Estee Lauder expects 'significantly' higher quarterly profit

By Simon Pitman

- Last updated on GMT

Related tags Estée lauder United states dollar

US prestige cosmetics player Estee Lauder says it expects better sales and ‘significantly’ higher profits for its soon-to-be announced first quarter results.

Due out on October 30, the company added that the results should be well ahead of previous guidance thanks to a significant number of factors that will combine to boost both sales and profits.

The company said that strong sell-in for a number of new product launches, combined with continued growth in Asian results, higher sales for its travel retail category and improved foreign currency translation had all been positive factors.

The value of the US dollar against foreign currencies, particularly the euro, has continued to fall, raising international income, while gains in its travel division reflect a significant increase in worldwide travel, as both business and leisure travellers take to the air again.

Travellers return, boosting travel business category

Estee Lauder estimates that approximately 7 percent of its annual sales turnover is derived from its travel retail business, which means that any fluctuations can have a significant impact on the bottom line.

Likewise, in an about turn to the de-stocking that has characterized the business activities of many of the big personal care players during the year to date, Estee Lauder also pointed out that it had benefited from the early shipping of stock in preparation for the holiday period.

A comprehensive restructuring plan, backed by CEO Fabrizio Freda when he took up the position two years ago, has also done much to lead the company out of the troubled times, with the resulting reduced costs helping to boost profitability.

Prescriptive brand bites the dust

As part of this restructuring the company announced last month that it was axing cosmetics brand Prescriptive by January 2010, because it did not give an adequate return on investment.

Since making the announcement about the improved outlook, Estee Lauder shares have jumped more than 5 percent on the NYSE, and were being traded at $41.71 per share in mid-morning trading today.

It says it now expects to raise expectations for the full financial year 2010 when it reveals the first quarter results next week, but said in a statement that it ‘remains cautious regarding the global economic climate and consumer spending throughout the year’.

Things look up after a difficult year

Estee Lauder posted a big loss for its most recent fourth quarter results, with the blame being squarely laid on high restructuring charges, together with a fall in sales.

Turnover for the quarter fell by 16 percent, to $1.68bn, compared to $2.01bn for the same period last year, which the company said represented a fall of 10 percent when discounting the negative impact of currency translations.

Likewise, the company registered a loss of $17.9m, compared to a profit of $120.2m in the corresponding quarter last year.

Turnover for the full financial year 2009 fell by 7.4 percent, down from $7.91bn in the corresponding quarter last year, to $7.32bn for the current quarter.

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