Tax bill leads to quarterly profits slump at Estee Lauder

By Simon Pitman

- Last updated on GMT

Estee Lauder has reported a six per cent fall in its profits
despite a significant hike in its sales for its fourth quarter. The
company said that large tax charges and increased expenses had led
to the decline, but a rise in earnings from operations helped to
counterbalance the performance.

The top-end cosmetics and skin care maker reported earnings of $66.6 million for the quarter, down from $71.1million in the corresponding quarter of 2004, following a tax charge of $27.5 million for repatriated overseas profits.

Excluding the added tax bill, net earnings for the quarter rose 32 per cent to reach $94.1 million, which was slightly above analysts expectations contributing to a small hike in share prices following the announcement.

However, good news came in the form of the company's sales, which rose by 10 per cent to $1.54 billion, from $1.40 billion in the previous quarter. Excluding foreign currency fluctuations this figure was 8 per cent.

The company said that the quarterly sales were driven by increases of 10 per cent in the skin care category and 11 per cent to in the make-up category, while fragrance sales were up 9 per cent and hair care up 2 per cent.

On a geographic basis net sales increased by a healthy 13 per cent in Europe, as well as the Middle East and Africa, 9 per cent in the Americas and 6 per cent in Asia Pacific.

Looking at the full year results, net earnings from continuing operations were $406.1 million, up 8 per cent from $375.4 million, while sales grew 9 per cent to $6.34 billion, from $5.79 billion.

The company​ said that a series of new product launches had helped to boost the company's sales, with anti-aging products proving to be particularly popular.

Sales of skin care products for the full year increased 10 per cent to $2.35 billion, reflecting the successful launch of the company's Future Perfect Anti-Wrinkle cream and new product in the Re-Nutriv and Perfectionist lines.

Make-up sales rose 13 per cent to reach $2.42 billion, thanks to strong sales in the company's make-up artist brands as well as the Superbalanced Compact Makeup and Clinique Colour Surge lines.

Fragrance sales rose 10 per cent to reach $1.26 billion on the back of successful DKNY, Tommy Hilfiger and Clinique lines. Hair care sales rose 10 per cent to $273.9 million, primarily due to strong Aveda and Bumble & Bumble sales.

Full year sales on a regional basis were up 7 per cent in the US, to reach $3.38 billion, up 13 per cent in Europe, the Middle East and Africa to $2.12 billion and up 8 per cent in Asia Pacific to reach $835 .5 million.

William P. Lauder, CEO, said, "We are optimistic about the coming year, and we see opportunities to expand our global leadership in prestige beauty. Launches across product categories and regions augur well for us not only in the coming fiscal year but in future years as well, enabling us to optimize the strength of our brand portfolio and leverage our global distribution capabilities."

Looking ahead to the 2006 financial year the company said that it was expecting sales to grow at between 5 and 6 per cent, with no significant impact from foreign currency. Earnings per share are expected to increase from $1.78 this year, to between $1.95 and $2.00.

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