Estée Lauder’s Thicker Margins Put Lipstick On Earnings And Outlook

by Trefis Team
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Estée Lauder (NYSE:EL) reported modest revenue growth for its third quarter ending March 31, 2013, on May 2. Net revenues stood at $2.29 billion for the quarter, up 2% year-on-year. As discussed in our previous analysis, this was primarily affected by the accelerated orders received by the company from certain retailers during the second quarter as a result of a phased implementation of its SAP-based technology. These accelerated orders totaled to about revenues of $94 million, which otherwise would have been filled during the third quarter.

The company, however, reported a higher-than-expected growth in net earnings as it stood at $178.8 million, up 37% over the same period the previous year. Part of this gain came from one-time adjustments in the third quarter of 2012. Excluding these adjustments, net income would have still grown 19% to $177.8 million. Given the higher margins during this quarter, the company has raised its outlook for the rest of the fiscal year which ends in June 2013, and it expects to achieve a 6% growth in sales on a constant currency basis for the entire year.

View our detailed analysis for Estée Lauder here

Makeup And Hair Care Drive Revenues; Skin Care Disappoints

The skin care division reported lackluster performance with revenues of $1.01 billion, unchanged over the same period previous year. Although the company launched a slew of new products including Advanced Time Zone, Advanced Night Repair Eye Serum Infusion and Perfectionist CP+R from Estée Lauder and The Moisturizing Soft Cream from La Mer, the growth was entirely offset by the accelerated orders worth $48 million received by the company during last quarter.

However, the makeup and hair care division reported strong performance with 5% and 6% higher revenues respectively, supported by solid growth from M·A·C and Aveda brand products. The company introduced new products under the makeup division such as Even Better Compact Makeup and recorded higher sales of the Tom Ford line of cosmetics. Apart from increased sales of Aveda, higher sales of the Invati line of products and the recent launches of Pure Abundance Style Prep and Be Curly Curl Controller contributed to the strong performance of hair care division. The company particularly gained momentum in hair care division through expanded distribution in salons, in addition to the normal delivery channels.

Broad Based Growth Seen Across Regions

The company recorded low single-digit growth across geographies as sales were higher by 2% in the Americas, 3% in Europe, the Middle East & Africa and 3% in Asia-Pacific. Revenues from the Americas were affected by the accelerated orders received last quarter, which was more than offset by the strong sales growth from the Company’s makeup artist brands and Aveda.

Double-digit revenue growth from travel retail, the Middle East and South Africa were moderated by lower sales in Switzerland, France, Spain and the Balkans. Though the ongoing economic uncertainties in Southern European countries impacted the beauty markets, the company estimates that it gained market shares within these regions and outperformed the industry. Strong sales of skin care products and expanded distribution facilities helped Estée Lauder to gain higher sales in Asia-Pacific, especially in Hong Kong, Thailand and Australia.

We have updated our $66 Trefis price estimate for Estée Lauder to incorporate the latest earnings.

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