
- Operating income in the fragrance product category increased, reflecting growth outside of the United States in certain of the company’s core fragrances, partially offset by lower results from designer fragrances, which continued spending in support of new product launches as well as its existing fragrances.
Sales of hair care products increased, primarily due to growth from Aveda and Bumble and bumble, and the inclusion of the Ojon brand, which was acquired in July 2007.
- Aveda net sales benefited from the recent launch of Aveda Men Pure-Formance and Smooth Infusion products, and the recent acquisition of an independent distributor.
- Higher sales at Bumble and bumble were primarily due to its hotel amenities program and new points of distribution.
- Hair care operating profit decreased, reflecting investments designed to support short- and long-term growth in this category through new points of distribution. The lower results are also due to an increase in intangible asset amortization resulting from recent strategic acquisitions.
The Americas
- The soft retail environment during the holiday season, particularly in the department store channel, as well as competitive pressures negatively impacted certain of the company’s brands.
- Sales growth reflected the favorable impact of the shift in the U.S. retail calendar. Increases were generated from the company’s internet distribution, hair care business, including the addition of the Ojon brand, and the BeautyBank division. Higher overall sales gains were also achieved in Latin America and Canada.
