Lower US sales and higher costs hit Estee Lauder profits

By Simon Pitman

- Last updated on GMT

Related tags Revenue

Despite Estee Lauder reporting a healthy increase for its first
quarter sales, profits have been hit by lower operating income as a
result of increased marketing expenses and falling US sales.

Quarterly sales rose to $1.71bn from $1.59bn compared to the same period a year earlier, which, excluding the negative impact of currency exchange, represented an increase of 4.9 per cent in local currency and a 7 per cent increase in reported terms.

The increase in revenue was driven by significant gains in emerging international markets, highlighted by Russia and China; while the French, UK and Hong Kong markets were highlighted for their strong performances.

"We have produced solid double-digit gains in international markets this quarter," said company CEO William Lauder, who stressed the continued importance of these markets for future growth, while underlying the importance of expanding developing brands and strengthening core brands.

But despite the strong gains in international sales, profits were hit by lower operating income and stagnant sales in the Americas region, which meant the quartely figure fell 22 per cent to $77.9m.

In turn this led to a fall in quarterly net income of 32.6 per cent compared to the same quarter last year to $39.1m.

The company said that the figure was affected by the operating performance in its skin care, make-up and fragrance divisions, which all reported a decrease over the same period last year.

The skin care and make-up divisions were affected by increased marketing expenditure in the build up to the holiday season, while the fragrance division was hit by general expenses relating to brand support as well as a number of new launches.

The exception was hair care, where the operating income rose in proportion to the increase in sales, helped by the inclusion of the Ojon brand, the Canadian prestige hair care brand it acquired in July of this year.

On a regional basis the results were also hit by a drop in the Americas, where sales were down 0.2 percent from $900.5 to $898.9, reflecting lower sales of core brands amidst a highly competitive US retail market.

However, this figure was counteracted by healthy increases in the company's two other international regions, with Europe, Middle East and Africa posting a 16.8 percent increase in sales to $551.2m and Asia/Pacific sales growing 17.6 percent to reach $260.0m.

Despite the disappointing profit figures, Lauder said he expects the company to meet its guidance for the full fiscal 2008, reaffirming sales growth of by 7 - 9 percent in local currency.

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