Estee Lauder profits fall, outlook mixed

15-Aug-2006 - Last updated on 19-Jul-2008 at 11:04 GMT

Although sales are still growing strongly, Estee Lauder has posted
a 27 per cent drop in its net income after being impacted by
restructuring charges. But the company says that it is terrorism
threats that could pose a significant threat to future business.

Sales for the full year 2006 came in at $6.46bn, a rise of 3 per cent on fiscal 2005. In the three months ending June 30, sales were up 5 per cent on the same period a year earlier, at $1.20bn.

But despite the upward trend for the company's sales, restructuring charges of $38.9m impacted the result significantly, causing net income for the quarter to drop 33.2 per cent on the previous year at $44.5m.

For the full year restructuring charges came in at $92.1m, which led to a 39.9 per cent drop in net earnings for the year, to reach $244.2m.

"Fiscal 2006 was a year in which we were tested. We weathered unprecedented challenges from retailer consolidations, natural disasters, and a more demanding marketplace," said William Lauder Estee Lauder president and CEO.

Lauder said that to overcome these challenges, the company had focused on exploiting its emerging markets and distribution channels, while continuing to pursue gains in established markets as a means of maintaining its growth.

"Robust new product activity, effective advertising and ongoing cost savings give us confidence that our fiscal 2007 financial objectives of $2.00 to $2.10 earnings per share on 5 per cent to 7 per cent sales growth are achievable."

However, looking ahead to the following quarter and the full year 2007, the company did express reservations over the impact of the recent suspected terrorist attacks in the UK that forced airports all over the world to close last week.

The company said that this and the prospect of future security threats could impact the company's travel sales significantly, which currently account for 7 per cent of sales turnover.

Looking at the company's divisional performance Estee Lauder reported that sales for its fragrance division fell 3.8 per cent for the year to reach $1.21bn compared to 2005. The company said that particularly poor sales in the US market had been the primary reason for the performance.

Makeup sales grew by 5.6 per cent for the year to become the company's biggest division at $2.50bn, outstripping the $2.40bn sales in the skin care division, where growth for the year came in at 2.1 per cent.

But it was the company's smallest division, hair care, that saw the biggest gains, where robust sales of Aveda and Bumble and bumble products helped to push growth to 16.4 per cent to total $318.7m for the year.

On a regional basis sales in the Americas region grew 6 per cent for the year to reach $3.44bn, mainly off the back of significant gains from developing brands and online sales in both Canada and Mexico.

In Europe, the Middle East and Africa, the company reported particularly high sales in the UK, South Africa and Russia, with the DNKY Be Delicious and M-A-C brands proving to be particularly popular.

However, the company said that a change in distribution policy and slower retail sales in the Spanish market had held the overall results for the region back, with sales growth coming in at 1.8 per cent to total $2.14bn for the 12-month period.

In Asia Pacific sales were up 6.1 per cent on sales of $869.7m. The company said this was the result of particularly strong sales in just about every market, with Japan and Korea representing double digit growth.