Estée Lauder posts strong APAC growth, emerging markets remain 'vibrant'

The Estée Lauder Companies posted a 29% increase in net sales for Asia Pacific to US$1.3 billion for the second quarter of 2020 (Q2 2020) ended 31 December 2019. Emerging markets in Southeast Asia delivered strong growth, while Greater China delivered strong double-digit net sales growth, according to the financial statement.

Growth accelerated on the mainland, reflecting, in part, an outstanding performance related to Singles Day and other events. Net sales in Hong Kong declined as a result of the ongoing events impacting key shopping areas. Among developed markets, South Korea rose double digits and both Japan and Australia grew solidly in constant currency.

Meanwhile, the statement added that most brands and each major product category generated double-digit net sales growth in the region. Net sales in major channels increased, led by online, which more than doubled. In addition, net sales in freestanding stores and specialty-multi increased double-digits and department stores had strong growth. Operating income in Asia Pacific increased to US$298 million, reflecting the higher net sales, partially offset by strategic investments in advertising to support net sales growth.

Fabrizio Freda, president and CEO said its sales growth came from all facets of the business, including the Asia Pacific region, the skin care and fragrance categories, the online and travel retail channels, and the Estée Lauder, La Mer and luxury fragrance brands.

According to him, the emerging markets continued to be vibrant and it made progress towards the stabilisation of its North American business despite continued softness in the make up category. It also completed the acquisition of the South Korea-based Dr. Jart+ brand at the end of Q2 2020, which strengthens its position in global skin care, Freda said. Overall, the company posted a 15% increase in net sales to US$4.62 billion for Q2 2020. Its net earnings were US$557 million, compared with US$573 million last year.

Skin care reigns supreme

Its skin care segment raked in the highest amount of net sales at US$2.2 billion, followed by make up at US$1.66 billion. For skin care in particular, the segment's net sales grew across all regions, led by Estée Lauder and La Mer. Origins and Clinique also grew globally. The Estée Lauder brand delivered growth in all regions and every major channel, the financial statement said,  reflecting continued strength across several of its core product franchises, such as Advanced Night Repair, Perfectionist, Re-Nutriv, Revitalizing Supreme+ and Micro Essence, supported by successful innovations and strong holiday campaigns.

Double-digit growth from La Mer was broad-based, with net sales increasing across every region and major channel, driven by higher net sales of existing products, as well as the relaunch of The Regenerating Serum. Targeted expanded consumer reach, large scale influencer activations and strong holiday programs also contributed to growth. Origins net sales benefited primarily from growth in the brand’s treatment lotions and moisturizers, such as Dr. Weil Mega Mushroom Treatment Lotion and Serum. Meanwhile, Clinique’s growth was driven by increases in its hero franchises, including Smart and Moisture Surge, which also drove growth in Europe and travel retail. Operating income increased by 37% to US$772 million, primarily from Estée Lauder and La Mer, reflecting higher net sales.

The company's makeup segment saw net sales growth being driven mainly by increases from Estée Lauder, Tom Ford Beauty, Bobbi Brown and La Mer. These increases were partially offset by lower net sales primarily from BECCA and Smashbox. Net sales for Tom Ford Beauty saw a double-digit jump, primarily driven by its eye shadow and cushion compact products in Asia/Pacific, as well as targeted expanded consumer reach. Bobbi Brown’s double-digit growth across Asia/Pacific and Travel Retail was largely driven by the continued success of its Intensive Skin Serum Foundation and the launch of Luxe Shine Intense Lipstick. Estée Lauder generated solid double-digit growth, driven by strength from its Double Wear line of products and initial shipments of Futurist Hydra Rescue Moisturizing Makeup SPF 45, as the company expanded distribution beyond Asia.

Meanwhile, La Mer’s strong double-digit growth was driven by successful holiday events and campaigns. Makeup operating income declined by more than 100%, reporting a loss of over US$611 million, primarily reflecting goodwill and other intangible asset impairments related to Too Faced, BECCA and Smashbox. Strategic investments to support initiatives at MAC 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, the statement said.

Its fragrance and hair care segments posted a net sales of US$581 million and US$162 million respectively. Net sales growth for fragrance was driven mainly by increases from Jo Malone London and Tom Ford Beauty. Jo Malone London’s double-digit net sales increase primarily reflected strong holiday activations, the launch of Poppy & Barley and targeted expanded consumer reach. Increased net sales from Tom Ford Beauty reflected the continued success of certain Private Blend fragrances and the launch of Métallique. Fragrance operating income growth of 15% to US$97 million was driven primarily by higher net sales and disciplined expense management.

As for hair care, net sales growth came from Aveda and Bumble and bumble. Aveda net sales benefited from the launch of Nutriplenish, a new line of hydrating hair care products. In addition, Full Spectrum Demi Plus and the relaunch of Sap Moss also contributed to net sales growth. Hair care operating income declined by 20% to US$12 million, reflecting marketing support for Aveda’s new and recent launches.

Outlook for 2020

For the second half of fiscal 2020, The Estée Lauder Companies expects net sales to increase between 0% and 1% versus the prior year period. The third quarter is anticipated to be the most negatively impacted by the coronavirus with sales declining versus the prior-year period. The company’s recent acquisition of Have & Be is forecasted to contribute approximately 2% to its overall sales growth. Excluding the impact of the acquisition and 1% negative impact from currency, net sales are forecasted to decline between 0% to 1%.

For the full year fiscal 2020, The Estée Lauder Companies forecasts net sales to increase between 6% and 8% versus the prior year period. Its recent acquisition of Have & Be is forecasted to contribute approximately 1% to the company’s overall sales growth. Excluding the impact of the acquisition and 1% negative impact from currency, net sales are forecasted to grow between 6% and 8%, in-line with the company’s longterm growth goal.

Additionally, The Estée Lauder Companies expects global prestige beauty to be adversely impacted over the next few months by the coronavirus. The company said it is also mindful of risks related to social, economic and political issues, including geopolitical tensions, regulatory matters, global security issues, currency volatility and economic challenges that could affect consumer spending in certain countries and travel corridors.

After experiencing continued strong momentum into January, the company said it has seen a significant decline in air travel and consumer traffic in key shopping and tourist areas. Global travel retail, localities most affected by the virus outbreak and destination markets favoured by tourists are expected to experience the greatest negative impact in the coming months followed by a gradual recovery later in the fiscal year. The Estée Lauder Companies added it is ready to facilitate the recovery as soon as the market dynamics support it.

According to Freda, the company is first and foremost concerned about the health and safety of its employees, consumers and everyone affected in China and worldwide.

"Our hearts and support go out to the many people working hard to mitigate the health risks of the coronavirus. The global situation will also affect our financial results in the near term, so we are updating our fiscal year outlook. With our results to date and our agility in allocating resources, we will strive to deliver full-year growth at least in line with our long-term goals, even in this challenging moment. We will be ready to return to our growth momentum as the global coronavirus outbreak is resolved," he added.

It has also reflected the following risks in its outlook: continued challenges in Hong Kong impacting key shopping areas; risks associated with ongoing negotiations on trade agreements between the US and several other countries and the related, known tariffs; as well as continued softness of brick and mortar retail in the US and UK impacting overall prestige beauty industry growth, especially in the makeup category.