The Estée Lauder Cos. reported net sales of $3.35 billion for its third quarter ended March 31, 2020, a decrease of 11 percent from $3.74 billion in the prior-year period. Excluding the impact of currency translation, net sales decreased 9 percent. The company reported a net loss of $6 million, compared with net earnings of $555 million last year. Total reported operating income was $109 million, an 84 percent decrease from $674 million in the prior year. The decline was driven by retail store closures as a result of the global pandemic, COVID-19.
For the nine months ended March 31, Lauder reported net sales of $11.86 billion, a 5 percent increase compared with the prior-year period. Net sales increased 6 percent in constant currency.
The company expects the majority of retail stores will remain closed for most of the fiscal 2020 fourth quarter. As a result, Lauder expects global prestige beauty to continue to be adversely impacted during that period.
Fabrizio Freda, President and Chief Executive Officer said, “While the terrific double-digit momentum in sales growth from the first half of our fiscal year carried into January, the dynamics in the quarter changed significantly as COVID-19 spread beyond Asia. By early March, consumers around the world began social distancing which resulted in lower traffic in retail locations. As March evolved, most retail stores temporarily closed and consumers increasingly stayed home. In this very complex and unprecedented environment, there were several bright spots across our portfolio which drove global prestige beauty share expansion in the quarter.”
Fabrizio pointed to several bright spots, including online sales growth for the Estée Lauder, Darphin and Le Labo brands in the strong double-digits; sales growth in mainland China and global travel retail; and growth in skin care sales internationally, including Dr. Jart+. An online sales surge worldwide, coupled with recovery in China, is being seen as positives, too.
Cost controls put in place during the third quarter, including furloughs, temporary salary reductions for senior executives and management employees, and a temporary elimination of cash retainers for the Board of Directors, are expected to deliver a benefit in the fourth quarter. The company estimates that these actions will reduce operating expenses by approximately $500 million to $600 million in fiscal Q4.
Portfolio highlights include:
Skin Care
- Skin care was the most resilient category globally.
- An increase in net sales at Estee lauder, as well as the incremental sales from Dr. Jart+ helped to offset lower net sales from Clinique, La Mer and Origin.
- Estee Lauder continued to grow in mainland China as well as in Asia/Pacific and delivered double-digit growth in both travel retail and online driven by consumer demand for high loyalty hero franchises, including Advanced Night Repair and Perfectionist.
Makeup
- Net sales declined in makeup, reflecting lower net sales from M.A.C, Clinique, Bobbi Brown, Tom Ford Beauty and Too Faced. Net sales from Tom Ford Beauty grew in Asia/Pacific due to continued success on Tmall since the brand launched in April 2019.
- Makeup operating income declined, primarily reflecting goodwill and other intangible asset impairments related to Too Faced and BECCA, long-lived asset impairments and lower net sales from M.A.C, Clinique and Too Faced. Planned strategic investments to support initiatives at M.A.C also contributed to the decrease. These decreases were partially offset by disciplined expense management across all brands after the COVID-19 outbreak.
Fragrance
- Net sales decreased, primarily due to declines from Jo Malone London and certain designer fragrances, and the expiration of the Tory Burch license agreement in December 2019.
- Jo Malone London continued to grow net sales in Asia/Pacific, led by Korea and Japan, with the launch of Vetiver & Golden Vanilla and Valentine’s Day gift sets.
- Fragrance operating income declined, driven primarily by lower net sales partially offset by disciplined expense management.
Hair Care
- Hair care net sales declined at both Aveda and Bumble and bumble due to the impacts of COVID-19, as mentioned above, which led to retail and salon closures.
- Prior to the salon and store closures in the wake of COVID-19, net sales of Aveda’s Nutriplenish, a new line of hydrating hair care products, were strong globally.
- Hair care operating results were flat.