Luxury fragrance and cosmetic provider Estée Lauder has posted strong first quarter results on the back of significant gains in Asia Pacific, but South Korea proves to be the exception to the upward trend.
Overall sales in the region increased by 11 percent on a reported basis to $687.6m, the biggest jump in any of the three geographic regions the company is divided into.
In terms of local currencies, the sales figure represented growth of 9 percent, which was considerable compared to the phenomenal growth rate of 18 percent posted in the region during the corresponding period in 2011.
China and Hong Kong lead the way
Looking at the performance in the region, the China and Hong Kong markets were highlighted primarily for the performance of the skin care category, where tier two and tier three China cities were said to have added new consumers at a faster rate.
However, certain markets in the region did not perform so well, with the market in South Korea showing lower sales due to difficult economic conditions, while sales in Australia were also down.
The global net sales increased 7 percent to $2.93bn, compared to $2.74bn in the corresponding period last year, a figure that was not impacted by foreign currency translations.
However, it was noted that a small portion of the sales in the second quarter, approximately $120m, was accounted for by advance orders associated with the company’s new SAP implementation, which is due to be introduced in the current quarter.
These figures, partly combined to give an increase of approximately 5 percent in net sales and approximately 2 percent in operating income, which the company said was still better than its forecast.
Softness in Southern Europe
The net sales for the period also reflected a 10 percent increase in local currency revenues from international markets, despite what the company described as ‘softness’ in Southern European countries.
The company’s profitability also rose significantly, beating its own forecast for the quarter, with operating margins up 50-basis-points, while net earnings for the period rose by 13 percent to $447.5m.
“These results demonstrate our ability to continue to grow, on top of the double-digit trends we generated in the prior year, even in the face of macro-economic headwinds and challenges in certain international countries,” said Fabrizio Freda, president and CEO.
“Organic sales growth for the quarter was in line with our expectations, while earnings per share exceeded our forecast.”
Skin care leads the way
Of the four principle business units, skin care showed the biggest gains, with sales during the quarter rising by 10 percent to reach $1.28bn, which the fragrance division had the smallest gain, with sales for the period up 4 percent to $458.8m.
The company noted that the recent launches of Perfectionist CP+R, Advanced Time Zone, Advanced Night Recovery Eye Serum Infusion and the Optimizer line of products, as well as higher sales of Advanced Night Repair Synchronized Recovery Complex had all helped to push skin care sales.
In contrast to the big gains in the Asia region, the smallest gain was seen in the Europe, Middle East & Africa market, where weak economic conditions in Europe pinned back sales growth to 4 percent, at $1.10bn.
Outlook for full financial year
Looking ahead, the company believes that its restructuring program will be a key driver behind efficiencies, while the pipeline of new innovations should lead to continued growth in the second half of the financial year.
“We expect continued solid growth in the U.S., many emerging markets and e-commerce and improving trends in travel retail. For the full fiscal year, we are re-affirming our sales growth forecast of between 6 percent and 7 percent in local currency, while raising our earnings per share guidance,” said Fabrizio