US. The Estée Lauder Companies has reported a strong financial performance for its fourth quarter and fiscal year ended 30 June 2012. For the year, the company generated net sales of US$9.71 billion, a +10% increase compared with US$8.81 billion the prior year. Excluding the impact of foreign currency translation, net sales also increased +10% from a year ago.
The company reported a 110 basis point increase in operating margin, and net earnings for the year rose +22% to US$856.9 million, compared with US$700.8 million last year. Diluted net earnings per common share rose +24% to US$2.16, compared with US$1.74 reported in the prior year.
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Fabrizio Freda: “For the first time, [travel retail] net sales topped US$1 billion. Our travel retail sales have doubled in three years.” |
President and Chief Executive Officer Fabrizio Freda commented: “A very strong fourth quarter, in which we generated double-digit growth in sales, excluding currency, and earnings per share, was driven largely by continued momentum in the US and strong growth in China and travel retail. This performance capped another record year for our company.
“In fiscal 2012, we grew sales, net earnings and earnings per share by double digits. Our sales grew at twice the rate of worldwide prestige beauty, owing to the success of our highly innovative products, marketing prowess and personalised services. Despite pockets of economic uncertainty around the globe, our sales growth was broad-based, with strong gains in every geographic region and product category and many distribution channels.”
He added: “Financial discipline throughout our company enabled us to bring much of our sales growth to the bottom line. Our operating margin increased 120 basis points to a record 14.2% – exceeding our original forecast – and operating cash flow reached an all-time high of US$1.1 billion. These superb results reflect the success of our focused growth strategy and effective business model.”
Regarding goals and prospects, Freda noted: “Our strategy is working, we believe it is sustainable and we continue to further strengthen our leadership in prestige beauty. Leveraging the global reach of our diverse and powerful brand portfolio, we plan to continue to focus our efforts and resources in the most promising areas for prestige beauty, including emerging markets, travel retail and digital.
“At the same time, we expect to generate further cost savings and improve profitability as we move forward. While we are positive about our long-term outlook we are cautious of further weakening in certain global markets. Nonetheless, we are confident in our growth prospects and we are extending our financial goals to fiscal 2015 and raising our operating margin target to 15.5% to 16%.”
The company attributed its performance to solid overall business, particularly from its largest brands. The group also reported sales gains in each of its product categories and geographic regions. Net sales also grew in each major product category within each region. Sales growth was particularly strong in travel retail and overall in emerging markets, along with solid gains in several developed countries.
For the three months ended 30 June 2012, the Estée Lauder Companies reported net sales of US$2.25 billion, a +9% increase from US$2.06 billion in the comparable prior-year period. Excluding the impact of foreign currency translation, net sales increased +12%.
Talking travel retail
In an Earnings Conference Call, Freda spoke in greater detail about the group’s achievements and ambitions within the travel retail channel.
“Travel retail again had fantastic double-digit growth, more than four times the rate of international air passenger traffic,” he noted. “And for the first time, net sales topped US$1 billion. Our travel retail sales have doubled in three years.
“Net sales increases came from virtually every brand, and we gained 100 basis points of share in this channel. Our Company became number one in travel retail in Asia Pacific, and in prestige make-up globally we maintained our leadership in skin care.
“Overall Asia-Pacific sales were healthy, although by country the picture was mixed. We experienced strong growth in greater China, a marginal increase in Japan and weak results in Australia. China overtook Japan to become our largest Asian affiliate, and our sales there climbed +28% in local currency, which enabled us to again expand our leadership position. Particularly strong was Estée Lauder, which is the number one brand in its distribution in the country. La Mer, Origins, and our online business grew sharply, too. We now do business in 58 Chinese cities, 20 more tha last year, and through e-commerce, we reach consumers in nearly 350 cities.”
Skin care, in terms of category, and Asia, in terms of region, will continue to drive growth within travel retail, Freda predicted.
“The travel retail channel, spanning 1,600 locations worldwide, is expected to remain a catalyst for our growth,” he acknowledged. “Sales translate to our strengths as the greatest growth is coming from skin care and Asian travellers. We plan to open pop-up stores in busy airport locations, bringing more brands to more stores, accelerate our advertising and further leverage the channel to reinforce brand equity. Currently worldwide travellers take over 1 billion international trips by air every year. That number is expected to climb +4% in the next 12 months, which represents slightly lower growth than fiscal 2012.”
Freda underlined the progress the group has made in terms of harnessing key synergies between its various domestic and travel retail divisions.
“We are learning really to manage the travellers as a consumer across all our business, rather than only having travel retail like a separate division,” he explained. “What I mean is we really managed through corridors. We look at the consumers from Shanghai to Hong Kong and their travels to Paris in the airports, and we try to co-ordinate initiative activity. We look at marketing spending now in a more co-ordinated fashion.
“The level of collaboration between our outstanding travel retail division and the various affiliates has increased dramatically, allowing us very clear visibility for best resource locations on the travellers around the world, which I think is developing into another competitive advantage.”
Freda also highlighted how travel retail benefited from domestic success. “The real core investment for building travel retail is to build winning brands in the countries that provide the biggest number of travellers,” he noted. “In other words, if we win in China, you win with Chinese consumers where they shop in the world, the same with Brazilians and the same with every other consumer. And that is where we are focusing on.”
Freda concluded: “We know there are a lot of new consumers. In other words, different from what many people believe, travel retail is not only a replenishment business and lower costs for people that are lucky enough to travel, it is really new trials. In fact, travel retail, like online, is a beautiful channel for launching products, for creating new trial, for making people interested for the first time in your brands. So it is an excellent channel [offering] high margin, great service and an opportunity to build a unique competitive advantage.”
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