Estée Lauder’s Q1: Net Sales Up Just 1%

The Estée Lauder Companies Inc. said that net sales for its first quarter ended September 30, 2016 rose 1% to $2.87 billion. Net earnings were $294 million, compared with $309 million last year. Excluding the impact of foreign currency translation, net sales increased 2%, according to the company.
 
During the fiscal 2017 first quarter, the company recorded restructuring and other charges of $31 million ($20 million after tax) in connection with its previously announced Leading Beauty Forward initiative.
 
“Our first quarter sales grew in line with our expectations, while disciplined expense management delivered earnings per share that exceeded our guidance,” said Fabrizio Freda, president and CEO.  “Our small to mid-sized brands were strong contributors to sales as were the travel retail channel and many developed and emerging markets. As expected, this growth was partially offset by continued macro challenges, a decline in retail traffic in U.S. mid-tier department stores, the results of the slowdown in the Middle East, continued softness in Hong Kong, and difficult comparisons with the prior year in the United States and France.
 
According to  Freda, throughout the remainder of the fiscal year, ELC expects “sales growth to progressively accelerate based on a steady flow of new products, momentum and increased targeted consumer reach for our small and mid-sized brands and M•A•C, and increased social media initiatives to drive brand engagement. We intend to continue to execute on our biggest strategic opportunities and further strengthen our multiple engines of growth to increase profitability and gain share. This includes accelerating our focus on leveraging our stronger engines of growth in makeup, fragrances and key international markets.”

Reported skin care net sales decreased slightly, due to the unfavorable impact of foreign currency translation, according to the company. There weredouble-digit gains from La Mer and as strong growth from Origins, which were offset by lower skin care sales from Estée Lauder and Clinique—which ELC said reflects, in part, the overall global slowdown in the category. The decreases from Estée Lauder and Clinique were also due, in part, to lower sales in certain countries within the Asia/Pacific region, particularly Hong Kong.
 
Makeup sales increased slightly, primarily driven by double-digit increases from Tom Ford and Smashbox and solid growth from Estée Lauder and Clinique.  Makeup sales increased in the Estée Lauder and Clinique brands too. However, increases were partially offset by lower sales primarily from M•A•C, reflecting the decline in foot traffic in U.S. mid-tier department stores and certain tourist-driven M•A•C freestanding stores. Internationally, M•A•C grew in-line with global prestige makeup, said ELC.
 
In fragrance, net sales increased, primarily due to strong double-digit gains from luxury brands Jo Malone London and Le Labo, and incremental sales from By Kilian. Solid growth from Tom Ford also contributed to the overall increase.
 
Lauder said hair care net sales increased, primarily due to growth from Bumble and bumble products, along with selective global expansion. Net sales in Aveda were slightly lower due to the planned launch of its hair care initiatives later this fiscal year.
 
Regionally, in North America, most of the company’s brands generated growth, led by double-digit gains from Tom Ford and Smashbox and solid growth from Clinique, Jo Malone and Origins. Growth in Clinique reflected sales gains in skin care and makeup due, in part, to the earlier timing of a promotional program. Sales in the company’s online and specialty-multi channels grew strong double digits, said ELC.
 
According to ELC,  all markets under its Europe, the Middle East & Africa sector recorded net sales growth, with many posting double-digit increases, led by Central Europe, Italy, Israel, Spain and the Balkans, and solid growth in Germany. In constant currency, sales growth in the region was strong, with all countries generating sales gains, except the Middle East and France. The lower sales in the Middle East were driven by retailer inventory rebalancing reflecting the impact of the macro-environment on consumer purchases, and in France due to a decline in tourism. Additionally, both countries were up against difficult comparisons with the prior-year quarter.
 
On a reported basis, net sales increased, led by double-digit growth in Japan, Korea and Australia. Favorable foreign currency translation benefited several markets in the region. Sales in constant currency increased in most countries, including double-digit growth in Korea, the Philippines and New Zealand. Strong constant currency sales gains were recorded in Australia and solid growth in Japan and China. Higher sales in China reflected sales gains in most brands and strong double-digit increases in the online, freestanding store and specialty-multi channels, said ELC. Sales in Hong Kong declined, reflecting continued challenges, particularly for the Estée Lauder, Clinique and La Mer brands, resulting from the reduction in Chinese tourism.