Double-digit travel retail sales growth contributed to a strong quarter ended 30 June for The Estée Lauder Companies, and to a robust full-year performance for the US beauty house.
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Fabrizio Freda: “Our fiscal 2016 performance gives us much to celebrate… against a backdrop of social and political instability, currency volatility and economic challenges.” |
For the year, the company achieved net sales of US$11.26 billion, up +4% year-on-year. Net earnings for the same period were ahead +2% to US$1.11 billion.
For the three months ended 30 June, the company reported net sales of US$2.65 billion, a +5% increase year-on-year, posting sales gains in all geographic regions and product categories, except fragrance.
The company noted: “Fourth-quarter sales benefited from innovative new products and double-digit growth in several emerging and developed markets. The company also generated double-digit gains in its travel retail and online channels.” Net earnings for the quarter were US$93.5 million, compared with US$153.0 million last year.
President and CEO Fabrizio Freda said: “Our fiscal 2016 performance gives us much to celebrate. We again delivered strong constant currency net sales growth and double-digit adjusted constant currency EPS [earnings per share] growth, reflecting the compelling products and services we bring to consumers around the world.
“We capitalised on shifting consumer preferences by leveraging our strength in make-up and positioning our company to win in luxury fragrances. We allocated resources and made strategic investments in areas that gave us terrific results, including emerging markets, our make-up category, and the online and speciality-multi retail channels. Importantly, we achieved these results against a backdrop of social and political instability, currency volatility and economic challenges.”
Looking to the 2017 financial year, Freda added: “We will also seek geographic and channel opportunities to reach even more consumers, while keeping a sharp focus on like-door growth. We expect our new product launches, digital programmes, social media engagement and focused M&A activities to drive constant currency net sales growth of +6% to +8% and double-digit EPS growth over the next three years, excluding restructuring and other charges, consistent with our long-term objectives. For fiscal 2017, we are reflecting the significant external headwinds and volatility and forecasting constant currency sales growth of +6% to +7%.”
Net sales and operating income in each of the company’s product categories were hit by the strength of the US Dollar in relation to most currencies.
Category performance
Skincare
- Reported skincare net sales decreased in the year, due to the unfavourable impact of foreign currency translation.
- La Mer posted double-digit gains, partly driven by new product introductions such as Genaissance de La Mer The Serum Essence, The Renewal Oil and The Lifting Eye Serum, plus strong growth from Origins reflecting increases in facial mask products. Incremental sales from recent acquisitions also contributed to the sales growth.
- Partially offsetting these increases were lower skincare sales from Estée Lauder and Clinique, reflecting, in part, the overall global slowdown in the category. The decreases from Estée Lauder and Clinique were also affected by lower sales in certain countries within Asia Pacific, particularly Hong Kong.
- Operating income increased, due to the favourable comparison of fiscal 2015 accelerated orders. Adjusting for this operating income declined, with higher results from La Mer and Origins more than offset by lower results from Estée Lauder and Clinique.
Make-up
- Make-up generated “outstanding” net sales growth, primarily driven by strong double-digit increases from MAC, Smashbox and Tom Ford, as well as solid gains from Bobbi Brown. These sales increases resulted from new product offerings, as well as the broadening of the brands’ presence in a number of channels, including freestanding retail stores, travel retail and speciality-multi brand retailers to reach new consumers, said the company.
- Make-up sales increased in the Estée Lauder and Clinique brands. Estée Lauder had higher sales from the Double Wear and Pure Color Envy product lines. Clinique posted higher make-up sales, reflecting recent product offerings, such as Beyond Perfecting foundation + concealer.
- The company’s make-up category is experiencing strong growth in product areas such as lipsticks and foundations, with accelerated growth in certain geographic areas, such as the UK and increased prestige make-up usage in Asia.
- The increase in make-up operating income was primarily due to higher results from the company’s dedicated make-up brands, as well as Estée Lauder and Clinique.
Fragrance
- Net sales increased primarily due to strong double-digit gains from luxury brands Jo Malone London and Tom Ford and incremental sales from recent acquisitions.
- Higher net sales from Jo Malone reflected the recent launches of Mimosa & Cardamom, strong growth from existing fragrances and brand expansion.
- Increased sales from Tom Ford reflected the continued success of the Tom Ford Noir and Neroli Portofino line of fragrances, including new product launches and growth from existing fragrances.
- Partially offsetting these increases were lower sales of certain Estée Lauder, Clinique and designer fragrances.
- Fragrance operating income increased, due to the favourable comparison of the fiscal 2015 accelerated orders. Adjusting for the accelerated orders, operating income declined, with higher results from Jo Malone and Tom Ford being more than offset by lower results from Estée Lauder and investments in certain recent acquisitions.
Haircare
- Haircare net sales growth reflects recent product launches, such as Invati Men, Shampure dry shampoo and the Thickening Tonic by Aveda.
- Sales growth in Aveda was also driven by increases in salons, online and travel retail, and in Bumble and bumble from selective global expansion, primarily in speciality-multi brand retailers.
Performance by region
The Americas
- In North America net sales increased, due to growth from most of the company’s brands led by double-digit gains from Tom Ford, Jo Malone and Smashbox and solid growth from La Mer, M•A•C and Bobbi Brown. Increased make-up sales were partially offset by lower skincare and fragrance sales. The Estée Lauder and Clinique brands each posted double-digit growth in make-up for the year. Sales in the online business grew by strong double digits.
- Net sales were impacted by a decline in retail traffic in the USA, primarily related to mid-tier department stores that principally affected Estée Lauder and Clinique, as well as certain MAC free-standing stores, as a result of a decrease in tourism.
- Foreign currency translation reduced reported sales by -3%, or approximately US$101 million, with the largest impact in Canada, Brazil and Mexico.
- On a reported basis, sales in Canada and Latin America each increased by single digits. In constant currency, sales in both markets rose by double digits. The strong growth in Latin America was led by Brazil and Mexico, primarily driven by MAC.
- Operating income in the Americas increased, due to favourable comparisons with the fiscal 2015 accelerated orders. Adjusting for these, operating income declined, reflecting increased investments in advertising and promotion and retail store operations. Reported operating income was significantly impacted by adverse foreign currency translation.
Europe, the Middle East & Africa
- As reported, virtually all countries recorded net sales growth, with many posting double-digit increases, led by the Middle East, Central Europe, Nordic and India, and solid growth in the UK, Germany and Italy.
- In constant currency, sales growth in the region was “exceptionally strong” with virtually all countries generating double-digit sales gains.
- The company estimates that it continued to outperform prestige beauty in most markets in the region.
- In travel retail, sales growth was generated on new launch initiatives, global airline passenger traffic growth, new consumer coverage and the launch of additional brands. Jo Malone, Tom Ford, MAC and Smashbox contributed sharply to the sales gains. The mix of travellers and their purchases were affected by currency fluctuations. The sales growth in travel retail was partially driven by the favourable comparison due to the fiscal 2015 accelerated orders.
- Foreign currency translation reduced reported sales by -7%, or approximately US$265 million, with the largest impact affecting the UK, Russia, South Africa, and Germany.
- Operating income increased, led by higher operating results in travel retail, partially driven by the accelerated orders, Germany and the Middle East. Lower operating results were recorded primarily in the UK, France and Russia.
Asia Pacific
- On a reported basis, net sales decreased slightly, due to the unfavourable impact of foreign currency translation, which affected every market in the region. Foreign currency translation hit reported sales by -5%, or approximately US$122 million, with the largest impact affecting Australia, China and South Korea. Despite the negative currency, several markets including Japan, Australia, the Philippines and China posted reported sales gains.
- Sales in constant currency increased in every country, except Hong Kong, including double-digit growth in Australia, the Philippines and New Zealand. Solid constant currency sales gains were recorded in South Korea, Japan and China. The higher sales in China reflected sales gains in most brands and increased online activity.
- In Hong Kong, the reduction in tourism from China continues to negatively impact business, particularly for the Estée Lauder, Clinique and La Mer brands.
- In Asia Pacific, operating income increased, due to the favourable comparison of fiscal 2015 accelerated orders in Japan. Adjusting for the accelerated orders, operating income declined. Higher results in Australia, Korea, the Philippines and Taiwan were more than offset by lower results in Hong Kong and China.
