Add
EL to Portfolio
Set Alert
Email to a
Friend
| |||
|
|
Quotes & Info
|
| EL > SEC Filings for EL > Form 10-Q on 1-Feb-2008 | All Recent SEC Filings |
1-Feb-2008
Quarterly Report
RESULTS OF OPERATIONS
We manufacture, market and sell beauty products including those in the skin care, makeup, fragrance and hair care categories which are distributed in over 135 countries and territories. The following is a comparative summary of operating results from continuing operations for the three and six months ended December 31, 2007 and 2006, and reflects the basis of presentation described in Note 1 of Notes to Consolidated Financial Statements - Summary of Significant Accounting Policies for all periods presented. Sales of products and services that do not meet our definition of skin care, makeup, fragrance or hair care have been included in the "other" category.
Three Months Ended Six Months Ended
December 31 December 31
2007 2006 2007 2006
(In millions)
NET SALES
By Region:
The Americas $ 1,028.2 $ 944.0 $ 1,927.1 $ 1,844.5
Europe, the Middle East & Africa 933.2 761.7 1,484.4 1,233.6
Asia/Pacific 347.4 285.4 607.4 506.5
$ 2,308.8 $ 1,991.1 $ 4,018.9 $ 3,584.6
By Product Category:
Skin Care $ 831.2 $ 701.1 $ 1,450.7 $ 1,268.1
Makeup 827.3 716.8 1,490.4 1,363.6
Fragrance 520.5 465.1 833.5 754.4
Hair Care 110.4 93.9 213.0 176.3
Other 19.4 14.2 31.3 22.2
$ 2,308.8 $ 1,991.1 $ 4,018.9 $ 3,584.6
OPERATING INCOME (LOSS)
By Region:
The Americas $ 91.0 $ 109.9 $ 143.4 $ 183.0
Europe, the Middle East & Africa 207.0 170.8 216.0 189.1
Asia/Pacific 72.4 51.7 89.2 60.7
Special charges related to cost savings
initiative 0.1 - (0.2 ) (0.5 )
$ 370.5 $ 332.4 $ 448.4 $ 432.3
By Product Category:
Skin Care $ 166.5 $ 148.8 $ 202.3 $ 191.7
Makeup 149.4 128.6 190.5 178.5
Fragrance 48.1 37.4 43.1 42.5
Hair Care 6.4 15.6 13.8 19.5
Other - 2.0 (1.1 ) 0.6
Special charges related to cost savings
initiative 0.1 - (0.2 ) (0.5 )
$ 370.5 $ 332.4 $ 448.4 $ 432.3
|
THE ESTÉE LAUDER COMPANIES INC.
The following table presents certain consolidated earnings data as a percentage
of net sales:
Three Months Ended Six Months Ended
December 31 December 31
2007 2006 2007 2006
Net sales 100.0 % 100.0 % 100.0 % 100.0 %
Cost of sales 25.1 25.1 25.7 25.9
Gross profit 74.9 74.9 74.3 74.1
Operating expenses:
Selling, general and administrative 58.9 58.2 63.1 62.0
Special charges related to cost savings
initiative (0.0 ) - 0.0 0.0
58.9 58.2 63.1 62.0
Operating income 16.0 16.7 11.2 12.1
Interest expense, net 0.8 0.4 0.9 0.4
Earnings before income taxes, minority
interest and discontinued
operations 15.2 16.3 10.3 11.7
Provision for income taxes 5.3 5.7 3.6 4.1
Minority interest, net of tax (0.2 ) (0.1 ) (0.1 ) (0.1 )
Net earnings from continuing operations 9.7 10.5 6.6 7.5
Discontinued operations, net of tax - (0.0 ) - 0.0
Net earnings 9.7 % 10.5 % 6.6 % 7.5 %
|
In order to meet the demands of consumers, we continually introduce new products, support new and established products through advertising, sampling and merchandising and phase out existing products that no longer meet the needs of our consumers or our strategic and financial objectives. The economics of developing, producing and launching these new products influence our sales and operating performance each period. The introduction of new products may have some cannibalizing effect on sales of existing products, which we take into account in our business planning.
The recent challenges and uncertainties in the economies of certain key countries, including the United States, may have an adverse impact on consumer demand, which could affect our net sales and operating results in the short and long term.
Second Quarter Fiscal 2008 as Compared with Second Quarter Fiscal 2007
NET SALES
Net sales increased 16%, or $317.7 million, to $2,308.8 million, reflecting net sales growth in all of our product categories within each of our regions. Geographically, a substantial portion of this growth was attained internationally, reflecting our efforts to capitalize on growth opportunities, as well as the soft retail environment in the United States. Excluding the impact of foreign currency translation, net sales increased 11%.
Product Categories
In the current quarter, net sales in the skin care, makeup and fragrance product categories were favorably impacted in the United States by the ordering patterns of department store customers as a result of a one week shift in the retail calendar from our first fiscal quarter.
Skin Care
Net sales of skin care products increased 19%, or $130.1 million, to $831.2 million. The recent launches of Idealist Pore Minimizing Skin Refinisher and Hydra Bright Skin Tone Perfecting Moisturizers from Estée Lauder and products in the Acne Solutions Clear Skin System, Continuous Rescue Antioxidant Moisturizers and Zero Gravity Repairwear Lift Firming Cream from Clinique contributed incremental sales of approximately $52 million, combined. Net sales increases from La Mer, Origins and Good Skin TM products, as well as products in the Re-Nutriv line from Estée Lauder and in the Clinique 3-Step System totaled approximately $41 million. These improvements were partially offset by approximately $19 million of lower sales from other existing Idealist and Perfectionist products from Estée Lauder. Net sales of other new and existing products also significantly contributed to the growth. Excluding the impact of foreign currency translation, skin care net sales increased 13%.
Makeup
Makeup net sales increased 15%, or $110.5 million, to $827.3 million, reflecting increases from our makeup artist brands of approximately $73 million. Also contributing to the growth were the recent launches of Estée Lauder Signature Hydra Lustre Lipstick and Supermoisture Makeup from Clinique, as well as higher sales of Resilience Lift Extreme Ultra Firming products from Estée Lauder of approximately $26 million, combined. This growth was partially offset by approximately $12 million of lower sales of Pure Color Eyeshadow and High Gloss Lip Gloss from Estée Lauder. Excluding the impact of foreign currency translation, makeup net sales increased 11%.
Fragrance
Net sales of fragrance products increased 12%, or $55.4 million, to $520.5 million. The recent launches of Sean John Unforgivable Woman, Estée Lauder pleasures delight, Dreaming Tommy Hilfiger and Tom Ford for Men collectively contributed approximately $34 million to the growth in the category. Net sales growth of approximately $29 million from DKNY Be Delicious, Jo Malone fragrances, Clinique Aromatics Elixir, Clinique Happy, and Estée Lauder Beautiful also contributed to the increase. Partially offsetting these increases, by approximately $16 million, were lower sales of DKNY Be Delicious Men and DKNY Red Delicious Women. While current year sales levels compared favorably to the prior year, we anticipate continued challenges in this product category primarily in the United States. Excluding the impact of foreign currency translation, fragrance net sales increased 7%.
Hair Care
Hair care net sales increased 18%, or $16.5 million, to $110.4 million, primarily due to the inclusion of the Ojon brand and growth from Aveda and Bumble and bumble. Aveda net sales increases benefited from the recent launches of Aveda Men Pure-Formance and Smooth Infusion products, as well as the recent acquisition of an independent distributor. Bumble and bumble net sales benefited from increases from its hotel amenities program and sales from new points of distribution. Excluding the impact of foreign currency translation, hair care net sales increased 15%.
Geographic Regions
Net sales in the Americas increased 9%, or $84.2 million, to $1,028.2 million. The results in the United States benefited from the shift in the retail calendar, which affected the ordering patterns of department store customers in our first fiscal quarter, partially offset by ongoing challenges within this channel and their impact on certain of our brands. Outside of the U.S. department store channel, net sales grew through our internet distribution, offerings from our BeautyBank brands, and in our hair care brands, which included the addition of the Ojon brand, by approximately $29 million combined. In addition, we experienced net sales growth in Latin America and Canada of approximately $21 million. Excluding the impact of foreign currency translation, net sales in the Americas increased 8%.
In Europe, the Middle East & Africa, net sales increased 23%, or $171.5 million, to $933.2 million, including an exchange rate benefit due to the weakening of the U.S. dollar of approximately $71 million. The growth in the region reflected contributions from all countries in the region, led by the United Kingdom, our travel retail business and Russia, which benefited from our continuing expansion in this emerging market. Excluding the impact of foreign currency translation, net sales in Europe, the Middle East & Africa increased 13%.
Net sales in Asia/Pacific increased 22%, or $62.0 million, to $347.4 million, including an exchange rate benefit due to the weakening of the U.S. dollar of approximately $19 million. This increase reflected higher net sales of approximately $51 million in China, Australia, Hong Kong, Korea and Japan. Excluding the impact of foreign currency translation, Asia/Pacific net sales increased 15%.
We strategically stagger our new product launches by geographic market, which may account for differences in regional sales growth.
COST OF SALES
Cost of sales as a percentage of total net sales was 25.1%, which remained unchanged as compared with the prior period. Cost of sales as a percentage of net sales reflected a positive effect of exchange rates of 20 basis points and favorable changes in manufacturing variances of 10 basis points. Offsetting these improvements was an increase in obsolescence charges of 20 basis points and an increase in the level and timing of promotions of 10 basis points.
Since certain promotional activities are a component of sales or cost of sales and the timing and level of promotions vary with our promotional calendar, we have experienced, and expect to continue to experience, fluctuations in the cost of sales percentage. In addition, future cost of sales mix may be impacted by the inclusion of new brands which have margin and product cost structures different from those of our existing brands.
OPERATING EXPENSES
Operating expenses increased to 58.9% of net sales as compared with 58.2% of net sales in the prior period. The increase in operating expenses and operating expense margin reflected higher costs of global information technology systems and infrastructure of approximately 50 basis points as well as new business development initiatives and activities of approximately 40 basis points. The comparatively lower operating expenses generated by our higher growth brands, as well as our ongoing cost containment initiatives, primarily offset these increases.
Changes in advertising, sampling and merchandising spending result from the type, timing and level of activities related to product launches and rollouts, as well as the markets being emphasized.
OPERATING RESULTS
Based on the growth of net sales, our constant cost of sales margin and the increase in our operating expense margin as previously discussed, operating income increased 11%, or $38.1 million, to $370.5 million as compared with the prior-year period. Operating margins were 16.0% of net sales in the current period as compared with 16.7% in the prior-year period.
Product Categories
Fragrance operating results grew 29%, or $10.7 million, to $48.1 million, reflecting growth outside of the United States in certain of our core fragrances, partially offset by lower results from designer fragrances resulting from sales of lower-margin products and continued spending in support of new product launches. Makeup operating results increased 16%, or $20.8 million, to $149.4 million, reflecting strong growth overseas, partially offset by softness in certain of our core brands in the United States. Skin care operating results increased 12%, or $17.7 million, to $166.5 million, reflecting worldwide growth from certain of our core brands, as well as contributions from our La Mer brand. Our makeup and skin care categories were the primary beneficiaries of the shift in the retail calendar. Hair care results declined 59%, or $9.2 million, to $6.4 million. This decrease in profitability reflects investments designed to support our short and long-term growth in this category through new points of distribution and an increase in intangible asset amortization resulting from recent strategic acquisitions.
Geographic Regions
Operating income in the Americas decreased 17%, or $18.9 million, to $91.0 million reflecting increased spending on global information technology systems and infrastructure, as well as on new business development initiatives and activities. In the United States, operating income improvements as a result of the shift in the retail calendar were offset by the ongoing challenges experienced in the department store channel.
In Europe, the Middle East & Africa, operating income increased 21%, or $36.2 million, to $207.0 million primarily due to improved results in the United Kingdom, our travel retail business, the Balkans and Germany of approximately $27 million, collectively. Partially offsetting these increases were lower results in Russia of approximately $2 million, reflecting spending to support our continuing expansion in this emerging market.
In Asia/Pacific, operating income increased 40%, or $20.7 million, to $72.4 million. All of our affiliates in this region experienced an increase in operating income, primarily resulting from net sales growth led by Australia, Japan, China, Korea, and Hong Kong, which contributed approximately $17 million, collectively.
INTEREST EXPENSE, NET
Net interest expense was $18.3 million as compared with $7.7 million in the prior period. This change primarily resulted from higher average debt balances, including an additional $600.0 million of senior notes issued in the fourth quarter of fiscal 2007.
PROVISION FOR INCOME TAXES
The provision for income taxes represents Federal, foreign, state and local income taxes. The effective rate differs from statutory rates due to the effect of state and local taxes, tax rates in foreign jurisdictions and certain nondeductible expenses. Our effective tax rate will change from quarter to quarter based on non-recurring and recurring factors including, but not limited to, the geographical mix of earnings, enacted tax legislation, state and local taxes, tax audit settlements and the interaction of various global tax strategies. In addition, changes in judgment from the evaluation of new information resulting in recognition, derecognition or remeasurement of a tax position taken in a prior annual period are recognized separately in the quarter of change.
The effective rate for income taxes for the three months ended December 31, 2007 and December 31, 2006 was 34.9%. While there was no change in the overall effective income tax rate between the two periods (including the remeasurement of tax positions requiring recognition in the current quarter), the rate for the current quarter included an extra 210 basis for nondeductible expenses and other miscellaneous items offset by a decrease in 210 basis points relating to the tax effect of our foreign operations (90 basis points), lower state and local tax expense (100 basis points) and an increase in tax credits (20 basis points).
Six Months Fiscal 2008 as Compared with Six Months Fiscal 2007
NET SALES
Net sales increased 12%, or $434.3 million, to $4,018.9 million, reflecting net sales growth in all of our product categories, with hair care showing the largest proportionate growth. Skin care, makeup and fragrance net sales increases were led by Europe, the Middle East and Africa while most of the net sales growth in hair care was achieved in the Americas. Overall, the increase in net sales reflected our efforts to capitalize on growth opportunities internationally. Excluding the impact of foreign currency translation, net sales increased 8%.
Product Categories
Skin Care
Net sales of skin care products increased 14%, or $182.6 million, to $1,450.7 million. The recent launches of Idealist Pore Minimizing Skin Refinisher and Hydra Bright Skin Tone Perfecting Moisturizers from Estée Lauder and products in the Acne Solutions Clear Skin System, Zero Gravity Repairwear Lift Firming Cream and Continuous Rescue Antioxidant Moisturizers from Clinique contributed incremental sales of approximately $92 million, combined. Net sales increases from La Mer, Origins and Good Skin TM products, as well as Re-Nutriv and Resilience Lift Extreme Ultra Firming products from Estée Lauder, totaled approximately $72 million. These improvements were partially offset by approximately $39 million of lower sales from certain other existing Idealist products and Perfectionist products from Estée Lauder. Net sales of other new and existing products also significantly contributed to the growth. Excluding the impact of foreign currency translation, skin care net sales increased 10%.
Makeup
Makeup net sales increased 9%, or $126.8 million, to $1,490.4 million reflecting growth from our makeup artist brands of approximately $89 million. Also contributing to the growth were the recent launches of Estée Lauder Signature Hydra Lustre Lipstick and Supermoisture Makeup from Clinique, as well as higher sales of Resilience Lift Extreme Ultra Firming products from Estée Lauder of approximately $46 million, combined. Partially offsetting these increases were lower sales of approximately $22 million of Pure Color Eyeshadow by Estée Lauder and High Definition Lashes Brush Then Comb Mascara and Perfectly Real Makeup by Clinique. Excluding the impact of foreign currency translation, makeup net sales increased 6%.
Fragrance
Net sales of fragrance products increased 10%, or $79.1 million, to $833.5 million. The recent launches of Sean John Unforgivable Woman, Estée Lauder pleasures delight, Tom Ford for Men and Dreaming Tommy Hilfiger collectively contributed approximately $47 million to the growth in the category. Higher sales of approximately $48 million of DKNY Be Delicious, Jo Malone fragrances, Sean John Unforgivable and Clinique Happy also contributed to the increase. Lower sales of approximately $23 million of DKNY Be Delicious Men and Youth Dew Amber Nude by Tom Ford for Estée Lauder partially offset the growth in this product category. Excluding the impact of foreign currency translation, fragrance net sales increased 6%.
Hair Care
Hair care net sales increased 21%, or $36.7 million, to $213.0 million, primarily due to growth from Aveda and Bumble and bumble, and the inclusion of the Ojon brand which was acquired at the end of July 2007. Aveda net sales increases benefited from the recent launches of Smooth Infusion and Aveda Men Pure-Formance products, as well as the recent acquisition of an independent distributor. Bumble and bumble net sales benefited from increases from its hotel amenities program and sales from new points of distribution. Excluding the impact of foreign currency translation, hair care net sales increased 19%.
Geographic Regions
Net sales in the Americas increased 4%, or $82.6 million, to $1,927.1 million. The increase was led by growth outside of the U.S. department store channel, which continues to be challenging for us. Net sales increases of approximately $45 million resulted from growth from our hair care brands, which included the addition of the Ojon brand, and our internet distribution. Net sales growth from the recent launch of Sean John Unforgivable Woman, and growth in our makeup artist and BeautyBank brands contributed approximately $40 million to the region. Net sales growth in Latin America and Canada contributed an additional $32 million to the increase. Partially offsetting this growth was approximately $41 million related to weaknesses in certain of our core brands in the United States as a result of competitive pressures. The impact of foreign currency translation on net sales in the Americas was de minimis.
In Europe, the Middle East & Africa, net sales increased 20%, or $250.8 million, to $1,484.4 million, including an exchange rate benefit due to the weakening of the U.S. dollar of approximately $98 million. The growth in the region reflected contributions from all countries in the region, led by the United Kingdom, our travel retail business, and Russia, which benefited from our continuing expansion in this emerging market. Excluding the impact of foreign currency translation, net sales in Europe, the Middle East & Africa increased 12%.
Net sales in Asia/Pacific increased 20%, or $100.9 million, to $607.4 million, including an exchange rate benefit due to the weakening of the U.S. dollar of approximately $28 million. This increase reflected higher net sales of approximately $82 million in China, Australia, Korea, Hong Kong and Japan. Excluding the impact of foreign currency translation, Asia/Pacific net sales increased 14%.
We strategically stagger our new product launches by geographic market, which may account for differences in regional sales growth.
COST OF SALES
Cost of sales as a percentage of total net sales decreased to 25.7% as compared with 25.9% in the prior period. Cost of sales as a percentage of net sales reflected a positive effect of exchange rates of 20 basis points, a decrease in the level and timing of promotions of approximately 10 basis points and favorable changes in manufacturing variances of 10 basis points. Partially offsetting these improvements was an unfavorable change in the mix of our business of approximately 10 basis points and an increase in obsolescence charges of 10 basis points.
Since certain promotional activities are a component of sales or cost of sales and the timing and level of promotions vary with our promotional calendar, we have experienced, and expect to continue to experience, fluctuations in the cost of sales percentage. In addition, future cost of sales mix may be impacted by the inclusion of new brands which have margin and product cost structures different from those of our existing brands.
OPERATING EXPENSES
Operating expenses increased to 63.1% of net sales as compared with 62.0% of net sales in the prior period. The increase in operating expenses and operating expense margin reflected higher costs of global information technology systems and infrastructure as well as higher demonstration, field selling and training costs as part of our planned initiative to improve the consumer experience of approximately 40 basis points each. In addition, the increase reflected new business development initiatives and activities of approximately 30 basis points.
Changes in advertising, merchandising and sampling spending result from the type, timing and level of activities related to product launches and rollouts, as well as the markets being emphasized.
OPERATING RESULTS
Due to the growth in net sales, the decrease in our cost of sales margin and the increase in our operating expense margins as previously discussed, operating income increased 4%, or $16.1 million, to $448.4 million as compared with the prior-year period. Operating margins declined to 11.2% of net sales as compared with 12.1% in the prior-year period.
Product Categories
Makeup operating results increased 7%, or $12.0 million, to $190.5 million, primarily as a result of higher global net sales from our makeup artist brands, which were partially offset by challenges faced by our core brands particularly in the United States which was impacted by a soft retail environment. Skin care operating results increased 6%, or $10.6 million, to $202.3 million, driven primarily by results from our La Mer brand and our focus on emphasizing higher-margin products. Fragrance operating results increased 1%, or $0.6 million to $43.1 million, reflecting improved results from Clinique and Estée Lauder fragrances internationally, partially offset by challenges in the United States. Hair care operating results declined 29%, or $5.7 million, to $13.8 million primarily related to an increase in intangible asset amortization resulting from recent strategic acquisitions.
Geographic Regions
Operating income in the Americas declined 22%, or $39.6 million, to $143.4 million, reflecting increased spending on global information technology systems and infrastructure, new business development initiatives and activities, as well as on selling activities related to strategic initiatives intended to drive . . .
|
|