Gains from restructuring boost Estee Lauder profits

By Simon Pitman

- Last updated on GMT

Related tags Better United states dollar

Estee Lauder results shows a big jump in profits, with strong results in Asia and reduced costs helping to prompt the company to raise its outlook.

The company said that sales during its first quarter, ending in September, fell by 1.9 percent to $1.83bn, compared to $1.90bn.

The figure was negatively impacted by a strong US dollar hitting sales from its international markets, which helped to explain for the fact that on a reported basis sales fell by 3.7 percent during the period.

Conversely net profits rose steeply to $140.7m, compared with $51.1m in the same period last year, which the company attributed to aggressive cost cutting, part of a four year program to improve operating margins.

Results ahead of expectations

Both the jump in profits and the sales figures were ahead of market expectations, which helping to push sales up by 5.7 per cent at the close of business on the New York Stock Exchange on Friday.

“We capitalized on our solid pipeline of innovative products, initial improvements in certain areas of our business and increased cost discipline, which led to a significant improvement in operating margin,”​ said Estee Lauder CEO Fabrizio Freda.

On the sales side, the company underlined the importance of its Advanced Night Repair anti-aging skin care line, which launched globally in July, and has proved to be particularly popular in the China market.

China skin care drives sales

Geographically, sales of skin care products in China drove sales in the Asia Pacific region, whereas sales were flat in Europe and fell slightly in North America.

The company said that the fall in sales in its mainstay North American market had forced it to focus on key high-margin fragrance brands, including the Donna Karen-branded fragrance, in preparation of the holiday season.

Looking ahead to the all-important holiday quarter, the company says that it is expecting to encounter tough trading conditions in key developed markets and says it remains cautious.

Holiday quarter will be challenging

"While satisfying, these strong results should not mask the challenges and uncertainties we still see in the global economic environment,"​ said Freda.

"Additionally, we are at the beginning of our four-year strategic plan, which involves significant cultural changes and multiple initiatives, and we still have a lot of work ahead to achieve our goals."

However, despite the short-term challenges of the next quarter, the company says that it remains more optimistic for the full financial year 2010, and in turn raise the forecast for earning per share estimate to $1.95 – $2.10, compared to the previous outlook of $1.55 - $1.70.

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