There's nothing like a bright new lipstick shade or a
moisturizer that smooths and brightens the skin to lift a woman's
The folks atEstee Lauder Cos. (
) know all about it. The beauty products powerhouse has seen
profits rise by at least double digits in all but two of the past
In the most recent fourth quarter ended June 30, earnings
climbed 42% to 17 cents a share, topping views. Sales rose 9% to
$2.25 billion, also ahead of views. Its shares popped 9.31% after
reporting the strong results on Aug. 14.
Estee Lauder makes prestige beauty products, which are sold at
better department stores and specialty stores. Its lineup
includes skin care, hair care and fragrance products sold under
brand names such as its namesake, Clinique, M-A-C, Bobbi Brown
"The strong fourth quarter was driven largely by continued
momentum in the U.S. and strong growth in China and travel
retail," said Chief Executive Fabrizio Freda in a press
Estee Lauder and beauty product retailers such asUlta Beauty (
) have been cashing in on a surge in spending on prestige beauty
products. U.S. sales of these products surged 11% to $9.5 billion
in 2011, according to market research firm NPD Group.
"Last year was a record year with double-digit increases
across all categories," said Karen Grant, vice president and
senior global industry analyst at NPD. "This year, we're seeing
continued growth, but not at the same rate."
But the pace is still very strong, she adds, pointing out the
industry is up against very tough comparisons.
The jump in spending on prestige beauty products reflects a
renewed interest in grooming and the desire to have a more
polished appearance on the part of men and women, Grant says.
Also, she adds, beauty products are a "pragmatic luxury." The
average price point for these items is under $50, and these
products typically last a long time, roughly a few months.
"What it comes down to is this is a really tough environment
where people are getting hit hard and they're changing their
lifestyles," said RBC Capital Markets analyst Jason Gere. "They
may not be able to buy themselves a $500 purse, but there are
certain affordable luxury brands that allow women to feel good
about themselves. Estee Lauder is one of them.Lululemon (
) is another."
Prestige beauty has been one of the few categories within
household products that's seen growth during the downturn on a
global basis, Gere adds.
They fetch higher prices than those sold through the mass
channel, such as drugstores and mass merchants. Still, says
Grant, beauty products sold through the prestige channel in the
U.S. have been outperforming the mass channel in terms of sales
growth since 2011, and again in the first half of 2012.
Estee Lauder, which posted a 10% gain in sales in fiscal 2012,
grew sales at twice the rate of the worldwide prestige beauty
category, said Freda. He credits the success to "highly
innovative products, marketing prowess and personalized
"Despite pockets of economic uncertainty around the globe, our
growth was broad-based with strong gains in every geographic
region and product category and many distribution channels," he
For the year, Estee Lauder saw particularly strong growth in
skin care, with a 15% increase in sales, vs. a year earlier. The
Estee Lauder brand saw strong sales from its recent launch of
Revitalizing Supreme Global Anti-Aging Creme. It enjoyed
continued growth from products such as Advanced Night Repair
Synchronized Recovery Complex.
Makeup sales rose by double digits, driven largely by strong
gains from the company's artist brands, where it got a nice boost
from new offerings. Higher sales reflected recent launches such
as Lid Smoothie Antioxidant 8-Hour Eye Colour from Clinique.
Thanks to financial discipline throughout the company, said
Freda, Estee Lauder was able to bring much of its sales growth to
the bottom line. Its operating margin rose 120 basis points to a
Analysts polled by Thomson Reuters expect 2013 earnings to
rise 13% to $2.56 a share. They forecast a 15% increase in
On the fourth-quarter conference call, Freda forecast the
global prestige beauty category will grow by 3% to 4% in fiscal
"Our anticipated growth rate will again be twice that pace,"
He expects sales to grow 6% to 8% annually over the next