Estee Lauder reports profit in 4th quarter on stronger skin care, makeup revenue

Thursday, August 12, 2010

Skin care, makeup revenue helps Estee Lauder 4Q

NEW YORK — Better sales of higher-priced skin care products such as a Clinique skin-tone corrector helped cosmetics maker Estee Lauder return a fourth-quarter profit, the company said Thursday.

Its full-year net income doubled as revenue rose 6 percent, but it said rising ad spending will cut into its first-quarter profit, and its shares dipped.

High U.S. unemployment and a shaky economy have hit cosmetics makers, and Estee Lauder is restructuring to cut costs. The company said the efforts, including reducing its offerings 10 percent this year, saved it $364 million in fiscal 2010.

CEO Fabrizio Freda said on a call with analysts that demand has been improving.

“In the last several months, prestige beauty sales in North America department stores have made significant improvements as consumer spending has picked up,” he said.

“When they can afford something, need something or are inspired by something, they are back buying,” Freda added in an interview with The Associated Press. “But consumer sentiment is still low, so I would define the U.S. consumer as improving but not yet back.”

Rival Elizabeth Arden also said Thursday that returned to a profit in its fiscal fourth quarter, helped by cost cutting and higher revenue from its cosmetics and perfume — though Estee Lauder said its fragrance sales were down.

In U.S. department and specialty stores, Estee Lauder’s Clinique and MAC brands and its luxury marks Bobbi Brown and La Mer all gained market share.

Driving growth in skin care were two recently launched products, Estee Lauder’s Advanced Night Repair face and eye serum and Clinique’s Even Better Clinical Dark Spot Corrector and Clinical Skin Tone Corrector.

Freda said Clinique skin-tone correcting products, which Estee Lauder has aggressively advertised, have attracted customers who typically buy skin products at drug stores and discount stores. Estee Lauder now plans to amp up advertising behind its biggest brands and improve the in-store customer experience for those brands.

“There will be fewer bigger initiatives supported by heavy advertising as an alternative to many smaller activities each one of them supported by a little bit of advertising,” Freda, who just finished his first full year as CEO, said on the call. “That’s the real change in philosophy.”

Net income for the quarter that ended June 30 totaled $23.9 million, or 12 cents per share, compared with a loss of $17.9 million, or 9 cents per share, a year earlier. Excluding restructuring costs in last year’s fourth quarter, the company earned 20 cents per share then.

Net income was 29 cents per share in this year’s fourth quarter, excluding costs related to restructuring and a debt offering. Analysts polled by Thomson Reuters, who typically exclude one-time items, on average expected net income of 30 cents per share.

Estee Lauder — which gets more than half of its revenue outside of the Americas — said revenue rose 9 percent to $1.8 billion from $1.68 billion. Analysts expected revenue of $1.83 billion.

For the full year, net income more than doubled to $478.3 million, or $2.38 per share, from $218.4 million, or $1.10 per share, last year. Revenue rose 6 percent to $7.8 billion.

The company expects first-quarter net income 67 cents to 80 cents per share. Analysts expect 78 cents per share.

It expects full-year net income of $2.80 and $3.05 per share, excluding one-time items. That is short of analyst expectations of $3.16 per share.

Shares fell $1.55, or 2.6 percent, to close at $58.80 in trading Thursday. The stock has traded between $33.14 and $71.29 during the past 52 weeks.

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