05.03.16
The Estée Lauder Companies Inc. today reported results for its fiscal third quarter ended March 31, 2016 and announced a new initiative—named Leading Beauty Forward—designed to continue driving sales, reduce costs and enable new organizational capabilities.
The initiative will include a reduction in employees.
Net sales for the company’s third quarter ended March 31, 2016 were $2.66 billion, a 3% increase compared with $2.58 billion in the prior-year quarter. Net earnings were $265.6 million, compared with $272.1 million last year. Excluding the impact of foreign currency translation, net sales increased 6% and diluted net earnings per common share rose 4%, the company said.
“On the strength of our unique brands and agile execution, we posted constant currency sales gains in all our regions and most of our product categories and channels,” said Fabrizio Freda, president and CEO. “Our results this quarter were again highlighted by strong top line growth in our international business, driven by higher sales in virtually every market we serve. We are particularly pleased with the acceleration of both our e-commerce business and social media initiatives, which are helping to drive brand engagement around the world.”
According to Freda, ELC’s “flexible business model, reflecting disciplined resource allocation and improved expense leverage, helped achieve bottom line results ahead of our forecast. We are committed to continuing to target investment spending behind our brands and our greatest opportunities to foster global growth.”
He said that in view of the firm’s performance to date and “our positive outlook for the balance of the year, we are reiterating our expectation for adjusted constant currency sales growth of 7% to 8% and earnings per share growth of 10% to 12%, before charges, for the 2016 fiscal year.”
Net sales and operating income in each of the company’s product categories were unfavorably impacted by the strength of the US dollar in relation to most currencies. Total operating income in constant currency, before charges, increased 4%, said ELC
Reported skin care net sales decreased, due to the unfavorable impact of foreign currency translation. Contributing to sales were double-digit gains from the Company’s online business and from La Mer, including new product introductions, such as Genaissance de La Mer The Serum Essence, as well as strong growth from Origins, said ELC. Offsetting these increases were lower skin care sales from Estée Lauder and Clinique, reflecting, in part, the overall global slowdown in the category. The decreases from Estée Lauder and Clinique were due in part to lower sales in certain countries within the Asia/Pacific region, particularly in Hong Kong. Lower sales from Estée Lauder also reflect a difficult comparison with greater launch activity in the prior-year period. Operating income decreased, primarily reflecting lower results from Estée Lauder, partially offset by higher results from La Mer.
Higher makeup sales were primarily driven by strong double-digit growth from M•A•C, Smashbox and Tom Ford, as well as gains from Bobbi Brown. These sales increases resulted from new product offerings, as well as expanded distribution in a number of channels, including freestanding retail stores, travel retail and specialty-multi brand retailers, said ELC. Total makeup sales increased in the Estée Lauder and Clinique brands. Estée Lauder had higher sales from the Double Wear product line, as well as from the launch of the Estée Edit group of products. Clinique posted higher makeup sales, reflecting recent product offerings, such as Beyond Perfecting foundation + concealer.
ELC said its makeup category is experiencing strong growth in product areas such as lipsticks and foundations, accelerated growth in certain geographic areas, such as the United Kingdom, and increased prestige makeup usage in Asia. The increase in makeup operating income was primarily due to higher results from certain makeup brands and Clinique and Estée Lauder.
Fragrance sales increased primarily due to strong double-digit gains from luxury brands Jo Malone London and Tom Ford and incremental sales from recent acquisitions. The sales growth is attributable to new product launches and expanded distribution, the firm said. Higher net sales from Jo Malone were due to expanded distribution in department stores, freestanding stores and the travel retail channel, the recent launch of Mimosa & Cardamom, and strong growth from existing fragrances. Increased sales from Tom Ford were primarily due to the success of the Tom Ford Noir and Neroli Portofino line of fragrances. Partially offsetting these increases were lower sales of certain Estée Lauder and designer fragrances.
Lauder said that fragrance operating income decreased, reflecting lower sales from certain designer fragrances and Estée Lauder, partially offset by higher results from Jo Malone.
Sales growth in hair care benefited from expanded global distribution, primarily in salons, freestanding stores and travel retail for Aveda and from specialty-multi brand retailers and salons for Bumble and bumble. According to ELC, hair care also reflects incremental sales from new product launches, such as Shampure dry shampoo and the Thickening Tonic, as well as the Invati line of products by Aveda. Hair care’s operating income increased, reflecting the higher net sales, the firm noted.
ELC also announced a multi-year initiative—Leading Beauty Forward—that it contends will “build on its strengths and better leverage its cost structure to free resources for investment to continue its growth momentum.” The initiative is designed to enhance the company’s “go-to-market capabilities, reinforce its leadership in global prestige beauty and continue creating sustainable value.”
“We are launching this initiative from a position of exceptional strength. With the aid of our 10-year compass, we are proactively anticipating long-term industry trends and positioning our brands in more promising and faster growing areas. Leading Beauty Forward should further position us better to continue winning on a complex global stage and generate savings to help sustain our long-term sales growth and margin progress,” said Freda.
Leading Beauty Forward will begin during the company’s fiscal 2016 fourth quarter. Specific initiatives are expected to be approved through the end of fiscal 2019 and completed through fiscal 2021. Key actions include:
• Better leveraging growth through cost savings, more scalable processes and organizational design;
• Redesigning select areas of the company’s go-to-market brand, region and affiliate organizations to strengthen capabilities in areas such as digital and retail;
• Redesigning and restructuring select corporate functions that support the Company’s brands, channels and geographies through the development of scalable global and regional shared services with a more efficient cost base;
• Investing in brand growth, such as new products, social media, communications, in-store merchandising, point-of-sale activities and advertising.
In connection with the initiative, the company estimates a net reduction in the range of approximately 900 to 1,200 positions globally, which is about 2.5% of the company’s current workforce. This reduction takes into account the elimination of some positions, retraining and redeployment of certain employees and investment in new positions in key areas. Additionally, as the company continues to grow and invests in new positions, the improved processes are expected to better leverage productivity in the future.
“Reallocating resources to new capabilities and higher-growth areas, and lowering our cost base will regrettably include selective workforce reductions in certain areas of the Company. We will make difficult decisions about affected employees with sensitivity, consistent with the values of our Company and will make a concerted effort to retrain and redeploy employees wherever possible,” said Freda.
Once fully implemented, Leading Beauty Forward is expected to yield annual net benefits of between $200 million and $300 million, before tax, of which a portion is expected to be reinvested in future initiatives to drive sustainable, profitable sales growth.
The initiative will include a reduction in employees.
Net sales for the company’s third quarter ended March 31, 2016 were $2.66 billion, a 3% increase compared with $2.58 billion in the prior-year quarter. Net earnings were $265.6 million, compared with $272.1 million last year. Excluding the impact of foreign currency translation, net sales increased 6% and diluted net earnings per common share rose 4%, the company said.
“On the strength of our unique brands and agile execution, we posted constant currency sales gains in all our regions and most of our product categories and channels,” said Fabrizio Freda, president and CEO. “Our results this quarter were again highlighted by strong top line growth in our international business, driven by higher sales in virtually every market we serve. We are particularly pleased with the acceleration of both our e-commerce business and social media initiatives, which are helping to drive brand engagement around the world.”
According to Freda, ELC’s “flexible business model, reflecting disciplined resource allocation and improved expense leverage, helped achieve bottom line results ahead of our forecast. We are committed to continuing to target investment spending behind our brands and our greatest opportunities to foster global growth.”
He said that in view of the firm’s performance to date and “our positive outlook for the balance of the year, we are reiterating our expectation for adjusted constant currency sales growth of 7% to 8% and earnings per share growth of 10% to 12%, before charges, for the 2016 fiscal year.”
Net sales and operating income in each of the company’s product categories were unfavorably impacted by the strength of the US dollar in relation to most currencies. Total operating income in constant currency, before charges, increased 4%, said ELC
Reported skin care net sales decreased, due to the unfavorable impact of foreign currency translation. Contributing to sales were double-digit gains from the Company’s online business and from La Mer, including new product introductions, such as Genaissance de La Mer The Serum Essence, as well as strong growth from Origins, said ELC. Offsetting these increases were lower skin care sales from Estée Lauder and Clinique, reflecting, in part, the overall global slowdown in the category. The decreases from Estée Lauder and Clinique were due in part to lower sales in certain countries within the Asia/Pacific region, particularly in Hong Kong. Lower sales from Estée Lauder also reflect a difficult comparison with greater launch activity in the prior-year period. Operating income decreased, primarily reflecting lower results from Estée Lauder, partially offset by higher results from La Mer.
Higher makeup sales were primarily driven by strong double-digit growth from M•A•C, Smashbox and Tom Ford, as well as gains from Bobbi Brown. These sales increases resulted from new product offerings, as well as expanded distribution in a number of channels, including freestanding retail stores, travel retail and specialty-multi brand retailers, said ELC. Total makeup sales increased in the Estée Lauder and Clinique brands. Estée Lauder had higher sales from the Double Wear product line, as well as from the launch of the Estée Edit group of products. Clinique posted higher makeup sales, reflecting recent product offerings, such as Beyond Perfecting foundation + concealer.
ELC said its makeup category is experiencing strong growth in product areas such as lipsticks and foundations, accelerated growth in certain geographic areas, such as the United Kingdom, and increased prestige makeup usage in Asia. The increase in makeup operating income was primarily due to higher results from certain makeup brands and Clinique and Estée Lauder.
Fragrance sales increased primarily due to strong double-digit gains from luxury brands Jo Malone London and Tom Ford and incremental sales from recent acquisitions. The sales growth is attributable to new product launches and expanded distribution, the firm said. Higher net sales from Jo Malone were due to expanded distribution in department stores, freestanding stores and the travel retail channel, the recent launch of Mimosa & Cardamom, and strong growth from existing fragrances. Increased sales from Tom Ford were primarily due to the success of the Tom Ford Noir and Neroli Portofino line of fragrances. Partially offsetting these increases were lower sales of certain Estée Lauder and designer fragrances.
Lauder said that fragrance operating income decreased, reflecting lower sales from certain designer fragrances and Estée Lauder, partially offset by higher results from Jo Malone.
Sales growth in hair care benefited from expanded global distribution, primarily in salons, freestanding stores and travel retail for Aveda and from specialty-multi brand retailers and salons for Bumble and bumble. According to ELC, hair care also reflects incremental sales from new product launches, such as Shampure dry shampoo and the Thickening Tonic, as well as the Invati line of products by Aveda. Hair care’s operating income increased, reflecting the higher net sales, the firm noted.
ELC also announced a multi-year initiative—Leading Beauty Forward—that it contends will “build on its strengths and better leverage its cost structure to free resources for investment to continue its growth momentum.” The initiative is designed to enhance the company’s “go-to-market capabilities, reinforce its leadership in global prestige beauty and continue creating sustainable value.”
“We are launching this initiative from a position of exceptional strength. With the aid of our 10-year compass, we are proactively anticipating long-term industry trends and positioning our brands in more promising and faster growing areas. Leading Beauty Forward should further position us better to continue winning on a complex global stage and generate savings to help sustain our long-term sales growth and margin progress,” said Freda.
Leading Beauty Forward will begin during the company’s fiscal 2016 fourth quarter. Specific initiatives are expected to be approved through the end of fiscal 2019 and completed through fiscal 2021. Key actions include:
• Better leveraging growth through cost savings, more scalable processes and organizational design;
• Redesigning select areas of the company’s go-to-market brand, region and affiliate organizations to strengthen capabilities in areas such as digital and retail;
• Redesigning and restructuring select corporate functions that support the Company’s brands, channels and geographies through the development of scalable global and regional shared services with a more efficient cost base;
• Investing in brand growth, such as new products, social media, communications, in-store merchandising, point-of-sale activities and advertising.
In connection with the initiative, the company estimates a net reduction in the range of approximately 900 to 1,200 positions globally, which is about 2.5% of the company’s current workforce. This reduction takes into account the elimination of some positions, retraining and redeployment of certain employees and investment in new positions in key areas. Additionally, as the company continues to grow and invests in new positions, the improved processes are expected to better leverage productivity in the future.
“Reallocating resources to new capabilities and higher-growth areas, and lowering our cost base will regrettably include selective workforce reductions in certain areas of the Company. We will make difficult decisions about affected employees with sensitivity, consistent with the values of our Company and will make a concerted effort to retrain and redeploy employees wherever possible,” said Freda.
Once fully implemented, Leading Beauty Forward is expected to yield annual net benefits of between $200 million and $300 million, before tax, of which a portion is expected to be reinvested in future initiatives to drive sustainable, profitable sales growth.