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    Top Companies Report

    2. Estée Lauder

    ...

    2. Estée Lauder
    Estée Lauder
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    Happi Staff07.01.20
    New York, NY
    www.elcompanies.com
    Sales: $14.8 billion

    Key personnel: William P. Lauder, executive chairman; Fabrizio Freda, president and chief executive officer; John Demsey, executive group president; Carl Haney, executive vice president, global research and development, corporate product innovation, package development; Jane Hertzmark Hudis, group president; Leonard A. Lauder, chairman emeritus; Ronald S. Lauder, chairman, Clinique Laboratories, LLC; Sara Moss, vice chairman; Michael O’Hare, executive vice president, global human resources; Gregory F. Polcer, executive vice president, global supply chain; Cedric Prouvé, group president, international; Deirdre Stanley, executive vice president and general counsel; Tracey T. Travis, executive vice president of finance and chief financial officer; Alexandra C. Trower, executive vice president, global communications

    Major products: Cosmetics, skin care, hair care and fragrances: Aerin Beauty, Aramis, Aveda, Becca, Bobbi Brown, Bumble and bumble, Clinique, Darphin, DKNY, Donna Karan, Editions de Parfums Frederic Malle, Ermenegildo Zegna, Estée Lauder, GlamGlow, Jo Malone, Kilian, Kiton, LaMer, Lab Series, Le Labo, MAC, Michael Kors, Origins, Rodin, Smashbox, Tom Ford Beauty, Tommy Hilfiger, Too Faced, Tory Burch

    New products: Skin Care: Estée Lauder Perfectionist Pro Rapid Brightening Treatment, Estée Lauder Advanced Night Repair Eye Supercharged, Estée Lauder Advanced Night Repair Intense Reset Concentrate, Clinique’s Even Better Clinical Radical Dark Spot Corrector + Interrupter, Eye Concentrate from La Mer. Color: La Mer The Luminous Lifting Cushion Foundation. Fragrance: Michael Kors Sexy Ruby, Métallique, Soleil Neige, Poppy and Barley. Acquisitions: Dr. Jart+ and Have & Be

    Comments: Like so many other beauty companies, Estée Lauder’s recent results have been impacted by COVID-19. For the fiscal third quarter ended March 31, 2020, sales fell more than 10% to $3.3 billion and the company reported a net loss of $4 million, compared to earnings of $555 million a year ago. As one might expect, with so many consumers staying at home, makeup brands were hit hardest, with sales falling 21% to $1.1 billion, but Estée Lauder said sales fell in every category; skin care declined 1% to $1.7 billion; fragrance dropped 11% to $349 million and hair care fell 12% to $119 million.

    In a call with analysts, Tracey Thomas Travis, executive vice president, finance and chief financial officer, called COVID-19 the most significant challenge ELC has faced as a public company, as brick and mortar retail closed and the company pivoted to online.

    “Our online growth accelerated sharply at the end of March and continued to rise in April,” she explained, but she also noted that The Americas region and the makeup category suffered the biggest declines. The December acquisition of Dr. Jart+ added about two points of net sales growth.

    For the nine months of FY20, sales rose 5% to nearly $11.9 billion, but net income fell 29% to about $1.1 billion. Skin care sales rose 16% to nearly $5.8 billion and makeup sales increased less than 1% to over $4.2 billion. Both fragrance and hair care declined less than 1%, to $1.4 billion and $417 million, respectively.

    Skin care sales rose on the strength of Estée Lauder and La Mer brand sales, as well as from the Q2 acquisition of Have & Be, which added $67 million. Asia/Pacific and Europe, the Middle East & Africa all performed well, as did mainland China and travel retail.

    Makeup sales fell slightly due to lower North American demand for MAC, Clinique, Too Faced and Becca. Estée Lauder’s makeup sales rose on the strength of the Double Wear and Futurist brands. Declining fragrance sales were blamed on lower designer and Estée Lauder sales.

    During an AllianceBernstein Conference in April, Freda noted that since the coronavirus hit, ELC reorganized its leadership team into four groups. The first is dedicated to managing throughout the crisis with flexibility and agility; the second is focused on health and safety protocols for employees and consumers.

    “As we reopen offices and stores, the third is concentrated on adjusting our cost structure throughout this temporary phase, while the fourth is wholly focused on the future,” he explained. “As we anticipate new drivers for the business, each work stream is moving our business forward in earnest.”

    But to what will consumers come back? Asian markets were the first to be impacted by COVID-19 and the first to return to some sort of normalcy; as such, they offer clues to what to expect in the rest of the world. Online shopping will continue to expand at the expense of brick and mortar. Moreover, new consumer groups, specifically, those 55 and older, have discovered the convenience of online ordering during the pandemic.

    Still, Freda is hopeful that when a vaccine is developed and the virus is defeated, consumers will return to normal social relations; which means more consumption, especially of personal care products.

    “What worries me at the moment is the potential short term impact of a recession,” he explained.

    Therefore, ELC is reinforcing its brands, reviewing its price points and making sure its brands can withstand a downturn. The company certainly withstood the challenges of the previous fiscal year. In fiscal 2019, sales rose more than 8%, as the increase reflected strong growth in Europe, the Middle East & Africa, as well as Asia Pacific, and continued growth in skin care and makeup. Skin care accounted for 44% of sales, followed by makeup, 39%; fragrance, 12%; hair care, 4% and other, 1%.

    Skin care sales rose 17% to more than $6.5 billion, due to big gains in Estée Lauder and La Mer brands (which contributed more than $900 million in sales), and increased Estée Lauder brand sales in China and Hong Kong. The increase in net sales from La Mer reflected growth from most markets, led by China and Hong Kong, and benefited from the strength in hero products, such as Crème de la Mer and The Concentrate, other existing products, such as The Treatment Lotion, and targeted expanded consumer reach. The net sales growth from Estée Lauder and La Mer also reflected the increase in Chinese travelers, which led to the brands’ growth in travel retail and department stores, and higher net sales in our online channel in China (primarily third-party online malls).

    Makeup sales rose 4% to nearly $5.9 billion, thanks to higher sales of $350 million for Estée Lauder, MAC, Tom Ford and La Mer. Estée Lauder’s gains were primarily due to the success of Double Wear franchise, Futurist Aqua Brilliance and the Pure Color line of products, which drove net sales higher in China, Hong Kong and Korea, as well as in travel retail. MAC gains came primarily from Asia/Pacific, led by China and Hong Kong, as well as the Middle East. Higher net sales in Asia/Pacific were primarily due to targeted expanded consumer reach and the continued strength of lip products in the region. MAC also benefitted from increases in travel retail business, third-party online malls and the specialty-multi channel. Partially offsetting these increases for the brand were continued declines in the US and UK primarily due to slower traffic in certain department stores and freestanding stores. The Tom Ford gains came from higher net sales of lipstick and eyeshadow products in Asia/Pacific, particularly in China, and travel retail business. La Mer benefited from new products, such as The Luminous Lifting Cushion Foundation, and targeted expanded consumer reach.

    Fragrance sales fell 1% to $1.8 billion, due to a decline of $110 million in sales of designer fragrances and Estée Lauder. Designer fragrance sales fell due to unfavorable comparison to the prior-year launch of Michael Kors Sexy Ruby in North America, as well as the challenging retail environment in the UK. The decrease in net sales from Estée Lauder was primarily due to the change in product mix included in the brand’s holiday blockbuster promotion. Partially offsetting these decreases were higher net sales from Jo Malone London, Le Labo and Tom Ford, combined, of approximately $81 million.
    Declining sales of Aveda and Bumble and Bumble products were blamed for the decline in hair care sales.

    Last month, more than 1,000 Estée Lauder employees signed a petition calling for the removal of the company’s founder’s son, Ronald S. Lauder, from the board of directors. They cited his ties to President Donald J. Trump, noting that he has contributed more than $1 million to the president’s campaign.

    Estée Lauder Forms Alliance with Epigenetics Expert
    • To further advance more than a decade of circadian rhythm research in skin, the Estée Lauder brand has inked a collaboration with Dr. Paolo Sassone-Corsi, director of the Center for Epigenetics and Metabolism at the University of California, Irvine. The move connects Estée Lauder’s skin biology research program with the expertise and complementary research focus of Dr. Sassone-Corsi.

    This collaboration will build upon Estée Lauder’s skin research and contribute to its recent findings by investigating additional molecular mechanisms related to a newly identified micro signaling molecule. The two laboratories will independently explore the interaction between this molecule and other skin activities, including circadian machinery, to deepen the understanding of how skin acts and communicates. This research seeks new information about how this powerful micro signaling molecule interacts with essential skin pathways, in order to better understand how to impact the “memory” of skin to help it act and look younger.

    Over the past three decades, Sassone-Corsi has conducted research focused on unraveling how epigenetics is critical for healthy lifespan, wellbeing, appropriate circadian sleep cycles, aging and disease prevention. His discoveries have changed the circadian clock paradigm, proving the existence of secondary clocks that control peripheral tissues throughout the body, according to ELC. Research conducted in the Sassone-Corsi Laboratory has charted new territory in understanding how circadian clocks communicate to synchronize cellular processes, linking epigenetics and metabolism in a vast array of biological systems. He has published several hundred peer-reviewed articles, many in the highest impact science journals, and has received many international scientific awards.
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