Estée Lauder Results Shine Despite European Blemishes

Estee Lauder (NYSE:EL), the New York beauty company, reported that its sales increased 3% to $2.55 billion when compared to same period last year. Net earnings for the quarter rose 8% to $300 million. The company performed well in spite of the weak Western European markets where sales from France, Spain, Russia and Switzerland declined. The country reported strong sales from the United States and China. The Americas and EMEA regions together account for nearly 80% of its revenues.

Estée Lauder is one of the leading cosmetics and beauty care players globally and competes with Revlon (NYSE:REV), L’Oreal (PINK:LRLCY) and Avon Products (NYSE:AVP).

View our detailed analysis for Estee Lauder here

Skin Care Continues to Deliver Growth

Estee Lauder’s Q1 performance was led by a 4% growth in the Skin Care category that generates almost half of the company’s sales. It posted strong growth in the U.S. and China as well as capitalized impressively on the high growth in the airport travel retail and online channels. It gained share in this category during the quarter in certain countries where its products are sold. The sales benefited from higher sales of several recent launches including Perfectionist CP+R and the Optimizer line of products.

Operating income increased double-digits, primarily reflecting improved results from higher-margin product launches in certain of the company’s heritage brands, as well as from higher-end prestige skin care products.

Foriegn currency translation and Western Europe bear down on results

The company reported a decline of 4% in sales from the EMEA region as a result of foreign currency translation, which otherwise increased by 2% in local currency terms. It continues to generate growth in most of the EMEA countries in spite of the prevailing economic situation. The growth was limited by poor performance in Russia, Switzerland, France, the Balkan countries and Spain. In constant currency terms, net sales increased in most countries in the region and in each product category, except fragrance. In European travel retail, the company experienced double-digit retail sales growth in the quarter, which was more than twice the increase in airline passenger traffic.

Asia-Pacific slowly becoming the second biggest market

The Asia-Pacific region, a focus for the company as it makes progress on its plans to set-up a second home in China, exhibited strong sales growth of 6% during the quarter. Local currency sales growth was generated in several countries in the region, with the strongest gains coming from China, Hong Kong and Thailand, primarily reflecting strong sales of skin care products. In China, the increase was primarily due to sales to new consumers in expanded distribution in tier two and three cities. Buoyed by the strong results from China, the company rolled out a new skincare brand, Osiao, directed specifically at the market in October.

The strong results from the region were mitigated by a poor performance in some countries, particularly Korea, where sales declined. The company expects to see continued weakness in these markets for prestige beauty products, a function of prevailing difficult economic situation and competitive pressures.

We have a price estimate of  $64 for Estee Lauder which is being revised.

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