Estee Lauder Companies, Inc. (The) (EL)

EL 
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Estee Lauder Companies (EL)

Q2 2011 Earnings Call

February 03, 2011 9:30 am ET

Executives

Veronique Gabai-Pinsky - Global Brand President of Aramis Designer Fragrances for BeautyBank & IdeaBank

Richard Kunes - Chief Financial Officer, Principal Accounting Officer and Executive Vice President

Fabrizio Freda - Chief Executive Officer, President and Director

Dennis D'Andrea - Vice President of Investor Relations

Analysts

Ali Dibadj - Sanford

Mark Astrachan - Stifel, Nicolaus & Co., Inc.

Alice Longley - Buckingham Research Group, Inc.

William Schmitz - Deutsche Bank AG

Wendy Nicholson - Citigroup Inc

Andrew Sawyer - Goldman Sachs Group Inc.

Linda Weiser - Caris & Company

Caroline Levy - Credit Agricole Securities (USA) Inc.

Christopher Ferrara - BofA Merrill Lynch

Presentation

Operator

Good day, everyone, and welcome to the Estée Lauder Companies Fiscal 2011 Second Quarter Conference Call. [Operator Instructions] For opening remarks and introductions, I would like to turn the call over to the Vice President of Investor Relations, Mr. Dennis D'Andrea. Please go ahead, sir.

Dennis D'Andrea

Good morning, everyone. On today's call are Fabrizio Freda, President and Chief Executive Officer; and Rick Kunes, Executive Vice President and Chief Financial Officer. Also on our call today is Veronique Gabai-Pinsky, Global Brand President of Aramis and Designer Fragrances, BeautyBank and IdeaBank. Veronique will discuss strategic progress in our ADF division.

Since many of our remarks today contain forward-looking statements, let me refer you to our press release and our reports filed with the SEC, where you'll find factors that could cause actual results to differ materially from these forward-looking statements. We will also discuss certain of our results in non-GAAP financial terms. You can find a reconciliation between GAAP and non-GAAP figures in our press release and in the Investors section of our website.

And I'll turn the call over to Fabrizio.

Fabrizio Freda

Good morning. I am pleased you have joined us for our fiscal 2011 second quarter conference call. Once again, our company had an exceptional quarter. Sales grew 11% to $2.5 billion, diluted earnings per share were $1.77, up 38% versus a year ago. Both these results are before recessionary charges. This record second quarter performance was widespread across categories, regions and brands. Virtually all product categories posted higher sales in every region. And our largest brands: Estée Lauder, Clinique, M-A-C, Aramis and Designer Fragrances showed global double-digit growth in local currency and led the robust sales increase.

Our results reflect success on many levels, including notable launches effective of the styling and marketing strategies, improvements to our high-touch service model and compelling holiday offering. Based on our better-than-expected performance during the first half of this year, thanks to strong sales, a weak dollar and improved cost control, we are comfortable raising our guidance for fiscal 2011 again. We now estimate a range of $3.40 to $3.60 per share, an increase of $0.50. I want to remind you that we are now 1 1/2 years into our four-year strategy. We have made substantial progress in every quarter, bringing us closer to our financial operating goals. We remain confident in our continuing ability to execute our plans and as a result, we are raising our fiscal 2013 operating margin target range by another 50 basis point to 13% to 14%.

We will continue to evaluate our margin targets as appropriate. After fiscal 2015, we will implement the next stage of our strategic journey. Our main mission and motivation is to reinforce our focus and our leadership in global prestige beauty. We measure our progress by growing faster than average prestige beauty sales, which is a key strategic objective. In the recent quarter, we succeeded in many markets, gaining share in our distribution in China, the U.K., Spain, Latin America, the Nordic region among others, as well as in two major channels: Travel Retail and U.S. prestige department stores.

Travel Retail is a critical channel that can also contribute to building brand equity. The growth of our business, which far exceeded the rise in travelers was due to higher positive traffic, converting more shoppers into buyers and gaining share. The biggest improvement occurred in Asia/Pacific and Greater China, in particular. And in Denmark, the Estée Lauder brand excelled.

In the U.S. beauty universe measured by NPD, which includes prestige department stores and Sephora, we expanded our share in the Skin Care and Fragrance categories, thanks to new innovations and greater excitement at counters, which drew more shoppers.

By brand, Clinique and M-A-C widened their lead as the top-selling brands in Skin Care in the cap respectively in this distribution. Clinique share grew by 1.7% in Skin Care, which is a tremendous achievement for the largest U.S. beauty brand. This is the second consecutive quarter in which its Skin Care share widened by more than one percentage point. In the recent quarter, M-A-C share in the cap expanded by 1/2%. Skin Care is a strategic priority and our strength in this category is impressive.

Our products accounted for 21 of the top 25 Skin Care SKUs in the U.S. prestige department stores, measured by NPD in the recent three months period. Whatever the market per channel, we strive to be locally relevant, and our brands and products are resonating with consumer. We have clearly benefited from an improvement in global economies, consumer confidence and prestige beauty growth, especially in emerging markets. But economic trends are not enough, it should entail the right mix of product and services. The Estée Lauder Companies is winning because we are working as master, creating true innovations and connecting with the consumer.

The luxury consumer is again eager to shop, but is choosy about what she buys. Coming out of the recession, she's favoring quality products and enduring brands. We understand her mindset, and our innovative products deliver to their promise: Offer great value, come with personalized service and have a rich history. We plan to accelerate our investment in our high-end brands and collections to meet the growing appetite of the luxury consumer.

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