Estee Lauder hit with skin care slump
While the company reported constant currency double-digit gains in the UK and many emerging European markets, overall net sales of $2.52 billion (€2.27bn) were posted for the three months ended June 30, compared with $2.73 billion in the prior-year period.
The lower-than-expected quarterly sales were most affected by weak demand for Clinique and Estee Lauder skin care products, as sales in the company's skin care division as-a-whole fell 16% to $1.01 billion in the fourth quarter, which Reuters says is ‘the worst fall in at least two years.’
Heritage defiance
However, despite their dip, company CEO Fabrizio Freda remains defiant on the two heritage brands as they account for 40% of the total sales andthere will be a focus on turning their fortunes around.
“[Estee] Lauder and Clinique are excellent brands for us, they are very important, and have great equity around the world,” he says on a conference call to analysts.
“We want to continue to build on these assets – they are big brands with very broad distribution.”
In fact, Freda says that it is because they are such big brands that may make it more difficult to turn them around but that it will be the focus looking ahead in skin care.
“We are determined to drive them and leverage the great assets that their equity represents for the company,” he adds.
Freda also points to the external factors that had a big effect on the skin care business and was out of the company’s control such as the deadly outbreak of Middle East Respiratory Syndrome (MERS) in South Korea that also hit travel retail sales, which declined 4% in the quarter.
Outlook
There were some bright spots in the quarter for Estee Lauder, as contrary to perfume rivals Coty and Elizabeth Arden who saw mass fragrance sales take a hit, Estee Lauder recorded sales growth of 9% in this segment due largely to luxury brands such as Tom Ford and Joe Malone.
For the quarter, the company reported net earnings of $153.0 million, compared with $257.7 million last year, although adjusting for the impact of the accelerated orders, diluted net earnings per common share in constant currency for the three months ended June 30, 2015 would have increased 4%.
“I am proud of our accomplishments. Importantly, we are well-positioned for continuing growth through our unique creativity and consumer appeal for our brands and innovative products,” says Freda.
“Global prestige beauty is a dynamic industry, and we will continue to anticipate and target the areas with the greatest potential. In fiscal 2016, we expect constant currency net sales growth of 6% to 8% and double-digit earnings per share growth, after adjusting for the accelerated sales orders.”
