Estee Lauder Sales Rise in Fourth Quarter, Earnings Fall

The Estee Lauder Companies Inc., New York, announced net sales increased 8% to $1.13 billion for the fourth quarter ended June 30, compared with $1.05 billion in the fourth quarter of fiscal 2001. Net sales in the quarter increased on a constant currency basis in all major product categories, with double-digit gains in makeup and hair care and low single-digit gains in skin care and fragrance. Net sales increased in each geographic region in constant currency, with high single-digit growth in the Americas and mid-single-digit growth in Europe, the Middle East & Africa and Asia/Pacific. The company’s net earnings before restructuring charges for the quarter were down $51.5 million, or $.19 per diluted common share, compared to $60.7 million, or $.23 per diluted share last year.

The company announced net sales for the fiscal year ended June 30, of $4.74 billion, a 2% increase from $4.67 billion in the prior year. However, the company achieved net earnings of $289.4 million for the year compared with $347.7 million in the same period last year. Diluted earnings per common share before the cumulative effect of a change in accounting principle and before restructuring charges for fiscal 2002 were $1.10 compared with $1.34 in the prior year.

“Sustaining sales growth for the fiscal year just ended was quite an accomplishment given the difficult retail environment that challenged our businesses and led to lower overall results,” said Fred H. Langhammer, president and chief executive officer. “I am pleased at how our company responded to those challenges with determination, focusing on our core strengths and strategies. We continued to be leaders in product innovation and have steadfastly invested in our brands to build momentum at retail, producing a positive response from the market.

“In this new fiscal year we will continue to drive our businesses operationally and financially, drawing from the breadth of our leading brands and the strength of our assets and our employees,” he continued. “We are expecting to benefit from a slow revitalization in global economies, particularly the U.S. We are committed to building on our existing strengths to enhance sales while being disciplined in reducing non-business-building costs.”

Net skin care sales for the year rose 4% before foreign currency translation and reported sales increased 3% to $1.70 billion. The higher sales reflect the launches of Total Turnaround Visible Skin Renewer, Moisture Surge Extra and Moisture Surge Eye Gel from Clinique, as well as Advanced Night Repair Eye Recovery Complex and LightSource Transforming Moisture Cream and Lotion by Estee Lauder and A Perfect World White Tea Skin Guardian by Origins. These increases were partially offset by lower sales of certain existing products.

Makeup sales for the year rose 5% before the impact of foreign currency translation. Reported sales increased 4% to $1.79 billion, fueled by double-digit growth from the company’s makeup artist brands, M.A.C, Bobbi Brown and Stila. The launch of Gentle Light Makeup and Powder from Clinique and Illusionist Maximum Curling Mascara by Estee Lauder, as well as the successful domestic rollout of the Pure Color Lips and Nails line and the global launch of Pure Color Eyeshadow by Estee Lauder also contributed positively to makeup sales growth. Lower sales of certain existing products partially offset these positive results.

Fragrance sales decreased 6% compared to the prior year excluding the impact of foreign currency translation. On a reported basis, fragrance sales also declined 6% to $1.02 billion. The decrease reflects the overall softness of the fragrance business and weakness in the company’s travel retail business.

Sales of hair care products for the year rose 19% over the prior year to $215.8 million. The increase is primarily attributable to double-digit growth at Aveda and Bumble and bumble due to new products, increased salon shipments and additional retail store and salon distribution.

By region, the Americas’ net sales for the year increased 1% to $2.88 billion, following 6% growth last year. The increase is primarily due to new and certain existing products and growth from most newer brands, offset by the continued soft retail environment in the U.S. Operating income in the region was lower reflecting soft sales and increased investment in advertising, promotion and newer distribution channels.

In Europe, the Middle East & Africa, net sales increased just 3% to $1.26 billion in local currency compared to 17% last year. Most markets experienced sales growth, led by strong results in the UK, Spain, South Africa, and the company’s joint venture in Greece, which replaced the prior distributor there. Operating profitability decreased due in part to lower results in the travel retail business.

On a local currency basis, Asia/Pacific net sales increased 9% versus the prior year led by strong double-digit sales increases in Korea and Thailand, as well as in Australia, which benefited from a change in retailer arrangements. These positive results were partially offset by lower sales in Japan and Singapore. Net sales in the region on a reported basis increased 2% to $610.6 million, primarily reflecting the weakness of the Japanese yen during the year. Operating profit in the region declined slightly reflecting lower results in China, Hong Kong and Singapore. Operating income increased in Australia, Korea and Taiwan, while in Japan, lower operating expenses as a percent of sales generated higher results.

Based on current economic assumptions, the calendarization of programs and business building activities, Estee Lauder executives expect it will achieve sales growth in every fiscal quarter and earnings growth in its second through fourth quarters. The company said the economic trends in the first quarter of fiscal 2003 will reflect soft but improving conditions.