“One of our best performances in the last decade” – Travel retail shines as Estée Lauder delivers record net sales

Travel retail shone as The Estée Lauder Companies today unveiled what President and Chief Executive Officer Fabrizio Freda described as “outstanding” results for the fourth quarter and year ended 30 June, 2018.

Freda said: “Fiscal 2018 was an outstanding year for our company. We generated higher sales in every region and product category and gained global share. By investing in our hero franchises, fast-growing channels and digital and social media, we delivered double-digit sales and adjusted earnings per share growth.”

Announcing its Q4 and full-year results, the US beauty house reported fiscal year 2018 diluted net earnings per common share of US$2.95 compared with US$3.35 reported in the prior year. Excluding restructuring and other charges and adjustments, adjusted diluted net earnings per common share increased +30% to US$4.51, and in constant currency rose +24%.

“Sales climbed in virtually all our brands and we hit milestones along the way. Among the top four brands, our flagship Estée Lauder brand achieved record global sales and grew +22% in constant currency, demonstrating the amazing equity of the brand. La Mer became the fourth brand in our portfolio to contribute well over US$1 billion in net sales, and we increased sales at MAC and Clinique globally.

“Product innovation and creativity were strong across brands and Leading Beauty Forward [a May 2016 initiative to build on the group strengths and better leverage its cost structure -Ed] provided us the flexibility to invest more in digital advertising behind our initiatives, which is accelerating our sales growth.”

“Fiscal 2018 was an outstanding year for our company. We generated higher sales in every region and product category and gained global share.” –Fabrizio Freda

Freda added: “In fiscal 2019, we will continue to create products that appeal to a more diverse and growing middle class around the world and we are confident that we can continue to achieve industry-leading sales and double-digit earnings per share growth. With a successful strategy that focuses on multiple engines of growth across products, geographies, channels and demographics, we expect to once again gain share globally in fiscal 2019.” TRAVEL RETAIL STARS IN STRONG FINAL QUARTER

For the three months ended 30 June, 2018, the company reported net sales of US$3.30 billion, up +14% year-on-year. Net sales growth were posted in most brands and across-the-board gains in all geographic regions and product categories were recorded. Travel retail (all references in bold type below) stood out consistently across product sectors and markets. Net sales increased in several developed and emerging markets, reflecting especially strong growth from the travel retail, online and specialty-multi channels. Excluding the impact of currency translation, net sales increased +12%.

Net earnings for the quarter were US$186 million, compared with US$229 million last year, and diluted net earnings per common share was US$0.49, compared with US$0.61 reported in the prior-year period. Adjusted diluted net earnings per common share rose +20% to US$0.61, and +11% in constant currency, for the three months ended quarter, excluding restructuring and other charges and adjustments, the impact of a new tax law in the United States and the effect of currency translation. Net sales and operating income in the company’s product categories and regions outside the United States were favourably impacted by a weaker US Dollar in relation to most currencies.

The Company reported operating income for the three months ended June 30, 2018 of US$277 million, a +20% increase year-on-year. Total operating income excluding the favourable impact of currency translation of US$13 million and before charges and other adjustments, declined -1%, largely reflecting strategic investments made in digital and social media advertising to support long-term growth in fiscal 2019 and beyond.

Q4 PERFORMANCE BY CATEGORY Skin Care

• Skin Care net sales increased double-digits in every geographic region. Growth was particularly strong in Europe, the Middle East & Africa, travel retail, and China. By brand, the Estée Lauder, La Mer and Clinique brands were the largest contributors to growth.
• Operating income increased primarily from Estée Lauder and La Mer, reflecting higher net sales in Asia/Pacific and Europe, the Middle East & Africa, with the strongest growth in China and travel retail.

Make-up

• Make-up net sales increased. Strong double-digit growth from Estée Lauder, Tom Ford, Too Faced, BECCA and La Mer were partially offset by declines from MAC and Clinique.
• Make-up operating income declined primarily due to lower operating results from M•A•C that mainly reflected investments to support its turnaround in North America, stock adjustments in the Middle East, and higher advertising in Asia/Pacific to drive net sales in the fast-growing region.

Fragrance

• Higher fragrance net sales reflected growth across all geographic regions. Jo Malone London, Tom Ford and Le Labo all had strong double-digit gains.
• Fragrance operating results improved, reflecting higher net sales from Tom Ford, primarily in North America, as well as the Europe, the Middle East& Africa region, which benefited from strong growth in travel retail. By Kilian also contributed to the growth. The category performance also reflected a decline from Estée Lauder fragrances in the United States.

Hair Care

• Hair care net sales increased primarily due to the successful launch of new Aveda products.
• The increase in hair care operating income reflected the higher net sales.

Q4 PERFORMANCE BY REGION

The Americas

• Net sales in The Americas increased, led by strong growth in Canada and Latin America. Net sales in the United States increased slightly.
• Operating income in The Americas decreased, primarily reflecting lower operating results from MAC due to investments in North America to turn around its business. The company also strategically increased digital and social media investments across the brand portfolio. Higher general and administrative expenses, including an increase in employee compensation and investments in information systems, also contributed to the operating income decline.

Europe, the Middle East & Africa

• Net sales increased, with double-digit gains in travel retail and in the Balkans and India, partially offset by stock adjustments in the Middle East.
• Operating income increased, led by strong double-digit growth in operating results in travel retail. The higher results were partially offset by lower results in the Middle East due to stock adjustments for several brands.

Asia/Pacific

• Net sales increased led by strong double-digit growth in China and Hong Kong.
• Operating income increased due to higher results in Hong Kong, partially offset by higher advertising expense to build awareness and drive continued sales growth over the next year.

CONSISTENT FULL-YEAR PERFORMANCE ACROSS CATEGORIES AND SECTORS  

For the fiscal year, the company achieved net sales of US$13.68 billion, a +16% increase. As mentioned the company posted net sales growth in each major product category and each geographic region.

These results reflect, in part, the company’s strategy to drive growth by targeting its investments to shifts in consumer and market dynamics across product categories, geographic regions, brands and distribution channels.

This strategy positioned the group well for the resurgence in global prestige skin care growth as well as the strong increase in demand among Chinese consumers, the company noted. Net sales increased in several developed and emerging markets, and reflected strong growth from the travel retail, online and specialty-multi channels.

Skincare net sales benefited from increases at Estée Lauder, La Mer, Origins and Clinique. Make-up net sales growth was driven by increases from Estée Lauder, Tom Ford and MAC, as well as both incremental and higher comparable net sales from the fiscal 2017 acquisitions of Too Faced and BECCA.

Fragrance net sales growth reflected increases from Jo Malone London, Tom Ford, Le Labo and By Kilian. Hair care net sales increased, reflecting growth from Aveda.

Excluding the impact of currency translation, net sales increased +13%. Operating income for the fiscal year reached US$2.05 billion, up +21% increase. Total operating income excluding the favourable impact of currency translation of US$103 million and before charges and other adjustments, increased +15%, largely reflecting strong sales growth partially offset by investments made in digital and social media advertising to support long-term growth in fiscal 2019 and beyond.

Net earnings for the year were UDS$1.11 billion, an -11% decline, compared with US$1.25 billion last year, and diluted net earnings per common share decreased 12% to US$2.95, compared with US$3.35 reported in the prior year.

Adjusted diluted net earnings per common share increased 30% to US$4.51, and in constant currency rose 24%, for the fiscal year ended June 30, 2018, excluding restructuring and other charges and adjustments, the impact of the new tax law in the United States and the benefit of currency translation as detailed in the table below. The fiscal year 2018 diluted net earnings per common share also includes the tax benefit of the adoption of a new accounting pronouncement for share-based compensation, which added US$0.13.

ROBUST OUTLOOK FOR FISCAL 2019 FIRST QUARTER AND FULL YEAR

Global prestige beauty is continuing to perform “exceptionally well” and is estimated to grow +5% to +6% during the fiscal year. The company said that it expects to grow ahead of the industry. Reported net sales are forecasted to increase between +4% and +5% versus the prior-year period, which includes a +2% impact from currency translation and +1% impact from the adoption of a new revenue recognition accounting standard.

Excluding these items, net sales are forecasted to grow between +7% and +8%. This is on the high-end of the company’s long-term growth goal of +6% to +8% in constant currency.