Estee Lauder margins looking good

The company raises its outlook for the rest of the fiscal year as makeup and hair care perform strongly.

By Trefis May 7, 2013 12:54PM
logo Lipstick copyright Stockbyte, PictureQuestEstee Lauder (EL) reported modest revenue growth for its third quarter ending March 31. Net revenues stood at $2.29 billion for the quarter, up 2% year-on-year. 

As discussed in our previous analysis (see Trefis), this was primarily affected by some accelerated orders received by the company during the second quarter as a result of a phased implementation of its SAP-based technology. These accelerated orders totaled about $94 million, which otherwise would have been filled during the third quarter.

The company, however, reported higher-than-expected growth of net earnings, which came in at $178.8 million, up 37% over the same period the previous year. Part of this gain came from one-time adjustments in the third quarter of 2012. Excluding these adjustments, net income would have still grown 19% to $177.8 million. 

Given the higher margins during this quarter, the company has raised its outlook for the rest of the fiscal year which ends in June 2013, and it expects to achieve 6% growth in sales on a constant currency basis for the entire year.

Makeup and hair care drive revenues; skin care disappoints

The skin care division reported lackluster performance with revenues of $1.01 billion, unchanged over the same period previous year. Although the company launched a slew of new products including Advanced Time Zone, Advanced Night Repair Eye Serum Infusion and Perfectionist CP+R from Estee Lauder and The Moisturizing Soft Cream from La Mer, the growth was entirely offset by the accelerated orders worth $48 million received by the company during last quarter.

Estee Lauder Skin Care Market ShareHowever, the makeup and hair care division reported strong performance with 5% and 6% higher revenues respectively, supported by solid growth from M.A.C and Aveda brand products. The company introduced new products under the makeup division such as Even Better Compact Makeup and recorded higher sales of the Tom Ford line of cosmetics. Apart from increased sales of Aveda, higher sales of the Invati line of products and the recent launches of Pure Abundance Style Prep and Be Curly Curl Controller contributed to the strong performance of hair care division. The company particularly gained momentum in hair care division through expanded distribution in salons, in addition to the normal delivery channels.

Broad-based growth seen across regions

The company recorded low single-digit growth across geographies as sales were higher by 2% in the Americas, 3% in Europe, the Middle East & Africa and 3% in Asia-Pacific. Revenues from the Americas were affected by the accelerated orders received last quarter, which was more than offset by the strong sales growth from the Company's makeup artist brands and Aveda.

Estee Lauder Hair Care Market ShareDouble-digit revenue growth from travel retail, the Middle East and South Africa were moderated by lower sales in Switzerland, France, Spain and the Balkans. Though the ongoing economic uncertainties in Southern European countries impacted the beauty markets, the company estimates that it gained market shares within these regions and outperformed the industry. Strong sales of skin care products and expanded distribution facilities helped Estee Lauder to gain higher sales in Asia-Pacific, especially in Hong Kong, Thailand and Australia.

Trefis has updated its $66 Trefis price estimate for Estee Lauder to incorporate the latest earnings.

Tags: EL


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