Estée Lauder Companies Reports Outstanding FY22 Second Quarter Results

The Estée Lauder Companies Inc. said net sales for its second quarter ended December 31, 2021 rose 14% from $4.85 billion in the prior-year period to $5.54 billion. Net sales grew in every region and product category, reflecting early stages of recovery in brick-and-mortar retail stores, primarily in western markets, and strength in online, the company said. These results reflected robust consumer response to holiday offerings and during key shopping moments, according to ELC. Organic net sales increased 11%.

Reported net earnings were $1.09 billion, compared with net earnings of $0.87 billion in the prior-year period.

“We achieved record sales and profitability in the second quarter of fiscal 2022, empowered by the timeless desirability of our brands and despite accelerated volatility and variability, as well as supply chain challenges, from the pandemic.  Every category, region and major channel expanded, showcasing the strength of our multiple engines of growth strategy,” said Fabrizio Freda, president and CEO “  We seized the favorable dynamics of skin care, fragrance, developed markets in the West, and brick-and-mortar, and continued to prosper in the East with Chinese consumers as well as in global travel retail and global online.”

Freda emphasized, that ELC’s brands excelled in the key shopping moments of 11.11 and holiday, “welcoming new consumers and serving loyal consumers with festive exclusives, highly-sought hero products, enticing innovation, and elevated high-touch services in-store and online.”

ELC noted that the COVID-19 pandemic continued to disrupt the company’s operating environment, impacting retail traffic and consumer preferences in the second quarter of fiscal 2022. The spread of the Delta and Omicron variants and resurgence of COVID-19 cases in most parts of the world led to periodic point-of-sale staffing shortages as well as government restrictions to prevent further spread of the virus. These restrictions included the intermittent closure of businesses deemed non-essential, curtailment of travel, social distancing, vaccination requirements for brick-and-mortar businesses, and quarantines, ELC noted.

While most brick-and-mortar retail stores globally that sell the company’s products, whether operated by the company or its customers, were open during much of the second quarter of fiscal 2022, there were intermittent closures throughout the world due to safety protocols or restrictions. In much of Asia/Pacific, restrictions eased during the second quarter of fiscal 2022, although mainland China had regional lockdowns and much of Western Europe, particularly in the United Kingdom, experienced increased restrictions as the quarter progressed. In North America in late calendar year 2021, restrictions and store closures varied by location. COVID-19 cases generally eased in Latin America. Globally, in areas where stores were open, consumer traffic has not recovered to the pre-pandemic levels.

International passenger traffic remained largely curtailed globally. However, passenger traffic in Europe, the Middle East & Africa and The Americas improved but remained significantly below pre-pandemic levels. The improvement was due to the partial lifting of government restrictions, most notably in the United Kingdom and the United States. In Asia/Pacific, increased travel restrictions remained in place during much of the quarter, and traffic in Hainan was negatively impacted by fewer visitors due to intermittent domestic travel restrictions, said ELC.

The COVID-19 pandemic-related closures of offices, retail stores and other businesses and the significant decline in social gatherings have influenced consumer preferences and practices. While the demand for makeup improved significantly versus the prior year, it continues to be the only category that remains below the pre-pandemic period, given fewer makeup usage occasions and ongoing mask wearing, while skin care, fragrance and hair care have all grown from pre-pandemic levels.

COVID-19 pandemic has contributed to global supply chain disruptions, including manufacturing and transportation delays, due to closures, employee absences, port congestion, labor and container shortages, and shipment delays, said ELC. As a result, the company expects higher costs to negatively impact cost of sales and operating expenses for the remainder of fiscal 2022. The company expects to mitigate some of the impact to its business and costs through strategic price increases, product mix, timing of shipments, use of air freight and less congested ports, and cost savings in other areas.

ELC said COVID-19 pandemic has contributed to global supply chain disruptions, including manufacturing and transportation delays, due to closures, employee absences, port congestion, labor and container shortages, and shipment delays. As a result, the company expects higher costs to negatively impact cost of sales and operating expenses for the remainder of fiscal 2022. The company expects to mitigate some of the impact to its business and costs through strategic price increases, product mix, timing of shipments, use of air freight and less congested ports, and cost savings in other areas.

Category Performance

Skin care net sales grew in every region, led by strong double-digit sales growth from La Mer and Clinique.  The non-comparable impacts of net sales related to acquisitions, divestitures and brand closures contributed approximately 4 percentage points to net sales growth. Growth from La Mer reflected increases in hero products, including The Treatment Lotion, Crème de la Mer and the Genaissance line of products, as well as the launch of The Hydrating Infused Emulsion and targeted expanded consumer reach.  Clinique’s growth was driven by strong demand for its hero products, including Even Better Clinical Radical Dark Spot Corrector + Interrupter and Take The Day Off Balm, as well as the launch of the Smart Clinical Repair Wrinkle Correcting Serum and targeted expanded consumer reach.

ELC said skin care operating income increased, primarily reflecting higher net sales and the favorable year-over-year impact of goodwill and other intangible asset impairments, partially offset by strategic investments in advertising and promotional activities to support holiday.

Makeup net sales increased, reflecting the continued progression towards recovery in western markets, increased usage occasions and easier comparisons to the prior year. The growth was led by Estée Lauder and M·A·C. Too Faced, Tom Ford Beauty and Smashbox also contributed to growth.  Strong double-digit sales growth from Estée Lauder was fueled by the Double Wear and Futurist foundation product lines as well as the successful launch of Double Wear Sheer Long-Wear Foundation. M·A·C’s growth reflected successful advertising campaigns to drive the makeup renaissance as usage occasions increase, with particular strength in face and eye products.  Makeup operating income increased, primarily reflecting higher net sales, partially offset by strategic investments to support the makeup recovery and holiday.

In fragrance, net sales grew in every region and across virtually all brands that sell fragrances, driven by continued resilience in luxury fragrance, the opening of brick-and-mortar retail and the beginning of travel recovery in western markets.  Jo Malone London’s net sales grew double digits primarily driven by strength in colognes, particularly in the hero franchise English Pear & Freesia, and holiday collections. Bath & Body and Home also delivered strong growth reflecting consumer demand for home fragrance products during the pandemic.  Tom Ford Beauty grew strong double-digits, reflecting strength in its Oud Wood, Rose Prick, and Black Orchid fragrances. The launch of Ombre Leather Parfum also contributed to growth and helped drive demand in the Ombre Leather franchise.  Net sales from Le Labo rose strong double digits, primarily reflecting the reopening of brick-and-mortar, improved retail traffic and strong holiday demand. Growth was driven by hero fragrances, such as Santal 33. The successful launch of Thé Matcha 26 and targeted expanded consumer reach also contributed to growth, said ELC. Kilian Paris’ net sales increased strong double-digits, driven by retail reopening and demand for hero products, including Good Girl Gone Bad by Kilian and Love, Don’t be Shy, as well as the success of new launches, including Apple Brandy on The Rocks.

Fragrance operating income increased, driven primarily by higher net sales partly offset by strategic investments to support brick-and-mortar reopening and holiday.

Hair care net sales rose, reflecting increases from both Aveda and Bumble and bumble as brick-and-mortar salons and retail recover. Aveda’s double-digit growth reflected the continued success of its hero franchises, including Invati, Nutriplenish and Botanical Repair, as well as strong holiday sales driven by a successful designer collaboration. Net sales increased at Bumble and bumble, primarily reflecting the success of hero products, such as Hairdresser’s Invisible Oil Primer, and the launches of Hairdresser’s Invisible Oil Ultra Rich and Bb. Illuminated Blonde. Targeted expanded consumer reach also contributed to growth.  Hair care operating results increased, reflecting higher net sales offset by strategic investments to support the recovery as brick-and-mortar reopens.

Full-Year Outlook
ELC is raising its full fiscal year outlook, reflecting both outstanding performance to date and the risks of continued volatility and disruptions in the second half of the year.

With multiple engines of growth across regions, brands, product categories and channels, the company is well-positioned to continue to drive a gradual recovery as macro-conditions and market dynamics support it. The company said it expects to invest in areas to support the recovery, including advertising, online, research and development and supply chain, to drive growth in areas of opportunity and help nurture emerging trends in the rest of the business.

“As we embark on the second half of fiscal 2022, our business is far bigger and more profitable than pre-pandemic with every region larger. This reinforces our confidence in our ability to navigate the impacts of the prolonged pandemic. We are raising our fiscal 2022 full year outlook, as we reflect our outstanding results to-date and are mindful of the risks of continued volatility and disruption in the second half of the year,” said Freida.