Escalating sales of Smashbox, MAC and Bobbi Brown helped Estée Lauder to post positive revenue growth in the second quarter, with a better-than-expected earnings performance.
However, the company narrowed its forecast for the year on slowing growth in select markets, including China. Lauder remains very committed to the region, one that was recently exited by Revlon and Garnier. Avon recently stopped operating a direct selling operation there, but have continued with their boutiques.
“In China, prestige beauty growth remains solid, even though it has slowed,” said Fabrizio Freda, president and CEO. Smaller cities are “generating good growth” as larger cities have moderated. “We have aligned our strategy to this reality and opened six new tier 3 cities during the quarter.”
The company gained share in China with its regional expansion along with the introduction of new skin care products. Overall sales in Asia/Pacific region declined 6% or 3% on a local currency basis, partially due to a shift in the buying schedules of some retailers, and lower sales in Korea.
Fabrizio remarked that the company’s diverse portfolio has enabled it to remain strong. Net sales rose 3% to $3.02 billion, with earnings down 3% to $432.5 million and diluted earnings per share of $1.09, ahead of forecasts.
Cosmetics were the star in the quarter with sales up 8% to $1.12 billion with MAC particularly strong thanks to Rihanna products and the opening of more stores. To keep the momentum, for spring there is the Pure Color Envy lip and nail collection from Estée Lauder and the Rihanna Viva Glam collection from MAC.
Skin care, the company’s largest category, declined 1% to $1.26 billion. The re-launched Estée Lauder Advanced Night Repair Synchronized Recovery Complex II and Clinique’s Dramatically Different Moisturizing Lotion + were strong, but were offset by declines in existing products. Clinique in particular has shown some weakness and efforts to energize growth are under way, with Jane Lauder recently tapped to lead the brand. New this year are `watery’ products for Asia, such as Estée Lauder Micro Essence Skin Activating Treatment Lotion, which is said to strengthen the skin’s foundation and resist signs of aging, and Clinique’s Even Better Essence Lotion. In the U.S., Clinique is unveiling Acne Solutions Clinical Clearing Gel.
Fragrance grew 4% to $477.8 million, but Fabrizio noted performance across its brands was mixed, with some designer and Clinique brand scents “coming up short.” Jo Malone, Tom Ford, Michael Kors and Tory Burch were among the best sellers, and Modern Muse “got off to a good start.” The company started its fragrance promotions earlier this year to make up for the fewer Holiday shopping days. “It made for a very positive holiday season,” he noted.
The strongest performing retail sectors were travel retail, freestanding company stores and ecommerce, which was up 25%.
“Our ecommerce sales rose significantly” across brand sites and authorized retailer sites worldwide, said Fabrizio. In January, MAC launched ecommerce sites in Brazil and Israel. The company said its online sales have doubled in three years.