Hong Kong
Estee Lauder Companies Delivers 30% Earnings Per Share Increase on 11% Sales Growth in First Quarter of Fiscal 2009
Press Release, Oct 28, 2008
International Sales and Earnings Drive Growth
NEW YORK--(BUSINESS WIRE)--Oct. 28, 2008--The Estee Lauder Companies Inc. (NYSE: EL) today reported $1.90 billion in net sales for its fiscal first quarter ended September 30, 2008, an 11% increase over the $1.71 billion reported in the prior-year quarter. Excluding the impact of foreign currency translation, net sales rose 10%.
The Company reported net earnings for the quarter ended September 30, 2008 of $51.1 million, a 31% increase compared with $39.1 million last year. Diluted net earnings per common share for the quarter rose 30% to $.26 compared with $.20 reported in the prior year.
William P. Lauder, Chief Executive Officer said, "In spite of a very challenging global macroeconomic environment, we met our sales growth target and exceeded our EPS estimate for the quarter. We achieved our goals on the strength of our brands and the efforts of our employees who demonstrated time and again the value of our products to consumers. Our performance in the period underscored, once more, the importance of our investments in emerging markets as well as our presence in more established international markets. We also continued to benefit from product innovation, multi-channel distribution and consistent brand building investments. Looking forward, we are convinced that these strategies, along with our commitment to strong execution and disciplined spending, will continue to be key drivers of both our top line and bottom line performance.
"In the near term, we see this as a time of extraordinary uncertainty. We believe the global economic challenges will be extensive and ongoing, and we are managing our business with these expectations in mind. We remain focused on our core strengths and in directing our resources to the greatest growth opportunities, while vigilantly taking necessary steps to protect our bottom line where we can. We believe that the slowdown in the global economy will impact our overall sales growth for the remainder of the fiscal year, and the unprecedented strengthening of the U.S. dollar against several major currencies will also have a negative impact on our results. With this in mind, we are revising our full 2009 fiscal year estimates for sales growth in constant currencies to 3% to 5% and earnings per share to $2.20 to $2.50."
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Results by
Product
Category
-----------
Three Months Ended September 30
----------------------------------------------------------
(Unaudited;
Dollars in Operating Percent
millions) Net Sales Percent Change Income (Loss) Change
----------- ----------------- ----------------- ------------- --------
Reported Local Reported
2008 2007 Basis Currency 2008 2007 Basis
-------- -------- -------- -------- ----- ----- --------
Skin Care $ 716.8 $ 619.5 15.7% 13.9% $43.5 $35.8 21.5%
Makeup 742.9 663.1 12.0 10.6 54.4 41.1 32.4
Fragrance 327.8 313.0 4.7 3.3 (5.5) (5.0) (10.0)
Hair Care 98.8 102.6 (3.7) (4.4) (1.0) 7.4 (100.0)+
Other 17.2 11.9 44.5 42.9 1.2 (1.1) 100.0+
-------- -------- ----- -----
Subtotal 1,903.5 1,710.1 11.3 9.8 92.6 78.2 18.4
Special
charges
related to
cost
savings
initiative - - (0.1) (0.3)
-------- -------- ----- -----
Total $1,903.5 $1,710.1 11.3% 9.8% $92.5 $77.9 18.7%
======== ======== ===== =====
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For the fiscal 2009 first quarter, on a reported basis, as well as in constant currency, sales increased in all product categories within each of the Company's geographic regions, except for hair care in the Americas.
Skin Care
-- The 16% net sales growth in skin care products in the current
quarter was particularly strong in view of the 9% sales gain
in the category in last year's first quarter. This growth was
primarily fueled by double-digit increases in the Company's
international businesses.
-- The recent launches of Perfectionist (CP+) Wrinkle Lifting
Serum and Cyber White EX by Estee Lauder, as well as Moisture
Surge Extended Thirst Relief and Superdefense SPF 25 Age
Defense Moisturizer from Clinique contributed incremental
sales.
-- The category's growth also benefited from increases in our La
Mer brand and products such as the 3-Step Skin Care System
from Clinique and Tri-Aktiline Instant Deep Wrinkle Filler and
Eyliplex-2 by good skin(TM).
-- Operating income increased, primarily reflecting improved
results from certain of the Company's core brands due to the
strong sales gains.
Makeup
-- Makeup sales increased sharply, with solid double-digit gains
reported in international markets along with a mid-single
digit sales increase in the Americas.
-- The Company's makeup artist brands continued to generate
strong sales growth during the quarter, principally in
international markets.
-- Higher makeup sales were also generated from the launch of
High Impact Lip Colour SPF 15 and reformulated Superfit Makeup
from Clinique, as well as Estee Lauder Signature Blush and
Sumptuous Bold Volume Lifting Mascara by Estee Lauder.
-- Operating income increased, primarily reflecting improved
results from certain of the Company's core brands and makeup
artist brands stemming from the higher sales.
Fragrance
-- Fragrance sales increased, primarily driven by newer fragrance
offerings. While current year sales compared favorably to the
prior year, the Company continues to face challenges in this
product category, primarily in the United States.
-- The launch of Sensuous by Estee Lauder and the international
introduction of DKNY Delicious Night contributed to the sales
growth.
-- The increased sales also benefited from the performance of
various Tom Ford and Jo Malone fragrances.
-- Operating loss in the fragrance product category widened in
the current quarter primarily reflecting lower net sales of
designer fragrance products, partially offset by favorable
results related to launches of new Estee Lauder fragrances.
Hair Care
-- Sales of hair care products decreased, primarily due to the
conclusion of Bumble and bumble's hotel amenities program.
-- Aveda net sales benefited from the launch of Dry Remedy
Shampoo and Conditioner and the recent acquisition of an
independent distributor.
-- Higher sales were posted at Ojon, which was acquired in July
2007.
-- Hair care reported an operating loss in the current quarter
compared to an operating profit in the prior-year period,
primarily due to the conclusion of the Bumble and bumble
amenities program and an increase in selling and marketing
expenses related to the positioning of the Ojon brand for
future growth.
----------------------------------------------------------------------
Results
by
Geographic
Region
-----------
Three Months Ended September 30
----------------------------------------------------------
(Unaudited; Operating Percent
Dollars in Income Change
millions) Net Sales Percent Change (Loss)
----------- ----------------- ----------------- ------------ --------
Reported Local Reported
2008 2007 Basis Currency 2008 2007 Basis
-------- -------- -------- -------- ----- ----- --------
The
Americas $ 939.0 $ 898.9 4.5% 4.2% $56.5 $52.4 7.8%
Europe, the
Middle
East &
Africa 641.5 551.2 16.4 13.5 7.6 9.0 (15.6)
Asia/
Pacific 323.0 260.0 24.2 21.1 28.5 16.8 69.6
-------- -------- ----- -----
Subtotal 1,903.5 1,710.1 11.3 9.8 92.6 78.2 18.4
Special
charges
related to
cost
savings
initiative - - (0.1) (0.3)
-------- -------- ----- -----
Total $1,903.5 $1,710.1 11.3% 9.8% $92.5 $77.9 18.7%
======== ======== ===== =====
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The Americas
-- Sales growth reflected gains in the United States from certain
of the Company's core brands and makeup artist brands. Gains
were also achieved in Latin America and Canada, as well as
growth from the Ojon brand.
-- The Company believes the current economic conditions in this
region during the quarter, particularly in the department
store channel, as well as competitive pressures, negatively
impacted certain of the Company's businesses.
-- Operating income in the Americas increased, driven by higher
sales from certain of the Company's core and makeup artist
brands, coupled with cost containment and contingency plan
efforts. These favorable results were partially offset by
challenges experienced by the Company's hair care brands in
the United States and incremental investment in information
technology systems and infrastructure.
Europe, the Middle East & Africa
-- In constant currency, net sales increased sharply, with every
country, except Spain, posting gains, and most reporting
double-digit sales growth. The higher sales were led by the
United Kingdom, the Company's travel retail business and
Italy.
-- Strong double-digit sales increases were achieved in certain
emerging markets, including Russia and Eastern Europe.
-- Operating income decreased, reflecting lower results in
Russia, Spain and France, inclusive of additional provisions
for certain accounts receivable and inventory. Partially
offsetting these decreases were improved results from our
travel retail business, the United Kingdom and Germany.
Asia/Pacific
-- This region generated significant constant currency sales
growth with every country posting increases. Strong
double-digit growth was generated in Korea, China, Hong Kong,
Australia and Thailand. Sales in Japan, the Company's largest
Asian market, also improved, rising mid-single digits.
-- Operating income in the region increased substantially, led by
improved results in Japan, Korea, Hong Kong and China.
Cash Flows
-- For the three months ended September 30, 2008, net cash flows
used for operating activities were $196.2 million, compared
with $132.8 million in the prior-year period.
-- The change primarily reflects increased cash used for certain
seasonal working capital components and noncurrent
liabilities.
-- Operating cash flow was utilized primarily for capital
investments, the acquisitions of businesses and the repurchase
of shares of the Company's Class A Common Stock.
-- The Company believes that cash on hand, cash generated from
operations, available credit lines and access to credit
markets will be adequate to support its currently planned
business operations on both a near-term and long-term basis.
Estimate of Fiscal 2009 Second Quarter and Full Year
The high degree of global economic uncertainty may have a negative effect on consumer confidence, demand and spending. The Company cannot predict with certainty the extent or duration of these conditions and is cautious that the current economic climate may affect the Company's results for the remainder of fiscal 2009. A continuation of these conditions, which are almost without precedent, makes definitive forecasting difficult.
The Company expects the current retail trends in North America to continue for the remainder of the fiscal year. In Europe, the Middle East & Africa, sales growth rates are anticipated to slow in certain key countries. The Company's outlook in Asia/Pacific is cautiously positive, reflecting the softening of certain retail environments in this region.
Second Quarter
-- Net sales are expected to grow between 2% and 3% in constant
currency.
-- Foreign currency translation at current spot rates is expected
to negatively impact net sales by approximately 8.5% versus
the prior-year period.
-- Diluted net earnings per share are projected to be between
$.97 and $1.05. This projection includes the expected negative
impact of foreign currency translation of approximately $.11
per share.
Full Year
-- Net sales are now forecasted to grow between 3% and 5% in
constant currency, below the previous expectations of sales
growth of 6% to 8%.
-- Foreign currency translation at current spot rates is expected
to negatively impact net sales by approximately 6.5% versus
the prior-year period.
-- Given the revised sales expectations, the Company projects
diluted net earnings per share to be between $2.20 and $2.50.
This projection includes the expected negative impact of
foreign currency translation of approximately $.33 per share.
-- On a product category basis, in constant currency, sales in
hair care are expected to be the leading sales growth
category, followed by skin care, makeup and fragrance.
-- Geographic region net sales growth in constant currency is
expected to be led by Asia/Pacific, where the Company expects
sales gains of approximately 13% to 15%. In Europe, the Middle
East & Africa constant currency sales are forecasted in the
range of 4% to 6% and in the Americas, flat to up 2%.
Forward-Looking Statements
The forward-looking statements in this press release, including those containing words like "expect," "planned," "may," "could," "anticipate," "estimate," "projected," "forecasted," those in Mr. Lauder's remarks and those in the "Estimate of Fiscal 2009 Second Quarter and Full Year" section involve risks and uncertainties. Factors that could cause actual results to differ materially from those forward-looking statements include the following:
(1) increased competitive activity from companies in the skin care, makeup, fragrance and hair care businesses, some of which have greater resources than the Company does;
(2) the Company's ability to develop, produce and market new products on which future operating results may depend and to successfully address challenges in the Company's core brands, including gift with purchase, and in the Company's fragrance business;
(3) consolidations, restructurings, bankruptcies and reorganizations in the retail industry causing a decrease in the number of stores that sell the Company's products, an increase in the ownership concentration within the retail industry, ownership of retailers by the Company's competitors and ownership of competitors by the Company's customers that are retailers;
(4) destocking by retailers;
(5) the success, or changes in timing or scope, of new product launches and the success, or changes in the timing or scope, of advertising, sampling and merchandising programs;
(6) shifts in the preferences of consumers as to where and how they shop for the types of products and services the Company sells;
(7) social, political and economic risks to the Company's foreign or domestic manufacturing, distribution and retail operations, including changes in foreign investment and trade policies and regulations of the host countries and of the United States;
(8) changes in the laws, regulations and policies (including the interpretation and enforcement thereof) that affect, or will affect, the Company's business, including those relating to its products, changes in accounting standards, tax laws and regulations, trade rules and customs regulations, and the outcome and expense of legal or regulatory proceedings, and any action the Company may take as a result;
(9) foreign currency fluctuations affecting the Company's results of operations and the value of its foreign assets, the relative prices at which the Company and its foreign competitors sell products in the same markets and the Company's operating and manufacturing costs outside of the United States;
(10) changes in global or local conditions, including those due to the volatility in the global credit and equity markets, natural or man-made disasters, real or perceived epidemics, or energy costs, that could affect consumer purchasing, the willingness or ability of consumers to travel and/or purchase the Company's products while traveling, the financial strength of the Company's customers, suppliers or other contract counterparties, the Company's operations, the cost and availability of capital which the Company may need for new equipment, facilities or acquisitions, the returns that the Company is able to generate on its pension assets and the resulting impact on its funding obligations, the cost and availability of raw materials and the assumptions underlying the Company's critical accounting estimates;
(11) shipment delays, depletion of inventory and increased production costs resulting from disruptions of operations at any of the facilities that manufacture nearly all of the Company's supply of a particular type of product (i.e., focus factories) or at the Company's distribution or inventory centers, including disruptions that may be caused by the implementation of SAP as part of the Company's Strategic Modernization Initiative;
(12) real estate rates and availability, which may affect the Company's ability to increase or maintain the number of retail locations at which the Company sells its products and the costs associated with the Company's other facilities;
(13) changes in product mix to products which are less profitable;
(14) the Company's ability to acquire, develop or implement new information and distribution technologies on a timely basis and within the Company's cost estimates;
(15) the Company's ability to capitalize on opportunities for improved efficiency, such as publicly announced cost-savings initiatives, and to integrate acquired businesses and realize value therefrom;
(16) consequences attributable to the events that are currently taking place in the Middle East, including terrorist attacks, retaliation and the threat of further attacks or retaliation;
(17) the timing and impact of acquisitions and divestitures, which depend on willing sellers and buyers, respectively, and;
(18) additional factors as described in the Company's filings with the Securities and Exchange Commission, including its Annual Report on Form 10-K for the fiscal year ended June 30, 2008.
The Company assumes no responsibility to update forward-looking statements made herein or otherwise.
The Estee Lauder Companies Inc. is one of the world's leading manufacturers and marketers of quality skin care, makeup, fragrance and hair care products. The Company's products are sold in over 140 countries and territories under the following brand names: Estee Lauder, Aramis, Clinique, Prescriptives, Lab Series, Origins, M-A-C, Bobbi Brown, Tommy Hilfiger, Kiton, La Mer, Donna Karan, Aveda, Jo Malone, Bumble and bumble, Darphin, Michael Kors, American Beauty, Flirt!, Good Skin(TM), Grassroots, Sean John, Missoni, Daisy Fuentes, Tom Ford, Mustang, Coach, Ojon and Eyes by Design.
An electronic version of this release can be found at the Company's website, www.elcompanies.com.
THE ESTEE LAUDER COMPANIES INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited; In millions, except per share data and percentages)
Three Months Ended
September 30 Percent
-------------------
2008 2007 Change
-------- --------- -------
Net Sales $1,903.5 $1,710.1 11.3%
Cost of sales 500.1 455.8
-------- --------
Gross Profit 1,403.4 1,254.3 11.9%
-------- --------
Gross Margin 73.7% 73.3%
Operating expenses:
Selling, general and administrative 1,310.8 1,176.1
Special charges related to cost savings
initiative 0.1 0.3
-------- --------
1,310.9 1,176.4 11.4%
-------- --------
Operating Expense Margin 68.9% 68.8%
Operating Income 92.5 77.9 18.7%
Operating Income Margin 4.8% 4.5%
Interest expense, net 15.3 18.4
Earnings before Income Taxes and Minority
Interest 77.2 59.5 29.7%
Provision for income taxes 27.6 21.1
Minority interest, net of tax 1.5 0.7
-------- --------
Net Earnings $ 51.1 $ 39.1 30.7%
======== ========
Net earnings per common share:
Basic $ .26 $ .20 29.7%
Diluted .26 .20 29.8%
Weighted average common shares
outstanding:
Basic 195.3 194.0
Diluted 198.8 197.2
THE ESTEE LAUDER COMPANIES INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited; In millions)
September 30 June 30 September 30
2008 2008 2007
------------ -------- ------------
ASSETS
Current Assets
Cash and cash equivalents $ 328.8 $ 401.7 $ 211.4
Accounts receivable, net 1,164.9 1,038.8 1,062.4
Inventory and promotional
merchandise, net 1,048.4 987.2 968.5
Prepaid expenses and other current
assets 364.1 359.5 285.5
------------- -------- ------------
Total Current Assets 2,906.2 2,787.2 2,527.8
------------- -------- ------------
Property, Plant and Equipment, net 1,042.6 1,043.1 917.4
Other Assets 1,232.9 1,180.9 1,167.7
------------- -------- ------------
Total Assets $ 5,181.7 $5,011.2 $4,612.9
============= ======== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Short-term debt $ 349.9 $ 118.7 $ 396.3
Accounts payable 331.5 361.7 314.5
Other current liabilities 1,142.7 1,218.8 1,060.7
------------- -------- ------------
Total Current Liabilities 1,824.1 1,699.2 1,771.5
------------- -------- ------------
Noncurrent Liabilities
Long-term debt 1,082.0 1,078.2 1,062.4
Other noncurrent liabilities and
minority interest 559.2 580.6 555.6
Total Stockholders' Equity 1,716.4 1,653.2 1,223.4
------------- -------- ------------
Total Liabilities and
Stockholders' Equity $ 5,181.7 $5,011.2 $4,612.9
============= ======== ============
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SELECT CASH FLOW DATA
(Unaudited; In millions)
Three Months Ended
September 30
------------------
2008 2007
--------- --------
Cash Flows from Operating Activities
Net earnings $ 51.1 $ 39.1
Depreciation and amortization 62.6 59.0
Deferred income taxes (7.1) (6.4)
Other items 24.5 20.8
Changes in operating assets and liabilities:
Increase in accounts receivable, net (177.6) (174.6)
Increase in inventory and promotional
merchandise, net (96.8) (84.9)
Increase in other assets, net (23.0) (12.1)
Increase (decrease) in accounts payable and
other liabilities (29.9) 26.3
-------- -------
Net cash flows used for operating
activities $(196.2) $(132.8)
======== =======
Capital expenditures $ 75.9 $ 78.5
Payments to acquire treasury stock 57.0 54.4
CONTACT: The Estee Lauder Companies Inc.
Investor Relations:
Dennis D'Andrea, 212-572-4384
or
Media Relations:
Alexandra Trower, 212-572-4430
SOURCE: The Estee Lauder Companies Inc.