Along with growth in online, travel retail and skin care sales, the Asia-Pacific jump propelled the cosmetics company to a quarterly net sales high of $4.01bn, executives announced on the company’s earnings call.
The company achieved this milestone despite global trade tensions and “softness” in the US and UK, its largest markets.
“We delivered an excellent performance in our fiscal second quarter. Importantly, this was our eighth consecutive quarter of impressive net sales growth that met or exceeded our long-term goal, all while navigating many global macro issues.” said Fabrizio Freda, President and CEO of Estée Lauder Co.
Freda added: “Our sustained progress is the result of our multiple engines of growth strategy, and demonstrates our agility in moving resources to the best global opportunities.”
Luxury leads in China
Luxury brands continued to be in high demand in China, and the company’s strong sales mirrored the trend. The company’s prestige beauty portfolio accelerated and gained market share as every brand, category and major channel grew by double digits.
“Demand for Prestige Beauty from Chinese consumer has remained strong, in spite of macro issues and potential risks to the economy, including higher tariffs… and more oversight on Chinese travellers who buy goods offshore for resales domestically,” said Freda.
Make-up in particular has been growing in popularity among Chinese consumers, and now represents one-third of the company’s prestige sales.
“With the growing interest in make-up, M.A.C. was the number one prestige make-up brand on Tmall during the entire calendar 2018 and has become number two in prestige make-up in the total market,” said Freda.
Within the brand portfolio, Estée Lauder, M·A·C and Tom Ford are now the company’s most popular brands in China.
Online sales of prestige brands have continued to increase sharply, and now accounts for more than one-third of Estee Lauder Co. sales in China.
“We now expect sales growth of 8% to 9% and EPS gains of 14% to 16% for fiscal 2019,” said Freda.
The growth of the category in China is due to the “passion of consumer” he added.
“China is a very special market, where the young generation is consuming more than their parents in many areas, but particularly in Prestige Beauty, where the market share of prestige and luxury in the young generation is bigger than the market share in prestige and luxury in the more adult consumer.”
Freda concluded that Estee Lauder Co. remains optimistic about the “long-term health and resilience” of the prestige category in China.
“The industry will be driven by favourable demographics, and we are confident that the large growing middle-class in China will remain passionate about high-quality beauty products,” he said.
However, Freda also added: “At the same time, I want to emphasise that historically, Prestige Beauty has been less sensitive to economic downturns because it is an affordable luxury, driven by repeated purchases and loyalty.”
Asia beyond China
While China led the advance, it is not the only market that is powering Estee Lauder Co. in Asia.
“From a geographic standpoint, our Asia-Pacific region had robust net sales growth this quarter. Net sales overall rose 20%, with many markets experiencing double-digit increases,” said Tracey Thomas Travis, executive vice president and CFO.
“We also achieved excellent mid-single digit sales growth in Japan and Korea, with growth across all channels, including department stores, specialty, multi, and online,” she added.
Travis added that other markets across APAC such as Taiwan, Thailand and Malaysia, contributed to the region’s growth.
Freda highlighted strong growth in Hong Kong, Japan, and South Korea, where he noted that sales accelerated. “Virtually every brand generated higher sales in the region, both net and retail, boosted by the hero products and successful locally relevant innovations.”
Freda attribute the success in Asia beyond China to the company’s efforts in diversifying its growth engines in the region.
The skin care category was another big winner this year with a growth of 18% and is currently the company’s fastest-growing category globally.
Travis revealed that the category saw the greatest drive in Asia thanks to the company’s investments into skin care.
Freda added: “In the next two quarters, we plan to invest more behind our innovation to further build our share. To continue fuelling our innovation success, we expect to invest behind important new product launches such as Clinique iD, upcoming innovations and popular products…”