Estee Lauder Issues Earnings Warning

Estee Lauder Cos. Inc warned yesterday that its fiscal second-quarter sales and earnings would be sharply lower than expected, because U.S. retailers are tightening inventories in the weakened economy.

The company anticipates that diluted earnings per share for the quarter will be about 35 to 37 cents per share. Analysts’ estimates had ranged from 49 to 51 cents, with a mean of 50 cents, according to earnings tracking firm Thomson Financial/First Call.

“The substantial inventory de-stocking by our retail customers is having an impact on our business,” said Fred Langhammer, president and chief executive officer. He added that retailers were taking a very conservative stance as they enter 2002.

But the company maintained that consumer demand was not drying up. It said consumers are buying products at retail 5% faster than retailers are buying from the manufacturer, a factor that will likely drive future shipments.

Still, one analyst told Reuters she doubts the Lauder projections.

“I don’t know if I believe that. Why, if retailers are seeing cosmetic sales still up in mid-single digits, why would they be continuing to reduce inventory? Lauder never said inventory was extraordinarily high in the channels,” said analyst Linda Bolton Weiser of Fahnestock & Co.

The company had already lowered sales and earnings forecasts for the fiscal year in late September, saying the attacks on the U.S. had accelerated the decline of the retail environment.

In September, the company said uncertainty about consumer confidence and spending, inventory contraction by retailers and a significant reduction in worldwide travel, which affects business in travel-related retailers like airport duty-free shops, would hurt sales and earnings.

Net sales for the fiscal 2002 second quarter are now expected to decrease 1-2% on a constant currency basis, versus previous expectations of sales growth between 2-3%.

The Americas region is expected to report a low single-digit sales decline, as is the Europe, Middle East & Africa region, as a result of the significant shortfall in the company’s travel retail business, which is reported in this region.

“With historically low inventory levels at retail, we are well positioned when the economy begins to show signs of improvement and the sentiment of retailers improves,” Mr. Langhammer said.

The company’s free-standing retail stores continue to generate strong results, it said. Excluding the travel retail business, which has suffered from the drop in international tourism since the Sept. 11 attacks, net sales in Europe, the Middle East & Africa remain solid and continue to grow.

In the Asia/Pacific region, excluding Japan, business in most markets is performing exceptionally well, the company said. Second-quarter net sales in constant currency are expected to be led by high single-digit percentage growth in the region.

Analysts have said that cosmetics customers tend to have strong brand loyalty and are less likely to switch to less expensive brands during an economic downturn.

Excluding the travel retail business, Europe, the Middle East & Africa continues to show high single-digit growth, Estee Lauder said.

The company expects low single-digit increases in makeup and skin care, while fragrance sales are expected to post a low double-digit sales decline.

The company does not plan to provide guidance on the full fiscal year until the Christmas season is complete and its spring programs are in place. In late September, the company said it expected full-year earnings in the range of $1.45 to $1.50 per share, on sales growth of 5-6% excluding the impact of foreign exchange.

Shares of Estee Lauder closed at $31.99 in New York Stock Exchange trading. The stock has fallen 16% since the Sept. 11 attacks on the World Trade Center and the Pentagon.