Top Companies Report

4. Estée Lauder

June 28, 2012

New York, NY
Sales: $8.8 billion. Net income: $700 million for the year ended June 30, 2011.

Key Personnel: Fabrizio Freda, president and chief executive officer; Amy DiGeso, executive vice president, global human resources; John Demsey, group president; Carl Haney, executive vice president, research and development, product innovation and brand product development; Richard W. Kunes, executive vice president and chief financial officer; Leonard A. Lauder, chairman emeritus; Ronald S. Lauder, chairman, Clinique Laboratories, LLC; William P. Lauder, executive chairman; Sara E. Moss, executive vice president and general counsel; Gregory F. Polcer, executive vice president, global supply chain; Cedric Prouvé, group president, international; Alexandra C. Trower, executive vice president, global communications.

Major Products: Skin care, makeup, fragrances and hair care products marketed under brands including Estée Lauder, Aramis, Clinique, Prescriptives, Lab Series Skincare for Men, Origins, Tommy Hilfiger, MAC, Kiton, La Mer, Bobbi Brown, Donna Karan, Aveda, Jo Malone, Bumble and Bumble, Michael Kors, Darphin, American Beauty, Flirt!, Goodskin Labs, Grassroots Research Labs, Sean John, Missoni, Tom Ford Beauty, Coach, Ojon, Smashbox.

New Products: Skin care—Estée Lauder Re-Nutriv Ultimate Lift Age-Correcting and Hydrationist Collections, Idealist Even Skintone Illuminator and Idealist Cooling Eye Illuminator; Clinique Repairwear Laser Focus Wrinkle & UV Damage Corrector, Lid Smoothie Antioxidant 8-Hour Eye Colour and Turnaround Overnight Radiance Moisturizer; Origin Planscription La Mer The Eye Balm Intense and The Radiant Serum. Makeup—Estée Lauder Pure Color eyeshadow and long lasting lipstick; Clinique Redness Solutions; Fragrance—Estée Lauder Pleasures Bloom, Sensuous Nude; DKNY Golden Delicious and Hilfiger Loud for Her.

Comments: P&G may be rethinking its global strategy and Avon may be a mess, but Estée Lauder just keeps on chugging along. Last year, sales rose 13% and net earnings soared 47%—which put EL smack dab in the middle of the surging prestige beauty business in the US. Fiscal 2011 was a quiet year for Estée Lauder, which had been snapping up smaller companies on a nearly annual basis since 1999. The last acquisition Estée Lauder made was Smashbox in 2010.

Perfectionist CP+R Wrinkle Lifting/Firming Serum.
By distribution channel, North American department stores and international department stores each accounted for 27% of The Estée Lauder Companies’ total sales. Perfumeries were next at 13%; followed by travel retail, 10%; retail stores and other, 9% each; and salon/spas, 5%.

By product category, skin care sales increased 15% to $3.7 billion due to successful launches of products such as Re-Nutriv Ultimate Lift Age-Correcting and Hydrationist collections, but those launches were partly offset by declining sales of Advanced Night Repair line from Estée Lauder and Cyber White EX from Clinique.

Makeup sales increased 13% to $3.3 billion on the strength of the recent launches of Pure Color eyeshadow products and Pure Color Long Lasting Lipstick from Estée Lauder and Redness Solutions Makeup from Clinique. Those gains were offset in part by lower sales of Prescriptives, Superfit Makeup from Clinique and Resilience Lift Extreme Makeup from Estée Lauder.

Fragrance sales increased 9% to $1.2 billion. The gain was attributed to launches of Estée Lauder Pleasures Bloom and Hilfiger Loud for Her as well as higher sales of Coach Poppy, pureDKNY and various Jo Malone and Tom Ford fragrances, which were partially offset by lower sales of DKNY Delicious Candy Apples, Estée Lauder Sensuous and I Am King Sean John.

By region, sales in the Americas rose 10% to nearly $3.8 billion, due to a strengthening retail outlook in the US and Canada as well as gains in Brazil.

Sales in Europe, the Middle East and Africa rose 14% to $3.2 billion due to growth from the travel retail business, as well as the UK, Russia, the Middle East, South Africa and France.

Finally, net sales in Asia/Pacific increased 17% to more than $1.7 billion. Much of the increase was due to higher skin care sales in China, Hong Kong, Korea and Taiwan, but those gains were tempered by difficult economic conditions in Australia and Japan, according to Lauder.

The gains continued into fiscal 2012. For the nine months ended March 31, 2012, sales rose 11% to more than $7.4 billion. Skin care sales increased 16% to $3.2 billion; makeup sales rose 9% nearly $2.8 billion; fragrance sales rose 1% to just over $1 billion and hair care sales increased 6% to $335 million.

Limited edition Mad Men color cosmetics collection.

“From the US, our underlying business trend is really strong. Our US business is very strong, and we believe we continue to be very, very solid,” noted Fabrizio Freda, president and CEO. He pointed out that in prestige department and beauty specialty stores in the US tracked by NPD, Estée Lauder gained an impressive 1.6% share in skin care, led by Clinique, Estée Lauder, and La Mer.

“Our skin care lineup is so powerful that in the quarter our brands had eight of the top 10 SKUs and 20 of the top 25 products,” he told analysts in a Q3 earnings call. “Importantly, our skin care sales in these channels expanded 23% at retail in this recent period over the same quarter last year. Estée Lauder, in particular, had great results, with its skin care business rising 21% retail in the United States.”

Freda also announced Estée Lauder will streamline its manufacturing operation and create a state-of-the-art facility at its Melville, NY location for fragrance filling and skin care. During the next year, Estée Lauder will transition fragrance filling to Melville from Oakland, NJ, and close the Oakland plant. To make room for the manufacturing expansion, the company is relocating distribution operations from Melville to its North America hub in Pennsylvania, which will enable EL to better serve its retailers by centralizing our distribution.

Secondly, Estée Lauder will to continue to increase ad spending to build its momentum in fiscal year 2013. For the full year, incremental advertising spending was expected to exceed $275 million. EL is funding the additional advertising spending through higher sales and by reducing promotions and non-added value cost. In fact, Freda credits increased advertising for much of the company’s double-digit gains during the past two years.

“As we approach the three-year mark of our strategic journey, we have complete confidence in the soundness of our vision and our ability to execute with excellence,” noted Freda. “Our goals are to ensure that we anticipate consumer desires; build upon our leadership role in global prestige beauty; and deliver sustainable, profitable growth to stockholders.”