Sales: $7.3 billion
$7.3 billion. Net income: $218 million, for the year ended June 30, 2009
Leonard A. Lauder, chairman emeritus; William P. Lauder, executive chairman; Ronald S. Lauder, chairman, Clinique Laboratories; Fabrizio Freda, president and chief executive officer; John Dempsey, group president; Amy DiGeso, executive vice president, global human resources; Harvey Gedeon, executive vice president, global research, development and product innovation; Richard W. Kunes, executive vice president and chief financial officer; Evelyn H. Lauder, senior corporate executive; Sara E. Moss, executive vice president and general counsel; Gregory F. Polcer, executive vice president, global supply chain; Cedric Prouvé, group president, international; Alexandra C. Trower, executive vice president, global communications
Naked Beauty is the new Summer collection from Smashbox Cosmetics.
Skin care, makeup, fragrances and hair care products, marketed under four divisions. High End Prestige and Makeup Artist Brands—Estée Lauder, MAC, Bobbi Brown, La Mer, Jo Malone, Tom Ford Beauty; Prestige Skin Care and Alternative Channels—Clinique, Origins, Ojon; Fragrance Licensing and Creative Incubator—Aramis, Lab Series, Tommy Hilfiger, Kiton, Donna Karan, Michael Kors, American Beauty, Flirt!, Good Skin, Sean John, Missoni Profumi, Daisy Fuentes, Coach, Grassroots Research Labs; Salon and Pharmacy—Aveda, Bumble and Bumble, Darphin
Skin Care—Perfectionist [CP+] Wrinkle Lifting Serum, Time Zone line extensions, Superdefense SPF 25 Age Defense Moisturizer and Youth Surge SPF 15; Makeup—Clinique Superfit Makeup and High Impact Lip Colour SPF 15, Estée Lauder Signature Blush; Fragrances—Estée Lauder Sensuous, Hilfiger Men, DKNY Men, I Am King; Hair Care—Aveda Dry Remedy shampoo and conditioner; Sun Care—Aveda. Acquisitions: Smashbox
Prestige beauty companies such as Estée Lauder had a tough go of it for the 12 months ended June 30, 2009. The U.S. was in the throes of a deep recession and consumers were in no mood to spend in discount stores, let alone department stores. With consumer sentiment so pessimistic, it was no surprise that Lauder’s sales fell 7% last year, while net income tumbled 54%.
By segment, skin care sales fell 4% to $2.88 billion; makeup sales fell 6% to $2.83 billion; fragrance sales declined 20% to $1.15 billion and hair care sales fell 6% to $402 million. By region, North American sales dropped 8% to $3.42 billion and Europe, the Middle East and Africa’s sales fell 13% to $2.61 billion. Only the Asia/Pacific region posted a gain, rising 9% to nearly $1.3 billion.
Spending Gets Slashed
It was only by reducing planned spending by $250 million that Lauder remained profitable. Furthermore, the company implemented salary and hiring freezes and made the decision to reduce its workforce by 6% by 2011. At the same time, the firm cut the number of SKUs it carries, focusing on better aligning its supply chain with the brands and regions, that should enable Lauder to achieve greater cost and time efficiencies.
The most prominent cost-cutting move was the discontinuation of the Prescriptives line in January.
So much for the cuts. To boost sales, the company said it would shift the category mix toward higher margin areas with greater global potential; i.e., skin care. Lauder executives are particularly upbeat about their skin care potential in Asia/Pacific, and are determined to grow share in emerging markets such as China, Russia, the Middle East and Eastern Europe. In mature markets such as the U.S. and Western Europe, the company is focused on growth in large, image-building cities.
In fiscal 2009, 59% of sales came from international markets, compared to 41% in the U.S. By distribution channel, North American department stores accounted for 30% of sales, followed by international department stores (27%), perfumeries (15%), retail stores (9%), travel retail (7%), other (8%) and salons/spas (4%).
To better integrate its brands, Estée Lauder organized them into four clusters according to channel and consumer segmentation (see Major Products), which will enable the brands to draw upon their strengths and share knowledge.
Aside from reorganization and cost reduction, fiscal 2010 represents the first full year of Lauder’s four-year strategy, which includes:
• Gain share by growing sales at least one percent ahead of global prestige beauty annually;
• Derive more than 60% of sales from outside the U.S.;
• Strive for annual improvement in operating margin, with a goal of 12 to 13% by fiscal 2013;
• Create a substantial increase in return on invested capital, reaching 19 to 20% by fiscal 2013; and
• Reduce inventory days 15 to 20%, to 145 to 150 days, by the end of fiscal 2013.
So, what impact did the new strategy have on sales? For the third quarter ended March 31, 2010, sales rose 10% to $1.86 billion, and net earnings more than doubled to $57.5 million. The company posted across-the-board sales gains in its geographic regions and major product categories. Strong sales growth came from the company’s international businesses, particularly, travel retail and Asia/Pacific. There were also sales gains in the Americas. These results reflect solid increases from higher-margin product launches and the positive effect of foreign currency translation.
For the nine months ended March 31, 2010, the company reported a 6% increase in net sales to $5.96 billion. Growth in Asia/Pacific and Europe, the Middle East and Africa, more than offset slightly lower sales in the Americas. Sales grew in the company’s skin care, makeup and hair care categories, which more than offset declines in fragrance.
“Our success is driven by a well-executed strategy and we are very pleased with our accomplishments over the past nine months,” said Fabrizio Freda, president and chief executive officer. “The progress we’ve made illustrates our ability to move the company forward and create value. We are a growth company, with a sharp focus on increasing our top line where we can produce the highest returns, while, at the same time, remaining vigilant in our cost savings and financial discipline, with the goal of increased and sustainable profitability.”