The Estée Lauder Cos. reported net sales gains of 16 percent for the second quarter ended Dec. 31 to $4.62 billion driven by strong growth in international regions and a 28% sales gain in skin care. Net earnings dipped to $557 million compared to $573 million in the prior-year. Net sales in North America grew double-digits in specialty-multi, and grew solidly in direct-to consumer channels, while brick-and-mortar department stores remained challenged. As the North America beauty industry continued to be challenged by soft color cosmetics sales, the company said it recorded a $777 million impairment charge across three makeup brands—Too Faced, BECCA and Smashbox. Sales growth in Asia, travel retail and online exceeded expectations. In an earnings call with the financial community, President and CEO Fabrizio Freda warned that, as of today, cornoavirus looks to impact the next two fiscal quarters for the company with net sales forecasted to increase between 0% and 1% versus the prior year period. The third quarter is anticipated to be the most negatively impacted by the health scare. Here, a list of the Top 10 takeaways from the call:
1. President and CEO Fabrizio Freda spoke extensively on “the meaningful change” in the global environment following the outbreak of coronavirus. “Although, it is difficult to anticipate the full impact of the coronavirus on our business, we expect the next couple of months will be very challenging. Chinese consumers in many big cities are staying home. And retailers are closing stores or limiting hours in an effort to help contain the spread of the virus. Additionally, global travel is being restricted. And the effect is being felt beyond China, into major travel retail corridors and large tourist cities. Given what we know now and our experience with past epidemics, we believe our business will gradually recover towards the end of the fiscal year.” That said, the company expects the next two quarters to be impacted by the health scare, with a limited number of Chinese tourists entering the U.S, which will also affect sales. “We assume the [next] two quarters to be affected by the impact and we expect a normalization in fiscal year ’21. That’s our assumption today.”
2. The Estée Lauder brand was a star during the quarter. The brand grew strong double-digits globally, in both skin care and makeup, and rose in every region, powered by its main hero franchises, including Advanced Night Repair as well as Re-Nutriv, Revitalizing Supreme, Micro Essence and Double Wear.
3. Online business in China more than doubled, elevated by online and offline campaigns for Singles Day. The Estée Lauder brand was among Tmall’s best performers for the event, while M.A.C, La Mer and Jo Malone London each excelled in their respective categories. Brand expansion on Tmall was key. Chinese consumer interest in prestige fragrance is rising. Lauder plans to launch additional luxury fragrance there later this year.
4. The company is creating products that leverage consumer insights from enhanced data analytics. For example, consumers want product that combine skin care benefits with makeup. In response, the Estée Lauder brand launched Futurist Hydra Rescue, a new moisturizing foundation, combining the positioning of its Futurist franchise in China with consumer needs in North America. The launch is off to a “very strong start, with high ratings and reviews,” said Fabrizio.
5. The pretail segment of Travel Retail excelled in the quarter and is becoming an increasingly important part of business. Pretail enables the company to engage with consumers before they travel, build brand equity and desirability and drive conversion. When tourism and travel resume, following containment of the coronavirus, the company anticipates that pretail will continue.
6. In response to whether Lauder would reconsider selling on Amazon if the retailer were to begin selling luxury brands, Fabrizio said, “No, at this point, we are not considering Amazon a channel for our luxury beauty products and we are focusing of our current channels and our current partners to build a continued stabilization in North America of our business.”
7. In North America, sales rose high-single-digits across all online channels. Sales in the specialty-multi channel grew double-digits, while the brick-and-mortar department store business remained challenged.
8. From a category standpoint, skin care once again led growth in the quarter. Net sales accelerated to 28 percent growth with strong contributions from Estée Lauder, La Mer, Origins and Clinique. Innovations such as Estée Lauder Advanced Night Repair Intense Reset Concentrate, La Mer The Regenerating Serum and Clinique iD BB-gel contributed incremental sales and supported hero franchises. Net sales in makeup grew 7 percent led by Estée Lauder, Tom Ford and Bobbi Brown. Sales of fragrances grew 9 percent driven by strong holiday activations at Jo Malone, London and the launch of Metallique from Tom Ford. Hair care sales rose 5 percent driven by the launch of the Nutriplenish line of products from Aveda and improvement at Bumble and bumble.
9. Makeup operating income declined, primarily reflecting goodwill and other intangible asset impairments related to Too Faced, BECCA and Smashbox. Strategic investments to support initiatives at M.A.C also contributed to the decrease. These were partially offset by increases from Estée Lauder and La Mer, reflecting their sales gains, as well as disciplined expense management from Clinique.
10. During the quarter, the company completed the acquisition of the Korean-based Have & Be Company after having taken a minority stake four years ago. Lauder reported that Dr. Jart+ has grown rapidly.