How to Use Estee Lauder Night Repair Eye

NEW YORK (MarketWatch) -- Cosmetics giant Estee Lauder Cos. said Thursday that first-quarter profit tumbled 33% because of increased spending and a decline in U.S. sales of skin-care, makeup and fragrance products.

The results, however, exceeded analysts' estimates, driven by gains in the international markets.

The company gave a profit forecast that also beat analysts' estimates and said that it's still comfortable about meeting its full-year target. Estee Lauder shares jumped 5.1% to $45.53 in midday trading.

Net income dropped to $39.1 million, or 20 cents a share, from $58.3 million or 27 cents a share a year earlier, according to the New York-based company, which owns brands such as Clinique and M-A-C. Sales in the quarter ended Sept. 30 rose 7.3% to $1.71 billion, helped by foreign-currency translations.

Estee Lauder EL, +1.63% has increased advertising, including commercials in China and print ads on airport trains in Hong Kong, and opened more counters and individual stores for M-A-C to help expand its international reach. Domestically, it also has increased spending to reduce its U.S. Clinique consultants' turnover and to keep momentum heading into the holiday season, its biggest selling period, after certain core brands lost share to competitors.

"We're investing aggressively and expect big payoffs down the road," said President and Chief Executive William Lauder in a conference call.

Sales in Europe and Asia each surged at least 15%, after introduction of products such as Idealist Pore Minimizing Skin Refinisher by Estee Lauder. Japan, Russia, Korea and China all contributed to gains overseas. Duty-free shops and other travel-location sales rose more than 20%. Estee Lauder is lessening its reliance on department stores by moves such as selling its Clinique to the Sephora chain or expanding its Bobbie Brown brand on shopping channel QVC, after sales had been hurt by department-store consolidations.

"The performance was driven by strong performance in skin care and hair care, primarily in international markets," Credit Suisse analyst Filippe Goossens wrote in a note. "North American sales were the weak spot."

'Cautiously optimistic' about holidays

Second-quarter profit from continuing operations are forecast to be $1.10 to $1.17 a share with sales increasing as much as 12%, Estee Lauder said. Lauder said that he's "comfortable" about meeting the company's previous per-share profit forecast of $2.28 to $2.40 for the year, with sales rising as much as 9%. He added that he's "cautiously optimistic" about holiday sales in the United States.

Many analysts found the company's forecasts confusing. "The fact they are holding their guidance the same does suggest adjustments to the second half [of the year]," said BMO Capital Markets analyst Connie Maneaty in an interview. She has a market-perform rating on the stock.

Analysts, on average, estimated profit of 10 cents a share in the first quarter, $1.05 in the second quarter and $2.35 for the year, according to Thomson Financial.

"Why are you even giving guidance?" said Sanford C. Bernstein & Co. analyst Ali Dibadj to management on the call.

Lehman Bros. analyst Lauren Lieberman said that the majority of the upside in international markets came from currency translations, which added $30 million to sales compared with her expectations. Stripping out the currency boost, sales performance was a "disappointment," she commented.

"We are a bit confused as to why management would feel comfortable with such an optimistic outlook in this macro environment," Lieberman said.

"'We are a bit confused as to why management would feel comfortable with such an optimistic outlook in this macro environment.'"

— Lauren Lieberman, Lehman Bros.

U.S. retailers are forecast to have their worst holiday season in five years, partly because of declining housing and credit markets, the National Retail Federation trade group said.

First-quarter operating expenses jumped 10.4%.

Sales in the Americas fell slightly to $898.9 million. The company said a shift in retail calendar also hurt orders from department stores in the United States.

Estee Lauder sales had been hurt by Macy's Inc.'s purchase of May Department Stores Co., which led Macy's to shut stores and trim orders. Estee Lauder said Thursday that the sales gap between the original Macy's stores and those converted to Macy's M, -7.12% following the acquisition is narrowing.

Europe, the Middle East and Africa sales jumped 17% to $551.2 million, while sales in Asia shot up 18% to $260 million.

Total skin-care sales jumped 9.3% to $619.5 million, boosted in part by the La Mer brand. Makeup sales rose 2.5% to $663.1 million.

Fragrance sales increased 8.2% to $313 million, driven by new launches such as Sean John Unforgivable, even though the company said that it continues to face challenges in this category, particularly in America.

Hair-care product sales surged 25% to $102.6 million, driven by Aveda and Bumble and Bumble.

How to Use Estee Lauder Night Repair Eye

Source: https://www.marketwatch.com/story/estee-lauder-profit-tumbles-analysts-miffed-on-outlook