The Estée Lauder Companies has reported double-digit sales growth in global travel retail for the second quarter of fiscal 2017.

This was generated by new launch initiatives, global airline passenger traffic growth and new consumer coverage, the company said. Tom Ford, Jo Malone, La Mer, MAC and Aveda “contributed sharply” to the sales gains.

An overall increase in make-up sales came partly through a broadening of brands’ presence in travel retail.

Total net sales of US$3.21 billion were achieved in the second quarter, a +3% year-on-year increase.

 

 

 

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Net sales and operating income in the company’s product categories were “unfavourably impacted” by the strength of the US Dollar in relation to most currencies. Total operating income in constant currency, before charges, increased +6%.

Estée Lauder President and Chief Executive Officer Fabrizio Freda said: “Our second quarter sales growth accelerated as planned, reflecting the benefits of our portfolio diversity by brand, channel, product category and country. Our small, mid-sized and luxury brands continued to lead growth, contributing strong sales increases, and recent acquisitions added incremental sales. Additionally, among our large brands, Estée Lauder and MAC each grew in constant currency.

“We achieved strong double-digit growth in our most profitable channels including travel retail, online and specialty-multi. Sales growth accelerated in most product categories and every geographic region in constant currency. We have strategically invested in these growth engines to produce strong results, as well as position us for continued future success. For the quarter, our profits were higher than expected, reflecting our ability to leverage sales growth and manage expenses.

“During the quarter, we completed the acquisitions of Becca and Too Faced. We are excited by the opportunities these fast-growing brands bring to our company. Both brands complement our make-up portfolio, which is the fastest-growing category in prestige beauty, and strengthen our position in the specialty-multi retail channel globally. We have ample room to expand their consumer reach.

“We expect sales and profit growth to further accelerate in the second half of our fiscal year, due largely to strong product innovation, increased consumer coverage and improving trends in certain brands and markets. We plan to make targeted investments throughout the balance of the fiscal year to support and grow our brands.

“With our plans in place, we expect 2017 fiscal year constant currency sales growth of 6% to 7%, which includes approximately 1% of incremental sales attributable to the recent acquisition of Too Faced. We now expect constant currency earnings per share growth of 8% to 9%, before charges, which reflects US$.04 of dilution related to Too Faced.”

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Category performance

Skincare
• Net sales increased, with strong double-digit gains in every region from La Mer, driven by the success of new and existing products, as well as expanded targeted consumer reach.
• The Estée Lauder brand delivered solid sales growth from recent product launches of Advanced Night Repair Intensive Recovery Ampoules and Revitalizing Supreme+, and double-digit growth in travel retail. Strong double-digit sales growth from GlamGlow reflected expanded product assortments and consumer reach.
• Offsetting these increases were lower skincare sales from Clinique and Origins. The decline at Clinique reflected the overall global slowdown in the category and lower sales in certain countries within the Asia/Pacific region, particularly Hong Kong, as well as a difficult comparison with greater launch activity the previous year.
• Operating income increased, with higher results from La Mer and Estée Lauder. Estée Lauder also benefited from a favourable comparison to the higher level of prior-year period support spending behind launches.
Make-up
• Make-up sales were driven by double-digit increases from Tom Ford in every region, strong growth from Estée Lauder and La Mer, solid gains from Smashbox, and incremental sales from the acquisitions of Becca and Too Faced.
• The increased sales in Tom Ford were down to its lip colour franchises including new product offerings such as The Soleil Color Collection. At Estée Lauder, higher sales were fueled by the Double Wear and Pure Color Envy product lines. La Mer’s sales increase reflected the recent launch of the Skin Color Collection. Sales gains at Smashbox reflect the strength of the make-up category in specialty-multi.
• The overall increase in make-up also resulted from new product offerings, as well as brands’ broadening presence in a number of channels, including travel retail and specialty-multi brand retailers.
• Lower sales, primarily from Clinique and MAC, offset these increases, reflecting the decline in foot traffic in US mid-tier department stores and certain tourist driven MAC freestanding stores. The lower sales Clinique sales reflect the timing of a gift-with-purchase programme.
• Make-up operating income decreased, as a result of lower sales at MAC and Clinique, as well as transaction costs related to the company’s fiscal 2017 acquisitions.
Fragrance
• Net sales increased due to strong double-digit gains from luxury brands Jo Malone London, Tom Ford, Le Labo and Frédéric Malle, and incremental sales from By Kilian.
• Higher net sales from Jo Malone reflected the recent launch of Basil & Neroli and strong growth from existing fragrances and brand expansion.
• Increased sales from Tom Ford reflect, in part, the continued success and growth of existing fragrances, as well as new product launches.
• Lower sales of certain Estée Lauder and designer fragrances partially offset these increases.
• Fragrance operating income increased because of higher sales from Jo Malone, and a promising comparison to the higher level of prior-year period support spending behind new and existing launches of certain designer fragrances.
Haircare
• A difficult comparison with several Aveda product launches in the prior year resulted in lower haircare net sales. Aveda plans to launch haircare initiatives later this fiscal year.
• Haircare operating income decreased, reflecting the lower net sales.

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By region

The Americas

  • In North America, most of the company’s brands generated sales growth, with double-digit gains from Tom Ford, La Mer and Smashbox and strong growth from Jo Malone. The Estée Lauder brand grew low-single digits.
  • Sales in the region benefitted from incremental sales from the recent acquisitions of By Kilian, Becca and Too Faced, while strong double-digit sales growth was generated from other acquisitions made during the past two years.
  • Sales in the company’s online and specialty-multi channels grew strong double-digits.
  • The growth in these areas was more than offset by sales decreases primarily attributable to the decline in retail traffic in US mid-tier department stores, which principally affected Clinique and MAC. A decrease in tourism also adversely affected sales in certain US MAC freestanding stores.
  • Sales in the USA faced a difficult comparison to the prior-year quarter when Estée Lauder and Clinique launched major skincare and make-up products. Lower sales in Clinique reflected the earlier timing of a gift-with-purchase programme.
  • Sales in Canada were flat for the quarter, while Latin America saw a high-single digit increase.
  • Operating income in the Americas decreased, reflecting the lower sales at MAC, as well as transaction costs related to the company’s fiscal 2017 acquisitions.

Europe, the Middle East & Africa

  • As noted, strong double-digit sales growth in travel retail was generated by new launch initiatives, global airline passenger traffic growth and new consumer coverage. Tom Ford, Jo Malone, La Mer, MAC and Aveda contributed sharply to the sales gains.
  • Most markets recorded net sales growth, with many posting double-digit increases, led by Russia, India, Italy, France, Central Europe and the Balkans, and strong growth in Germany.
  • Foreign currency translation reduced reported sales by -6%, with the largest impact from the deterioration of the pound sterling.
  • In constant currency, sales growth in the region was strong, with virtually all countries generating sales gains. Many emerging markets posted double-digit sales growth, as did several developed countries.
  • In constant currency, lower sales were posted in the Middle East driven by retailer inventory rebalancing, reflecting the impact of the macro-environment on consumer purchases.
  • Operating income increased, led by strong double-digit operating results in travel retail and France. Lower operating results were recorded primarily in the Middle East and Nordic.

Asia Pacific

  • Net sales increased on a reported basis with double-digit growth in Japan and the Philippines.
  • Sales in constant currency increased in most countries, including double-digit growth in China and the Philippines. The higher sales in China reflected strong double-digit sales gains in most brands and in the online and freestanding store channels. Strong constant currency sales gains were recorded in Korea.
  • Sales in Hong Kong declined, reflecting continued challenges from fewer Chinese tourists, particularly for the Estée Lauder, Clinique and La Mer brands.
  • Asia Pacific operating income increased due to higher results in China, Japan and Korea.

Moving into the fiscal third quarter, the company expects sales growth to progressively accelerate from strong innovation programmes, greater outreach to target consumers for fast-growing brands in winning channels, regular price increases and organic growth, easier comparisons in certain markets, and incremental sales from recent acquisitions.