The Estee Lauder Companies Reports Fiscal 2021 Third Quarter Results.
Highlights:
Net Sales Increased 16% and Diluted EPS Improved to $1.24 from a Loss of $.02
In Constant Currency, Net Sales Grew 13% and Adjusted Diluted EPS Increased 88%
Net Sales Grew 9% Fiscal Year-to-Date Compared to Fiscal 2019
NEW YORK-The Estee Lauder Companies Inc. (NYSE: EL) today reported net sales of $3.86 billion for its third quarter ended March 31, 2021, an increase of 16% on a reported basis, and 13% in constant currency, from $3.35 billion in the prior-year period. Net sales grew in every region and in most product categories reflecting the recovery in several areas compared to the prior year where brick-and-mortar began to shut down as COVID-19 spread globally.
The Company reported net earnings of $456 million, compared with a net loss of $(6) million in the prior-year period. Diluted net earnings per common share was $1.24, compared with a loss of $(.02) 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 88%.
Fabrizio Freda, President and Chief Executive Officer said, 'We exceeded our sales and earnings expectations, even as several markets experienced increasing pressure from COVID-19 throughout the quarter. Our growth engines of Skin Care and Fragrance were incredibly powerful. Sales rose in every region, led by double-digit growth in Asia/Pacific, where many markets contributed and sales growth in mainland China accelerated. Online thrived as a growth engine, with sales having increased strong double-digits around the world, and Travel Retail excelled. Estee Lauder, La Mer, Jo Malone London, Clinique, and Tom Ford Beauty led the robust performance of many brands in our portfolio.
Our fiscal year-to-date sales and adjusted operating margin exceed that of the same period in fiscal 2019, as we continue to successfully navigate the challenges of the pandemic. With strong cash flow generation, we resumed share repurchases in the third quarter. We are thrilled to have agreed to increase our ownership in DECIEM, becoming majority owners with a path to full ownership in three years. DECIEM's soaring brand The Ordinary and new brand incubation capability further enhance our superior multiple engines of growth strategy.'
Freda emphasized 'We have achieved these outstanding results while, first and foremost, caring for the safety and well-being of our employees and consumers amid the pandemic. Impressively, we are investing in many compelling long-term growth drivers, including end-to-end innovation with a new center in Shanghai, state of the art manufacturing in Asia/Pacific, global online, and consumer analytics. We are progressing on our environmental goals and acting on our social commitments with urgency. We expect the momentum in our sales growth to build in the fourth quarter of fiscal 2021, not only from easing comparisons but also fundamental strength, as we drive recovery.'
COVID-19 Update
The COVID-19 pandemic continued to disrupt the Company's operating environment, temporarily impacting retail traffic and certain consumer preferences in the third quarter of fiscal 2021. The resurgence of COVID-19 cases in several countries, particularly in Western Europe and Latin America, led to 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
While most brick-and-mortar retail stores that sell the Company's products, whether operated by the Company or its customers, were open during the third quarter of fiscal 2021, most notably in China and the United States, there were intermittent closures throughout the rest of the world. In the United Kingdom, Japan, Canada, Italy, Spain, France, Mexico and Brazil, in particular, many retail stores were temporarily closed for some period during the quarter due to the resurgence of COVID-19 cases. Globally, in areas where stores were open, consumer traffic was significantly reduced as compared to the pre-COVID-19 pandemic period. In addition, while domestic travel in China, especially in Hainan, and some other travel corridors in Asia/Pacific, most notably Korea, were open, 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.
Consumer Preferences
The COVID-19 pandemic-related closures of offices, retail stores and other businesses and the significant decline in social gatherings have also influenced consumer preferences and practices. Specifically, the demand for makeup continues to be weak given fewer makeup usage occasions while other categories have been more resilient.
Cost Controls
In response to the ongoing impacts from the COVID-19 pandemic, the Company continues to implement cost control actions in certain areas of the business to effectively manage the changing business environment.
Fiscal 2021 Third Quarter Results
Adjusted diluted earnings (loss) per share excludes restructuring and other charges and adjustments as detailed in the following table.
Third quarter of fiscal 2021: $33 million of asset impairments related to some of the Company's freestanding stores and $145 million of restructuring and other charges.
Third quarter of fiscal 2020: $333 million of goodwill and other intangible asset impairments related to Too Faced, GLAMGLOW, BECCA and Smashbox; $13 million of asset impairments related to some of the Company's freestanding stores; and $23 million of restructuring and other charges and adjustments.
The favorable impact of currency translation of $5 million.
Skin Care
Skin care net sales grew strongly, led by Estee Lauder, La Mer and Clinique. Dr. Jart+ and Origins also contributed to growth.
Estee Lauder net sales grew double digits, led by increases in travel retail and in mainland China compared to the prior year where brick-and-mortar began to shut down in January 2020 due to COVID-19. Net sales growth was primarily driven by Advanced Night Repair Synchronized Multi-Recovery Complex and strong demand for high-loyalty hero products in the Revitalizing Supreme+, Daywear and Re-Nutriv franchises.
La Mer delivered strong double-digit growth, led by Asia/Pacific, with significant gains in mainland China. The brand grew in both Europe, the Middle East & Africa and The Americas regions as well. La Mer's growth was primarily driven by strong demand for its hero products, including Creme de la Mer, The Concentrate and The Treatment Lotion. Targeted expanded consumer reach also contributed to growth.
Clinique delivered double-digit growth in every region driven by strong demand for its hero products, including the Dramatically Different and Clinique Smart franchises as well as Even Better Clinical Radical Dark Spot Corrector + Interrupter. The launch of Moisture Surge 100H Auto-Replenishing Hydrator and the iconic 3-Step skin care system also contributed to growth.
Dr. Jart+ net sales increased primarily due to growth in mainland China and travel retail in Korea. Targeted expanded consumer reach also contributed to growth.
Origins net sales growth reflected the continued success of Dr. Andrew Weil for ORIGINS Mega-Mushroom Relief & Resilience Soothing Treatment Lotion and the launch of Plantscription Multi-Powered Youth Serum.
Skin care operating income increased, primarily from higher net sales at Estee Lauder, La Mer and Clinique. Additionally, the prior year period was adversely impacted by goodwill and other intangible asset impairments related to GLAMGLOW.
Makeup
Net sales in makeup declined across nearly all brands. The effects of the COVID-19 pandemic continued to disproportionately impact makeup usage, particularly foundation and lip, in most markets. Makeup sales rose slightly in Asia/Pacific, reflecting the more advanced recovery in the region, primarily in China where usage occasions are increasing.
Makeup operating income improved, primarily reflecting impairments of several brands in the prior-year period.
Fragrance
Net sales grew, primarily due to increases from Jo Malone London, Tom Ford Beauty, Kilian Paris and Estee Lauder.
Jo Malone London's net sales grew double digits with increases in every region. Growth primarily reflected strong holiday activations around Chinese New Year and Valentine's Day and the success of new product launches, including the new Blossoms Collection and Scarlet Poppy Cologne Intense. Strong online sales more than offset the decline in brick-and-mortar stores.
Tom Ford Beauty delivered double-digit growth, reflecting the continued success of Bitter Peach and Rose Prick Private Blend fragrances as well as hero products, including Oud Wood and Black Orchid.
Net sales from Kilian Paris rose double digits driven by demand for hero products and the successful launch of The Liquors franchise, including Angels' Share. Targeted expanded consumer reach also contributed to growth.
Estee Lauder net sales growth was driven by the launch of Beautiful Magnolia.
Fragrance operating income increased, driven by higher net sales.
Hair Care
Hair care net sales rose, primarily reflecting successful innovation, including Botanical Repair, as well as strong double-digit online growth at Aveda.
Hair care operating income reflected higher results from Aveda, which were more than offset by the return of incentive compensation to pre-COVID-19 pandemic levels.
onference Call
The Estee Lauder Companies will host a conference call at 9:30 a.m. (ET) today, May 3, 2021 to discuss its results. The dial-in number for the call is 888-294-4716 in the U.S. or 706-902-0101 internationally (conference ID number: 5569398). The call will also be webcast live at http://www.elcompanies.com/investors/events-and-presentations.
Cautionary Note Regarding Forward-Looking Statements
Statements in this press release, in particular those in 'Outlook,' as well as remarks by the CEO and other members of management, may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements may address our expectations regarding sales, earnings or other future financial performance and liquidity, other performance measures, product introductions, entry into new geographic regions, information technology initiatives, new methods of sale, our long-term strategy, restructuring and other charges and resulting cost savings, and future operations or operating results. These statements may contain words like 'expect,' 'will,' 'will likely result,' 'would,' 'believe,' 'estimate,' 'planned,' 'plans,' 'intends,' 'may,' 'should,' 'could,' 'anticipate,' 'estimate,' 'project,' 'projected,' 'forecast,' and 'forecasted' or similar expressions.
Factors that could cause actual results to differ materially from our forward-looking statements include the following:
(1)
increased competitive activity from companies in the skin care, makeup, fragrance and hair care businesses;
(2)
the Company's ability to develop, produce and market new products on which future operating results may depend and to successfully address challenges in the Company's business;
(3)
consolidations, restructurings, bankruptcies and reorganizations in the retail industry causing a decrease in the number of stores that sell the Company's products, an increase in the ownership concentration within the retail industry, ownership of retailers by the Company's competitors or ownership of competitors by the Company's customers that are retailers and our inability to collect receivables;
(4)
destocking and tighter working capital management by retailers;
(5)
the success, or changes in timing or scope, of new product launches and the success, or changes in the timing or the scope, of advertising, sampling and merchandising programs;
(6)
shifts in the preferences of consumers as to where and how they shop;
(7)
social, political and economic risks to the Company's foreign or domestic manufacturing, distribution and retail operations, including changes in foreign investment and trade policies and regulations of the host countries and of the United States;
(8)
changes in the laws, regulations and policies (including the interpretations and enforcement thereof) that affect, or will affect, the Company's business, including those relating to its products or distribution networks, changes in accounting standards, tax laws and regulations, environmental or climate change laws, regulations or accords, trade rules and customs regulations, and the outcome and expense of legal or regulatory proceedings, and any action the Company may take as a result;
(9)
foreign currency fluctuations affecting the Company's results of operations and the value of its foreign assets, the relative prices at which the Company and its foreign competitors sell products in the same markets and the Company's operating and manufacturing costs outside of the United States;
(10)
changes in global or local conditions, including those due to the volatility in the global credit and equity markets, natural or man-made disasters, real or perceived epidemics, or energy costs, that could affect consumer purchasing, the willingness or ability of consumers to travel and/or purchase the Company's products while traveling, the financial strength of the Company's customers, suppliers or other contract counterparties, the Company's operations, the cost and availability of capital which the Company may need for new equipment, facilities or acquisitions, the returns that the Company is able to generate on its pension assets and the resulting impact on funding obligations, the cost and availability of raw materials and the assumptions underlying the Company's critical accounting estimates;
(11)
impacts attributable to the COVID-19 pandemic, including disruptions to our global business;
(12)
shipment delays, commodity pricing, depletion of inventory and increased production costs resulting from disruptions of operations at any of the facilities that manufacture the Company's products or at the Company's distribution or inventory centers, including disruptions that may be caused by the implementation of information technology initiatives, or by restructurings;
(13)
real estate rates and availability, which may affect the Company's ability to increase or maintain the number of retail locations at which the Company sells its products and the costs associated with the Company's other facilities;
(14)
changes in product mix to products which are less profitable;
(15)
the Company's ability to acquire, develop or implement new information and distribution technologies and initiatives on a timely basis and within the Company's cost estimates and the Company's ability to maintain continuous operations of such systems and the security of data and other information that may be stored in such systems or other systems or media;
(16)
the Company's ability to capitalize on opportunities for improved efficiency, such as publicly-announced strategies and restructuring and cost-savings initiatives, and to integrate acquired businesses and realize value therefrom;
(17)
consequences attributable to local or international conflicts around the world, as well as from any terrorist action, retaliation and the threat of further action or retaliation;
(18)
the timing and impact of acquisitions, investments and divestitures; and
(19)
additional factors as described in the Company's filings with the Securities and Exchange Commission, including its Annual Report on Form 10-K for the fiscal year ended June 30, 2020.
The Company assumes no responsibility to update forward-looking statements made herein or otherwise.
The Estee Lauder Companies Inc. is one of the world's leading manufacturers and marketers of quality skin care, makeup, fragrance and hair care products. The Company's products are sold in approximately 150 countries and territories under brand names including: Estee Lauder, Aramis, Clinique, Lab Series, Origins, Tommy Hilfiger, M*A*C, La Mer, Bobbi Brown, Donna Karan New York, DKNY, Aveda, Jo Malone London, Bumble and bumble, Michael Kors, Darphin, Tom Ford Beauty, Smashbox, Ermenegildo Zegna, AERIN, RODIN olio lusso, Le Labo, Editions de Parfums Frederic Malle, GLAMGLOW, Kilian Paris, BECCA, Too Faced and Dr. Jart+.
(A)The Company recorded $2 million ($2 million net of tax) of income within selling, general and administrative expenses for the nine months ended March 31, 2021 to reflect changes in the fair value of its contingent consideration related to its fiscal 2016 acquisition. During the three and nine months ended March 31, 2020, the Company recorded $2 million (gross and net of tax) and $9 million ($8 million, net of tax) of income to reflect changes in the fair value of its contingent consideration related to certain of its fiscal 2015 and 2016 acquisitions.
(B)In May 2016, the Company announced a multi-year initiative ('Leading Beauty Forward') to build on its strengths and better leverage its cost structure to free resources for investment to continue its growth momentum. Leading Beauty Forward was designed to enhance the Company's go-to-market capabilities, reinforce its leadership in global prestige beauty and continue creating sustainable value. As of June 30, 2019, the Company concluded the approvals of all major initiatives under Leading Beauty Forward related to the optimization of select corporate functions, supply chain activities, and corporate and regional market support structures, as well as the exit of underperforming businesses, and expects to substantially complete those initiatives through fiscal 2021. Inclusive of approvals from inception through June 30, 2019, the Company estimates that Leading Beauty Forward may result in related restructuring and other charges totaling between $950 million and $990 million, before taxes, consisting of employee-related costs, asset write-offs and other costs to implement these initiatives. After its full implementation, the Company expects Leading Beauty Forward to yield annual net benefits, primarily in Selling, general and administrative expenses and, to a lesser extent, Cost of sales, of between $425 million and $475 million, before taxes. These savings can be used to improve margin, mitigate risk and invest in future growth initiatives.
In August 2020, the Company announced a two-year restructuring program, Post-COVID Business Acceleration Program (the 'PCBA Program'), designed to resize its business against the dramatic shifts to its distribution landscape and consumer behaviors in the wake of the COVID-19 pandemic. The PCBA Program will help improve efficiency and effectiveness by rebalancing resources to growth areas of prestige beauty. It will further strengthen the Company by building upon the foundational capabilities in which the Company has invested. The PCBA Program's main areas of focus include accelerating the shift to online with the realignment of the Company's distribution network reflecting freestanding store and certain department store closures, with a focus on North America and Europe, the Middle East & Africa; the reduction in brick-and-mortar point of sale employees and related support staff; and the redesign of the Company's regional branded marketing organizations, plus select opportunities in global brands and functions. This program is expected to position the Company to better execute its long-term strategy while strengthening its financial flexibility. The Company plans to approve specific initiatives under the PCBA Program through fiscal 2022 and expects to complete those initiatives through fiscal 2023. The Company expects that the PCBA Program will result in related restructuring and other charges totaling between $400 million and $500 million, before taxes.
During November 2020, given the actual and the estimate of the potential future impacts relating to the uncertainty of the duration and severity of COVID-19 impacting the Company and lower than expected results from geographic expansion, the Company made further revisions to the internal forecasts relating to its GLAMGLOW reporting unit, triggering a need for an interim impairment review. As a result of this review, the Company recorded $81 million ($63 million, net of tax) of goodwill and other intangible asset impairments, with an impact of $.18 per common share for the nine months ended March 31, 2021.
During March 2021, the Company recognized $33 million ($27 million, net of tax) of long-lived asset impairments, included in impairments of other intangible and long-lived assets, in the accompanying consolidated statements of earnings (loss) for the three and nine months ended March 31, 2021, related other assets (i.e. rights associated with commercial operating leases), operating lease ROU assets and the related property, plant and equipment in certain freestanding stores primarily in Europe due to the impact of the COVID-19 pandemic.
For the three months ended March 31, 2021, total long-lived asset impairment charges were $33 million with an impact of $.07 per common share, and for the nine months ended March 31, 2021, total goodwill, other intangible and long-lived asset impairment charges were $114 million with an impact of $.25 per common share.
During December 2019, given the continuing declines in prestige makeup, generally in North America, and the ongoing competitive activity, the Company's Too Faced, BECCA and Smashbox reporting units made revisions to their internal forecasts concurrent with the Company's brand strategy review process, triggering a need for an interim impairment review. As a result of this review, the Company recorded $777 million ($663 million, net of tax) of goodwill and other intangible asset impairments, during the three months ended December 31, 2019.
During March 2020, given the actual and the estimate of the potential future impacts relating to the uncertainty of the duration and severity of COVID-19 impacting the Company, the Company made revisions to the internal forecasts relating to its Too Faced, BECCA, Smashbox and GLAMGLOW reporting units. The Company concluded that the changes in circumstances in these reporting units triggered the need for an interim impairment review. As a result of this review, the Company recorded $333 million ($288 million, net of tax) of goodwill and other intangible asset impairments, during the three months ended March 31, 2020.
The Company also recognized $13 million ($10 million, net of tax) of long-lived asset impairments, included in impairments of other intangible and long-lived assets, in the accompanying consolidated statements of earnings (loss) for the three and nine months ended March 31, 2020, related to operating lease ROU assets and the related property, plant and equipment in certain freestanding stores primarily in North America due to the impact of the COVID-19 pandemic.
Total goodwill, other intangible and long-lived asset impairment charges were $346 million with an impact of $.83 per common share and $1,123 million with an impact of $2.62 per common share for the three and nine months ended March 31, 2020, respectively.
(D)In conjunction with the acquisition of the remaining equity interest in Have&Be Co. Ltd., the Company recorded a gain on its previously held equity method investment of $553 million (inclusive of the recognition of a previously unrealized foreign currency gain of $4 million, which was reclassified from accumulated other comprehensive income). The Company also recorded a $23 million foreign currency gain as a result of cash transferred to a foreign subsidiary for the purposes of making the closing payment. The total gain of $576 million ($450 million, net of tax) had an impact of $1.23 per common share for the nine months ended March 31, 2020.
See details at:
https://www.elcompanies.com/en/news-and-media/newsroom/press-releases/2021/05-03-2021-114526531
Investors:Rainey Mancini
rmancini@estee.com
Media:Jill Marvin
jimarvin@estee.com
Source: The Estee Lauder Companies Inc.
ESTEE LAUDER 
