COVID-19 related closures of offices, retail stores and other businesses, as well as the significant decline in social gatherings, have influenced consumer preferences and practices, according to The Estée Lauder Companies, which on Thursday reported net sales of $16.2 billion for its fiscal year ended June 30, 2021, an increase of 13 percent from $14.2 billion in the prior-year period. Excluding the impact of currency translation, net sales increased 11 percent. Specifically, the demand for makeup continues to be weak compared to the pre-COVID-19 pandemic period, given fewer makeup usage occasions and ongoing mask wearing, particularly foundation and lip, in most markets. Meanwhile, skin care, fragrance, and hair care have been more resilient.
Net sales grew in every region and in most product categories, except for makeup, reflecting the gradual reopening and recovery in brick-and-mortar retail stores in certain markets compared to the prior year when retail locations closed in most markets during the second half of the year as COVID-19 spread globally. Incremental net sales from the company’s acquisition of Have&Be Co. Ltd. (Dr. Jart+) and the increase in its ownership of Deciem Beauty Group contributed 2 percentage points of growth to reported net sales.
The company reported net earnings of $2.87 billion, compared with net earnings of $0.68 billion last year. Total reported operating income was $2.62 billion, an increase from $606 million in the prior year. In constant currency, adjusted operating income increased 44 percent, primarily reflecting higher net sales, excluding $117 million of goodwill and other intangible asset impairments related to GLAMGLOW and Smashbox; $71 million of asset impairments related to some of the company’s freestanding stores; $40 million of DECIEM acquisition-related stock option expense. and $226 million of restructuring and other charges and adjustments.
Fabrizio Freda, President and Chief Executive Officer, said, “Both sales and profitability meaningfully exceeded fiscal 2019 performance. Amid the challenges of the pandemic, we invested in near- and long-term growth opportunities and managed costs elsewhere with discipline, while making important progress on our social impact commitments and sustainability goals. Our growth engines of Skin Care, luxury and artisanal Fragrance, Asia/Pacific, travel retail in Asia/Pacific, and global online performed exceptionally well. Innovation soared and eight of our brands grew sales double-digits, led by Estée Lauder, La Mer, and Jo Malone London. We amplified the strength of our skin care portfolio as we became majority owners of DECIEM, with its coveted brand The Ordinary. We also invested in an innovation center in Shanghai and a manufacturing facility near Tokyo to enhance our rapid growth in the region.”
Freda emphasized, “For fiscal 2022, we expect strong net sales and adjusted earnings per share growth with continued margin expansion. Our growth engines are poised to increasingly diversify as Makeup and Hair Care, developed markets in the west, and brick-and-mortar retail gradually recover and complement the strength of our existing growth engines. We anticipate that growth in emerging markets will also resume over time as the impacts of the pandemic abate.”
The COVID-19 pandemic continued to disrupt Lauder’s operating environment, temporarily impacting retail traffic and certain consumer preferences in the fourth quarter of fiscal 2021. While most brick-and-mortar retail stores were open during much of the fourth quarter of fiscal 2021, there were intermittent closures, specifically in the United Kingdom, Continental Europe, Canada, much of Latin America, and most of the Asia/Pacific region with the exception of China, for some period during the quarter due to the resurgence of COVID-19 cases. In the United Kingdom, much of Continental Europe and Canada, retail locations gradually reopened during the quarter but with capacity and other safety restrictions in place.
Globally, in areas where stores were open, consumer traffic has not recovered to the pre-COVID-19 pandemic levels. International travel has remained largely curtailed globally due to both government restrictions and consumer health concerns that continue to adversely impact consumer traffic in most travel retail locations. Conversely, domestic travel in China, especially in Hainan, and some other travel corridors in Asia/Pacific and The Americas were open and drove double-digit growth for fiscal 2021.
Online continued to be strong globally as well. Online sales as a percent of total net sales has nearly doubled since fiscal 2019, with increases in every region, as more consumers have embraced online shopping since the beginning of the pandemic.
Portfolio highlights include:
- Skin care net sales grew across every region, led by Estée Lauder, La Mer and Clinique. Skin care operating income increased, primarily from higher net sales at Estée Lauder, La Mer and Clinique, partially offset by an increase in certain incentive compensation. Incremental cost containment in response to COVID-19 was partially offset by strategic
investments that were made during the fiscal year.
- Incremental net sales of Dr. Jart+ and the increase in ownership of DECIEM contributed approximately 4 percentage points to skin care net sales growth.
- Estée Lauder delivered double-digit growth, reflecting growth in all regions, with significant strength in mainland China. It delivered double-digit growth in travel retail and online, driven by consumer demand for high-loyalty hero franchises.
- Strong double-digit growth from La Mer was driven by significant strength among Chinese consumers in both mainland China and travel retail. Online also grew double digits globally.
- Clinique delivered double-digit growth in every region driven by strong demand for its hero products.
- Makeup net sales declined among nearly all brands, led by M·A·C and Clinique. These declines were partially offset by growth at Too Faced and La Mer. Makeup sales rose in the second half of the fiscal year in every region, reflecting the more advanced recovery in China and the easier comparisons to the second half of the prior year as COVID-19 spread globally.
- Too Faced net sales growth reflected both targeted expanded consumer reach and strength in lip plumpers, including the successful launch of Lip Injection Maximum Plump Lip Plumper.
- Net sales from La Mer grew due to the continued success of The Luminous Lifting Cushion Foundation in international markets.
- Makeup operating income improved, primarily reflecting the year-over-year reduction of goodwill, other intangible and long-lived asset impairments.
- Net sales grew, largely due to increases from Jo Malone London, Tom Ford Beauty, Le Labo, Kilian Paris, certain designer fragrances and Editions de Parfums Frédéric Malle. Fragrance growth accelerated during the year driven by continued resilience in luxury fragrance during the pandemic as well as easier comparisons in the second half of the fiscal year.
- Fragrance operating income increased, driven primarily by higher net sales and disciplined expense management partially offset by an increase in certain incentive compensation.
- Jo Malone London’s net sales grew double digits primarily driven by strength in colognes, including the new Blossoms Collection. Bath & Body and Home also delivered strong growth reflecting consumer demand for home fragrance products during the pandemic.
- Tom Ford Beauty grew strong double-digits, reflecting the successful launches of Bitter Peach and Rose Prick Private Blend fragrances as well as hero products, including Oud Wood and Black Orchid among others. The launches of Tubereuse Nue and Costa Azzurra also contributed to growth.
- Net sales from Le Labo rose strong double digits with growth in all regions driven by hero fragrances and home products.
- Kilian Paris’ net sales rose double digits driven by demand for hero products, including Good Girl Gone Bad, and the successful launch of The Liquors franchise.
- Hair care net sales rose, primarily reflecting successful innovation at Aveda, including Botanical Repair, and growth from existing product franchises, including Nutriplenish and Invati. Aveda’s online sales grew strong double digits, reflecting the brand’s expanded online services which drove sales to the channel while many salons and freestanding stores were closed.
- Hair care operating results were flat reflecting higher net sales from Aveda, which was offset by the return of incentive compensation to pre-COVID-19 pandemic levels.