| Estée Lauder Companies Reports $.27 Earnings Per Share from Continuing Operations in Fiscal 2007 First Quarter |
Board Declares 25% Dividend Increase Business Editors/Retail Writers NEW YORK--(BUSINESS WIRE)--Oct. 25, 2006--The Estée Lauder Companies Inc. (NYSE: EL) today reported $1.59 billion in net sales for its fiscal first quarter ended September 30, 2006, a 6% increase over the $1.50 billion reported in the prior-year quarter. Excluding the impact of foreign currency translation, net sales rose 5%. The Company reported net earnings from continuing operations for the quarter ended September 30, 2006 of $58.0 million, compared with $61.8 million last year. Diluted earnings per common share from continuing operations for the quarter were $.27 compared with $.28 reported in the prior year. Net earnings and diluted earnings per share for the quarter including discontinued operations were essentially flat and increased 4%, respectively, compared with the prior-year quarter. Separately, the Board of Directors of The Estée Lauder Companies Inc. voted to increase the dividend on the Company's Class A and Class B Common Stock to $.50 per share. The dividend amount represents a 25% increase over the previous annual rate of $.40 per share that was paid in December 2005. The $.50 per share annual dividend will be payable on December 27, 2006 to stockholders of record at the close of business on December 8, 2006. William P. Lauder, President and Chief Executive Officer said, "This quarter we invested in our fast-moving businesses to accelerate momentum, while prudently controlling costs in other areas. The result was top line growth above the industry average and a better than expected bottom line performance. Beginning the fiscal year on solid footing gives us confidence in our ability to deliver our fiscal 2007 stated objective of $2.00 to $2.10 earnings per share." Results by Product Category
Three Months Ended September 30
(Unaudited;
Dollars in Percent Operating Percent
millions) Net Sales Change Income Change
----------- --------------- ----------- ------------- --------
Repo- Local
rted Cur- Reported
2006 2005 Basis rency 2006 2005 Basis
------ ------ ----- ----- ------ ------ --------
Skin Care $ 567.0 $ 523.4 8.3% 7.1% $ 42.9 $ 38.8 10.6%
Makeup 646.8 604.9 6.9 6.0 49.9 60.5 (17.5)
Fragrance 289.3 293.2 (1.3) (2.6) 5.1 (1.0) 100.0+
Hair Care 82.4 70.4 17.0 16.3 3.9 5.3 (26.4)
Other 8.0 5.2 53.8 51.9 (1.4) 1.5 (100.0+)
-------- -------- ------ ------
Subtotal 1,593.5 1,497.1 6.4 5.4 100.4 105.1 (4.5)
Special charges
related to cost
savings
initiative - - (0.5) -
-------- -------- ------- ------
Total $1,593.5 $1,497.1 6.4% 5.4% $ 99.9 $105.1 (4.9)%
======== ======== ======= ======
The skin care, makeup and fragrance categories were adversely impacted by fewer department store doors during the current-year quarter as compared to the prior-year quarter resulting from the merger of Federated Department Stores, Inc. (Federated) and The May Department Stores Company (May).
Skin Care
-- Net sales of skin care products benefited from the recent
launch of Advanced Night Repair Concentrate Recovery Boosting
Treatment and the continued success of Resilience Lift Extreme
Ultra Firming Cremes by Estée Lauder. Higher sales of products
in the 3-Step Skin Care System and Turnaround Concentrate
Visible Skin Renewer from Clinique also contributed to growth.
-- Lower sales of some existing products, particularly in certain
of the Company's core brands, partially offset the increases.
-- Operating income increased due to the higher sales, which
outpaced the increase in the Company's support spending in
this category.
Makeup
-- Makeup sales for the quarter increased, primarily reflecting
solid growth from the Company's makeup artist brands. New
product launches, such as Plushglass lip gloss, and M--A--C
Viva Glam VI lip products, the proceeds of which are donated
to AIDS-related charities, contributed to growth.
-- Challenges in certain core brands partially offset these
positive results.
-- Makeup operating results decreased, reflecting the challenges
faced by certain core brands as mentioned above, the costs
associated with the Viva Glam campaigns, and a charge incurred
in anticipation of the settlement of an employment matter.
Fragrance
-- Fragrance sales decreased moderately compared to the prior
year as the fragrance category continues to be challenging,
particularly in the United States, reflecting lower sales of
Estée Lauder Beyond Paradise and various Clinique and Tommy
Hilfiger fragrances.
-- The recent launches of DKNY Red Delicious, Pure White Linen by
Estée Lauder and Unforgivable by Sean John contributed
positively to the category's sales.
-- Operating results in the fragrance product category increased,
reflecting the Company's effort to balance sales levels with
profitability.
Hair Care
-- Sales of hair care products and services increased, primarily
due to higher sales at Aveda and Bumble and bumble.
-- Higher sales at Bumble and bumble were primarily due to strong
like-door growth and new points of distribution.
-- Aveda net sales growth was due to the recent launch of Color
Conserve Strengthening Treatment, gains in products, such as
Pure Abundance Potion and Air Control, continued strong demand
for professional color products, and the recent acquisition of
a distributor.
-- Hair care operating income decreased due to spending in
support of new distribution points, product launches and the
Company's strategic modernization initiative.
Results by Geographic Region
Three Months Ended September 30
(Unaudited;
Dollars Percent Operating Percent
in millions) Net Sales Change Income Change
-------------- ----------------- ----------- ------------ -------
Repo- Local Repo-
rted Curr- rted
2006 2005 Basis ency 2006 2005 Basis
-------- ------- ----- ----- ------ ------ ------
The Americas $ 900.5 $ 881.0 2.2% 1.9% $ 73.1 $ 80.4 (9.1)%
Europe, the Middle
East & Africa 471.9 417.5 13.0 10.1 18.3 22.4 (18.3)
Asia/Pacific 221.1 198.6 11.3 10.7 9.0 2.3 100.0+
Subtotal 1,593.5 1,497.1 6.4 5.4 100.4 105.1 (4.5)
-------- ------- ----- ----- ------ ------
Special charges
related to cost
savings
initiative - - (0.5) -
-------- -------- ------ ------
Total $1,593.5 $1,497.1 6.4% 5.4% $ 99.9 $105.1 (4.9)%
======== ======== ====== ======
The Americas
-- Net sales for the quarter increased, led by growth in the
Company's makeup artist and hair care brands. Strong growth
from the Company's online business and solid overall gains in
Canada, Latin America and Mexico added to the increase.
-- Sales in the region were tempered by decreases in certain core
brands, which continue to be challenged by competitive
pressures and fewer stores resulting from the consolidation of
Federated and May.
-- The prior-year period results were weakened by severe weather
conditions, as well as rising gas prices, which the Company
believed adversely influenced consumer spending habits.
-- Operating income in the Americas declined from the prior-year
quarter as a result of the above-mentioned challenges, along
with the Company's strategic investments to further build its
new and existing brands. During the quarter, the Company
incurred a charge in anticipation of the settlement of an
employment matter. Partially offsetting these decreases were
higher operating results from various businesses, including
the Company's makeup artist brands and online, as well as
cost-control efforts from certain core brands.
Europe, the Middle East & Africa
-- In constant currency, net sales increased throughout the
region. Higher sales were led by the United Kingdom, the
Company's travel retail business, Germany, Russia, South
Africa and Italy.
-- This region was up against an easy comparison to the
prior-year quarter when sales decreased 1%, due in part to
certain markets that were adversely impacted by temporary
disruptions caused by the transition to a new regional
inventory center in Belgium.
-- Operating profitability declined, primarily due to lower
results in France, the United Kingdom, the Company's
distributor business and Switzerland, partially offset by
improved results in Germany and Italy.
-- Although sales increased throughout the region, particularly
in the United Kingdom and the Company's travel retail
business, the decrease in profitability reflected the
Company's continued efforts to support its brands through
advertising, merchandising and sampling, as well as higher
selling expenses.
Asia/Pacific
-- Virtually all countries in the region reported local currency
sales increases, with strong double-digit growth in China,
Korea and Hong Kong, and solid growth in Australia.
-- Operating profit in the region increased substantially, led by
improved results in China, and solid growth in Korea and
Australia.
Cash Flows
-- For the three months ended September 30, 2006, net cash flows
used for operating activities from continuing operations were
$70.1 million, compared with $61.6 million in the prior-year
period.
-- The change primarily reflects increases in certain seasonal
working capital components.
-- Operating cash flow was utilized primarily for the repurchase
of shares of the Company's Class A Common Stock, capital
investments and the purchase of the remaining interest in the
Bumble and bumble companies.
Estimate of Fiscal 2007 Second Quarter and Full Year
Second Quarter
-- Net sales are expected to grow between 6% and 8% in constant
currency, and the foreign currency translation impact is
expected to add approximately 2% on a reported basis.
-- Diluted earnings per share from continuing operations are
projected to be between $.73 and $.78.
Full Year
-- Net sales continue to be expected to grow between 5% and 7% in
constant currency.
-- Foreign currency translation impact is expected to be a 1%
benefit versus the prior year period.
-- Diluted earnings per share from continuing operations
continues to be projected between $2.00 and $2.10, including
eight cents per share impact related to the Federated store
closures.
-- On a product category basis, in constant currency, sales in
hair care and makeup are expected to be the leading sales
growth categories, followed by skin care and fragrance.
-- Geographic region net sales growth in constant currency is
expected to be led by Asia/Pacific and Europe, the Middle East
& Africa, followed by the Americas.
-- The Company expects to deliver approximately $30 million in
incremental savings in the current fiscal year ending June 30,
2007, under its cost savings initiative implemented in fiscal
2006.
-- Full fiscal year 2007 estimate includes $50 million of net
sales and six cents diluted earnings per share related to the
Company's business in the Lord & Taylor retail chain, which
was recently sold by Federated. If as a result of the sale,
store closures within this chain take place during the fiscal
year, such closures will reduce the Company's fiscal 2007
results.
Forward-Looking Statements
The forward-looking statements in this press release, including those containing words like "expect," "believe," "planned," "may," "could," "should," "anticipate," "estimate," "projected," those in Mr. Lauder's remarks and those in the "Estimate of Fiscal 2007 Second Quarter and Full Year" section involve risks and uncertainties. Factors that could cause actual results to differ materially from those forward-looking statements include the following: (1) increased competitive activity from companies in the skin care, makeup, fragrance and hair care businesses, some of which have greater resources than the Company does; (2) the Company's ability to develop, produce and market new products on which future operating results may depend and to successfully address challenges in core brands, including gift with purchase, and in the Company's fragrance business; (3) consolidations, restructurings, bankruptcies and reorganizations in the retail industry causing a decrease in the number of stores that sell the Company's products and destocking, an increase in the ownership concentration within the retail industry, ownership of retailers by the Company's competitors and ownership of competitors by the Company's customers that are retailers; (4) destocking by retailers: (5) the success, or changes in timing or scope, of new product launches and the success, or changes in the timing or scope, of advertising, sampling and merchandising programs; (6) shifts in the preferences of consumers as to where and how they shop for the types of products and services the Company sells; (7) social, political and economic risks to the Company's foreign or domestic manufacturing, distribution and retail operations, including changes in foreign investment and trade policies and regulations of the host countries and of the United States; (8) changes in the laws, regulations and policies (including the interpretation and enforcement thereof) that affect, or will affect, the Company's business, including those relating to its products, changes in accounting standards, tax laws and regulations, trade rules and customs regulations, and the outcome and expense of legal or regulatory proceedings, and any action the Company may take as a result; (9) foreign currency fluctuations affecting the Company's results of operations and the value of its foreign assets, the relative prices at which the Company and its foreign competitors sell products in the same markets and the Company's operating and manufacturing costs outside of the United States; (10) changes in global or local conditions, including those due to natural or man-made disasters, real or perceived epidemics, or energy costs, that could affect consumer purchasing, the willingness or ability of consumers to travel and/or purchase the Company's products while traveling, the financial strength of the Company's customers or suppliers, the Company's operations, the cost and availability of capital which the Company may need for new equipment, facilities or acquisitions, the cost and availability of raw materials and the assumptions underlying the Company's critical accounting estimates; (11) shipment delays, depletion of inventory and increased production costs resulting from disruptions of operations at any of the facilities that manufacture nearly all of the Company's supply of a particular type of product (i.e., focus factories) or at the Company's distribution and inventory centers; (12) real estate rates and availability, which may affect the Company's ability to increase the number of retail locations at which the Company sells its products and the costs associated with the Company's other facilities; (13) changes in product mix to products which are less profitable; (14) the Company's ability to acquire, develop or implement new information and distribution technologies, on a timely basis and within the Company's cost estimates; (15) the Company's ability to capitalize on opportunities for improved efficiency, such as publicly-announced cost-savings initiatives and the success of Stila under new ownership, and to integrate acquired businesses and realize value therefrom; (16) consequences attributable to the events that are currently taking place in the Middle East, including terrorist attacks, retaliation and the threat of further attacks or retaliation; (17) the timing and impact of acquisitions and divestitures, which depend on willing sellers and buyers, respectively; and (18) additional factors as described in the Company's filings with the Securities and Exchange Commission, including its Annual Report on Form 10-K for the fiscal year ended June 30, 2006. The Company assumes no responsibility to update forward-looking statements made herein or otherwise. The Estée Lauder Companies Inc. is one of the world's leading manufacturers and marketers of quality skin care, makeup, fragrance and hair care products. The Company's products are sold in over 130 countries and territories under well-recognized brand names, including Estée Lauder, Aramis, Clinique, Prescriptives, Lab Series, Origins, M--A--C, Bobbi Brown, Tommy Hilfiger, La Mer, Donna Karan, Aveda, Jo Malone, Bumble and bumble, Darphin, Michael Kors, Rodan + Fields, American Beauty, Flirt!, Good Skin(TM), Donald Trump The Fragrance, Grassroots, Sean John, Missoni and Daisy Fuentes. An electronic version of this release can be found at the Company's website, www.elcompanies.com.
THE ESTEE LAUDER COMPANIES INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited; In millions, except per share data)
Three Months Ended
September 30
------------------- Percent
2006 2005 Change
--------- --------- --------
Net Sales $1,593.5 $1,497.1 6.4%
Cost of sales 428.1 419.5
--------- ---------
Gross Profit 1,165.4 1,077.6 8.1%
--------- ---------
Gross Margin 73.1% 72.0%
Operating expenses:
Selling, general and administrative 1,065.0 972.5
Special charges related to cost savings
initiative 0.5 -
--------- ---------
1,065.5 972.5 9.6%
--------- ---------
Operating Expense Margin 66.9% 65.0%
Operating Income 99.9 105.1 (4.9)%
Operating Income Margin 6.2% 7.0%
Interest expense, net 6.7 5.6
--------- ---------
Earnings before Income Taxes, Minority
Interest
and Discontinued Operations 93.2 99.5 (6.3)%
Provision for income taxes 33.4 35.8
Minority interest, net of tax (1.8) (1.9)
--------- ---------
Net Earnings from Continuing Operations 58.0 61.8 (6.1)%
Discontinued operations, net of tax (A) 0.3 (3.3)
--------- ---------
Net Earnings $ 58.3 $ 58.5 (0.3)%
========= =========
Basic net earnings per common share:
Net earnings from continuing operations $ .28 $ .28 (1.8)%
Discontinued operations, net of tax .00 (.02)
--------- ---------
Net earnings $ .28 $ .26 4.2%
========= =========
Diluted net earnings per common share:
Net earnings from continuing operations $ .27 $ .28 (1.4)%
Discontinued operations, net of tax .00 (.02)
--------- ---------
Net earnings $ .27 $ .26 4.2%
========= =========
Weighted average common shares
outstanding:
Basic 211.1 220.6
Diluted 213.6 223.6
(A) On September 30, 2005, the Company committed to a plan to sell certain assets and operations of its reporting unit that marketed and sold Stila brand products. On April 10, 2006, the Company completed the sale. As such, $0.3 million of income and $3.3 million of loss, both net of tax, for the three months ended September 30, 2006 and 2005, respectively, are reflected as discontinued operations in the statements of earnings. The current year income resulted from the Company providing certain transitional distribution and online services as well as the manufacture and sale to the purchaser of a limited range of products. In addition, the Company provided transitional services related to certain information systems, accounting and other back office services to the purchaser in exchange for monthly service fees designed to recover the estimated costs of providing these transition services. Transitional services are expected to conclude in fiscal 2007.
THE ESTEE LAUDER COMPANIES INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited; In millions)
Sept. 30 June 30 Sept. 30
2006 2006 2005
---------- --------- ----------
ASSETS
Current Assets
Cash and cash equivalents $ 180.7 $ 368.6 $ 389.5
Accounts receivable, net 980.1 771.2 915.2
Inventory and promotional merchandise,
net 834.0 766.3 814.8
Prepaid expenses and other current
assets 276.6 270.8 232.1
Assets related to discontinued
operations - - 127.8
---------- --------- ----------
Total Current Assets 2,271.4 2,176.9 2,479.4
---------- --------- ----------
Property, Plant and Equipment, net 775.8 758.0 690.8
Other Assets 898.8 849.2 797.5
---------- --------- ----------
Total Assets $3,946.0 $3,784.1 $3,967.7
========== ========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Short-term debt $ 204.4 $ 89.7 $ 253.6
Accounts payable 303.9 264.5 255.1
Other current liabilities 1,132.1 1,084.0 1,025.3
Liabilities related to discontinued
operations - - 6.4
---------- --------- ----------
Total Current Liabilities 1,640.4 1,438.2 1,540.4
---------- --------- ----------
Noncurrent Liabilities
Long-term debt 438.6 431.8 444.9
Other noncurrent liabilities and
minority interest 278.3 291.8 248.8
Total Stockholders' Equity 1,588.7 1,622.3 1,733.6
---------- --------- ----------
Total Liabilities and
Stockholders' Equity $3,946.0 $3,784.1 $3,967.7
========== ========= ==========
SELECTED CASH FLOW DATA
(Unaudited; In millions)
Three Months Ended
September 30
-------------------
2006 2005
--------- --------
Cash Flows from Operating Activities
Net earnings $ 58.3 $ 58.5
Depreciation and amortization 50.9 47.2
Deferred income taxes (6.0) (9.8)
Other items 17.8 14.6
Changes in operating assets and liabilities:
Increase in accounts receivable, net (209.2) (144.8)
Increase in inventory and promotional
merchandise, net (68.8) (57.6)
Increase in accounts payable and other accrued
liabilities 102.2 48.7
Other operating assets and liabilities, net (15.3) (18.4)
--------- --------
Net cash flows used for operating activities
of continuing operations $ (70.1) $ (61.6)
========= ========
Capital expenditures $ 67.3 $ 45.9
Payments to acquire treasury stock 110.5 71.1
CONTACT: The Estée Lauder Companies Inc. Investor Relations: Dennis D'Andrea, 212-572-4384 Or Media Relations: Sally Susman, 212-572-4430 SOURCE: The Estée Lauder Companies Inc. |
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