NEW YORK--(BUSINESS WIRE)--The Estée Lauder Companies Inc. (NYSE: EL) today reported net sales of $4.85 billion for its second quarter ended December 31, 2020, an increase of 5% on a reported basis, and 3% in constant currency, from $4.62 billion in the prior-year period. Incremental net sales from the Company’s acquisition of Have&Be Co. Ltd. contributed approximately 3 percentage points of net sales growth. The Asia/Pacific region, travel retail and global online net sales growth was partially offset by lower foot traffic in open stores and, to a lesser extent, temporary retail store closures attributable to COVID-19.
The Company reported net earnings of $873 million, compared with net earnings of $557 million in the prior-year period. Diluted net earnings per common share was $2.37, compared with $1.52 reported in the prior-year period. Excluding the benefit of currency translation, adjusted diluted earnings per common share, which excludes items detailed on page 3, increased 21%.
Fabrizio Freda, President and Chief Executive Officer said, “We are proud to have returned to growth in our second quarter, earlier than we anticipated, demonstrating the enduring success of our multiple engines of growth strategy. The powerful engines of Skin Care, Fragrance, Asia/Pacific, Travel Retail in Asia, and global Online fueled our performance despite the increasing complexity of the pandemic.
Ten of our brands grew, signifying the broad-based strength of our portfolio, hero products and innovation, led by double-digit sales growth from the Estée Lauder and La Mer brands. For holiday and key shopping events, we welcomed new consumers and deepened relationships with existing consumers. We successfully combined technology and data with our talented beauty advisors to deliver high-touch services, enriching the online shopping experience. We invested in our growth engines and employed strict cost discipline in other areas, driving double-digit adjusted earnings growth.”
Freda emphasized, “Our performance this quarter gives us confidence, as we delivered strong sales and earnings growth amid the pandemic while living our company values and investing in technology for new capabilities to support accelerating growth drivers. We still expect to deliver sequentially improving sales growth each quarter for the remainder of fiscal 2021 as we continue driving recovery.”
COVID-19 Update The COVID-19 pandemic continued to cause significant disruption in the Company’s operating environment, temporarily impacting retail traffic and certain consumer preferences in the second quarter of fiscal 2021. The resurgence of COVID-19 cases later in the quarter in various parts of the world led to renewed government restrictions to prevent further spread of the virus. These restrictions included the temporary closure of businesses deemed "non-essential," curtailment of travel, social distancing and quarantines.
Retail Impact Most brick-and-mortar retail stores globally that sell the Company’s products, whether operated by the Company or its customers, were open during the second quarter, although consumer traffic was significantly reduced as compared to the prior-year period and some retail stores were temporarily closed due to the resurgence of COVID-19 cases. In addition, 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.
During the second quarter of fiscal 2021, online1 sales growth remained strong in every region as the Company and its retailers activated digital strategies to capture consumer demand online. Travel retail net sales rose single digits, driven by increasing travel within the Asia/Pacific region. Mainland China delivered strong growth, while Korea and several smaller markets in the Asia/Pacific region also grew and many other markets improved sequentially.
Consumer Preferences The COVID-19-related closures of offices, retail stores and other businesses and the significant decline in social gatherings have also influenced consumer preferences and practices. Demand for skin care, fragrance and hair care products has generally been more resilient than the demand for makeup. Double-digit growth from Estée Lauder and La Mer during the second quarter of fiscal 2021 reflected the continued demand for innovative products within hero franchises. Consumers re-engaged with luxury and artisanal fragrances during the holiday season, contributing to double-digit total net sales growth from Le Labo and Editions de Parfums Frédéric Malle as well as solid increases from Jo Malone London and Tom Ford Beauty.
Cost Controls In response to the ongoing impacts from COVID-19, the Company continues to implement strict cost control actions to effectively manage the changing business environment. These expense actions primarily included advertising and promotion activities, travel, meetings, consulting, and certain employee costs. The Company delivered strong operating margin expansion year-over-year reflecting operating leverage on higher net sales, the mix of sales and strict cost controls.
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1 Online sales discussed throughout includes sales of the Company’s products from its websites and third-party platforms, as well as estimated sales of the Company’s products sold through its retailers’ websites. |
Fiscal 2021 Second Quarter Results Adjusted diluted earnings per common share excludes restructuring and other charges and adjustments as detailed in the following table.
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Reconciliation between GAAP and Non-GAAP (Unaudited) |
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Three Months Ended December 31, 2020 |
Three Months Ended December 31 |
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|
Net Sales |
Diluted Earnings Per Share (“EPS”) |
Diluted EPS |
||||||||||||
|
% Change |
% Change, Constant Currency |
% Change |
% Change, Constant Currency |
2020 |
2019 |
|||||||||
|
As Reported Results (1) |
5 |
% |
3 |
% |
56 |
% |
52 |
% |
$ |
2.37 |
$ |
1.52 |
||
|
Restructuring and other charges |
.08 |
.03 |
||||||||||||
|
Changes in fair value of contingent consideration |
(.01 |
) |
(.02 |
) |
||||||||||
|
Goodwill and other intangible asset impairments |
.17 |
1.81 |
||||||||||||
|
Other income |
— |
(1.23 |
) |
|||||||||||
|
Non-GAAP |
3 |
% |
24 |
% |
$ |
2.61 |
$ |
2.11 |
||||||
|
Impact of foreign currency on earnings per share |
(.06 |
) |
||||||||||||
|
Non-GAAP, constant currency earnings per share |
21 |
% |
$ |
2.55 |
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(1)Represents GAAP, except Constant Currency percentages |
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The fluctuations in exchange rates between the U.S. dollar in relation to most currencies had a favorable impact on net sales and operating income in the Company’s product categories and regions outside of the United States. The Company’s reported effective tax rate in the fiscal 2021 second quarter was 14.9%, compared with 30.8% in the prior-year period. The lower tax rate was primarily attributable to the retroactive impact of the recently finalized global intangible low-taxed income (“GILTI”) U.S. tax regulations, as well as the impact of nondeductible goodwill charges recognized in the prior-year period.
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Results by Product Category (Unaudited) |
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|
Three Months Ended December 31 |
||||||||||||||||||
|
Net Sales |
Percentage Change |
Operating Income (Loss) |
Percentage Change |
|||||||||||||||
|
($ in millions) |
2020 |
2019 |
Reported Basis |
Constant Currency |
2020 |
2019 |
Reported Basis |
|||||||||||
|
Skin Care |
$ |
2,819 |
$ |
2,205 |
28 |
% |
25 |
% |
$ |
928 |
$ |
772 |
20 |
% |
||||
|
Makeup |
1,247 |
1,660 |
(25 |
) |
(26 |
) |
28 |
(611 |
) |
100 |
+ |
|||||||
|
Fragrance |
618 |
581 |
6 |
5 |
141 |
97 |
45 |
|||||||||||
|
Hair Care |
154 |
162 |
(5 |
) |
(6 |
) |
4 |
12 |
(67 |
) |
||||||||
|
Other |
15 |
16 |
(6 |
) |
(19 |
) |
(1 |
) |
4 |
(100 |
+) | |||||||
|
Subtotal |
4,853 |
4,624 |
5 |
3 |
1,100 |
274 |
100 |
+% |
||||||||||
|
Charges associated with restructuring |
||||||||||||||||||
|
and other activities |
— |
— |
(37 |
) |
(13 |
) |
||||||||||||
|
Total |
$ |
4,853 |
$ |
4,624 |
5 |
% |
3 |
% |
$ |
1,063 |
$ |
261 |
100 |
+% | ||||
Total reported operating income was $1.06 billion, an increase from $261 million in the prior-year period. Operating income increased 10% excluding (i) goodwill and other intangible asset impairments of $81 million related to GLAMGLOW compared with $777 million related to Too Faced, BECCA and Smashbox recorded in the prior-year period, (ii) restructuring and other charges and adjustments of $35 million compared with restructuring and other charges and adjustments of $6 million recorded in the prior-year period and (iii) the favorable impact of currency translation of $29 million. This increase largely reflected higher net sales as well as disciplined expense management throughout the business from cost containment actions taken in response to COVID-19.
Skin Care
- Skin care net sales grew strongly, led by Estée Lauder, La Mer and Clinique.
- Net sales of Dr. Jart+, which the Company acquired in December 2019, contributed approximately 7% to skin care net sales growth.
- Estée Lauder delivered strong double-digit growth, led by mainland China and travel retail. In mainland China, Estée Lauder was the top selling beauty brand on Tmall’s 11.11 Global Shopping Festival. The net sales growth was driven by the launch of the new Advanced Night Repair Synchronized Multi-Recovery Complex as well as consumer demand for other high-loyalty hero products.
- La Mer delivered double-digit growth in every region, led by Asia/Pacific, with significant strength in mainland China. Net sales in travel retail also grew strong double digits. La Mer’s growth was primarily driven by strong demand for its hero products, including Crème de la Mer, The Concentrate and The Treatment Lotion. La Mer was the top selling luxury beauty brand on Tmall’s 11.11 Global Shopping Festival. Targeted expanded consumer reach also contributed to growth.
- Clinique’s unique solution-based products had positive results, including Even Better Clinical Radical Dark Spot Corrector + Interrupter, the Acne Solutions line and its iconic 3-Step skin care system.
- Skin care operating income increased, primarily from higher net sales at Estée Lauder and La Mer, as well as cost containment in response to COVID-19.
Makeup
- Net sales in makeup declined at all brands. The effects of COVID-19 continued to disproportionately impact makeup usage in most markets, particularly foundation and lip.
- Makeup operating income increased, primarily reflecting impairments of several brands in the prior-year period.
Fragrance
- Net sales grew, primarily due to increases from Tom Ford Beauty, Jo Malone London, Clinique and Le Labo. Kilian Paris and Editions de Parfums Frédéric Malle also contributed to growth.
- Tom Ford Beauty delivered double-digit growth, reflecting the success of hero products, including Oud Wood and Ombre Leather, as well as the extension of the Black Orchid hero franchise with the Black Orchid Perfume launch. The launch of Bitter Peach and Rose Prick Private Blend fragrances also contributed to growth.
- Jo Malone London’s net sales increase primarily reflected strong holiday activations, key events, the success of certain hero product franchises and new product launches, including Scents for the Season. Strong online sales more than offset the decline in brick-and-mortar stores.
- Net sales from Le Labo rose double digits with growth in all regions. Net sales more than doubled in Asia/Pacific and online. Targeted expanded consumer reach also contributed to growth.
- Fragrance operating income increased, driven by higher net sales and disciplined expense management in response to COVID-19.
Hair Care
- Hair care net sales declined, primarily reflecting a decrease at Bumble and bumble driven by some temporary retail and salon closures due to COVID-19.
- Hair care operating income declined, primarily reflecting lower net sales.
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Results by Geographic Region (Unaudited) |
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Three Months Ended December 31 |
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|
Net Sales |
Percentage Change |
Operating Income (Loss) |
Percentage Change |
|||||||||||||||
|
($ in millions) |
2020 |
2019 |
Reported Basis |
Constant Currency |
2020 |
2019 |
Reported Basis |
|||||||||||
|
The Americas |
$ |
1,048 |
$ |
1,226 |
(15 |
)% |
(13 |
)% |
$ |
36 |
$ |
(529 |
) |
100 |
+% |
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|
Europe, the Middle East & Africa |
2,030 |
2,079 |
(2 |
) |
(3 |
) |
657 |
505 |
30 |
|||||||||
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Asia/Pacific |
1,775 |
1,319 |
35 |
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