Buoyed by a vibrant offshore duty free business in Hainan, China, The Estée Lauder Companies’ travel retail business “excelled” in the third quarter, according to President and Chief Executive Officer Fabrizio Freda.
Announcing a +16% reported year-on-year rise in Q3 net sales (+13% in constant currency) to US$3.86 billion today, Freda said: “We exceeded our sales and earnings expectations, even as several markets experienced increasing pressure from COVID-19 throughout the quarter.
The net sales from the company’s travel retail business are included in the Europe, the Middle East & Africa region (see tables below), with the exception of the net sales of Dr. Jart+ in the travel retail channel that are reflected in Korea within the Asia Pacific region.
Net travel retail sales (excluding Dr. Jart+ annotated separately) increased year-on-year despite the absence of international passenger traffic in Europe, the Middle East & Africa and The Americas. “This was more than offset by China domestic travel, especially in Hainan, and sales in the rest of Asia Pacific, including Korea,” the company said.
“Our growth engines of skincare and fragrance were incredibly powerful. Sales rose in every region, led by double-digit growth in Asia Pacific, where many markets contributed and sales growth in Mainland China accelerated.
“Online thrived as a growth engine, with sales having increased strong double-digits around the world, and travel retail excelled. Estée Lauder, La Mer, Jo Malone London, Clinique, and Tom Ford Beauty led the robust performance of many brands in our portfolio.”
Net sales grew in every region and in most product categories. This reflected the recovery in several areas compared to the prior year where brick-and-mortar began to shut down as COVID-19 spread globally, The Estée Lauder Companies noted.
The company reported net earnings of US$456 million, compared with a net loss of US$(6) million in the prior-year period.
For the nine months ended 31 March, The Estée Lauder Companies reported net sales of US$12.28 billion, up +3% compared with US$11.86 billion in the prior-year period. Net sales increased +2% in constant currency. Incremental net sales from the company’s acquisition of Have&Be Co. Ltd. (Dr. Jart+) contributed approximately 2 percentage points of net sales growth.
Net earnings were US$1.85 billion, and diluted earnings per share reached US$5.03. In the prior-year nine months, the company posted net earnings of US$1.15 billion and diluted earnings per share of US$3.12.
Commenting on the Q3 performance, Freda continued: “Our fiscal year-to-date sales and adjusted operating margin exceed that of the same period in fiscal 2019, as we continue to successfully navigate the challenges of the pandemic. With strong cash flow generation, we resumed share repurchases in the third quarter.
“We are thrilled to have agreed to increase our ownership in Deciem, becoming majority owners with a path to full ownership in three years. Deciem’s soaring brand The Ordinary and new brand incubation capability further enhance our superior multiple engines of growth strategy.
“We have achieved these outstanding results while, first and foremost, caring for the safety and well-being of our employees and consumers amid the pandemic,” Freda added. “Impressively, we are investing in many compelling long-term growth drivers, including end-to-end innovation with a new centre in Shanghai, state of the art manufacturing in Asia Pacific, global online, and consumer analytics.
“We are progressing on our environmental goals and acting on our social commitments with urgency. We expect the momentum in our sales growth to build in the fourth quarter of fiscal 2021, not only from easing comparisons but also fundamental strength, as we drive recovery.”
Assessing the COVID impact
The COVID-19 pandemic continued to disrupt the company’s operating environment, temporarily impacting retail traffic and certain consumer preferences in Q3. The resurgence of COVID-19 cases in several countries, particularly in Western Europe and Latin America, led to government restrictions to prevent further spread of the virus. These restrictions included the temporary closure of businesses deemed non-essential, curtailment of travel, social distancing and quarantines.
“Globally, in areas where stores were open, consumer traffic was significantly reduced as compared to the pre-COVID-19 pandemic period,” the company said. “In addition, while domestic travel in China, especially in Hainan, and some other travel corridors in Asia Pacific, most notably Korea, were open, international travel has remained largely curtailed globally due to both government restrictions and consumer health concerns that continue to adversely impact consumer traffic in most travel retail locations.”
Make-up takes a hit
The COVID-19 pandemic-related closures of offices, retail stores and other businesses and the significant decline in social gatherings have also influenced consumer preferences and practices [as has the wearing of masks -Ed], The Estée Lauder Companies said. “Specifically, the demand for makeup continues to be weak given fewer makeup usage occasions while other categories have been more resilient.”
The pandemic’s impact particularly affected foundation and lip products in most markets. Makeup sales rose slightly in Asia Pacific, reflecting the more advanced recovery in the region, primarily in China where usage occasions are increasing.
Skincare net sales grew strongly, led by Estée Lauder, La Mer and Clinique. Dr. Jart+ and Origins also contributed to growth. Estée Lauder net sales grew double digits, led by increases in travel retail and in Mainland China compared to the prior year where brick-and-mortar stores began to shut down in January 2020 due to COVID-19. Dr. Jart+ was singled out for its performance in Mainland China and travel retail in Korea.
In fragrance, net sales grew, primarily due to increases from Jo Malone London, Tom Ford Beauty, Kilian Paris and Estée Lauder. Hair care net sales rose, primarily reflecting successful innovation, including Botanical Repair, as well as strong double-digit online growth at Aveda.
