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Estée Lauder U.S. business stands firm but Q2 earnings drop

By Andrew McDougall+

05-Feb-2014
Last updated on 05-Feb-2014 at 18:13 GMT

Estée Lauder U.S. business stands firm but Q2 earnings drop

Estée Lauder reported a 3% decline in earnings for its second quarter as higher sales, among which were in the U.S. and Americas, were more than offset by an increase in operating expenses as well as softer-than-expected demand in some markets.

Net earnings for the quarter were $432.5 million, compared with $447.5 million last year, whilst net sales were $3.02 billion, a 3% increase, with the Americas and EMEA offsetting poor results in Asia Pacific.

Team America

Net sales in the United States increased, reflecting growth from certain of the firm’s make-up artist and luxury brands, partially offset by declines at certain heritage brands.

The strength of online also shone in a region that has been quick on the uptake, as sales of the company’s online business grew double digits.

Latin America was a stand-out performer for the region with double-digit sales growth, due, in part, to price increases in Venezuela as a result of rising inflation. However, net sales in Canada declined.

Operating income in the Americas rose, reflecting the increased sales and a more measured approach to spending.

Partially offsetting these higher results were an increase in investment spending and an adjustment made in the prior-year period related to the overstatement of accounts payable balances.

"Our fiscal second quarter sales growth was in line with our expectations, despite softer than expected markets in some geographies,” says Fabrizio Freda, President and Chief Executive Officer of Estee Lauder

“These results confirm that our business strategy is sound and effective. Underscoring our sustainable growth is our strong and diverse portfolio of brands that is balanced by geography, product category and channel.”

Key drivers

Key drivers of Estée Lauder’s sales gains in the quarter were the United States and the United Kingdom, our luxury and makeup artist brands, and online and travel retail channels, says the make-up maker’s boss.

These factors and continued strength overall in emerging markets more than compensated for soft results in certain European countries and solid but slowing Chinese market growth.

“Our strategy prioritizes the fastest growing areas of our business to drive top-line growth and increase profitability and margins,” he continues. “To achieve this, we plan to continue appropriate levels of targeted investment spending, while leveraging efficient cost management in other expense categories.”

At the same time, Freda says the company will bring a steady flow of new products to market and increase brand awareness by further expanding its digital and social media capabilities.

Product-wise, skin care sales for the quarter declined 1% to $1.26 billion, while make-up revenue rose 8% to $1.13 billion. Fragrance revenues increased 4% to $477.8 million.

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