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

EL 
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The Estée Lauder Companies (EL)

Q1 2013 Earnings Call

November 01, 2012 9:30 am ET

Executives

Dennis D'Andrea - Vice President of Investor Relations

Fabrizio Freda - Chief Executive Officer, President and Director

Karen Buglisi - Global Brand President

Tracey Thomas Travis - Chief Financial Officer, Executive Vice President, Member of Corporate Risk Management Committee, Member of Fiduciary Investment Committee and Member of Investment Development Committee

Analysts

Neely J.N. Tamminga - Piper Jaffray Companies, Research Division

Nik Modi - UBS Investment Bank, Research Division

Christopher Ferrara - BofA Merrill Lynch, Research Division

Alice Beebe Longley - The Buckingham Research Group Incorporated

Ali Dibadj - Sanford C. Bernstein & Co., LLC., Research Division

Caroline S. Levy - Credit Agricole Securities (USA) Inc., Research Division

William Schmitz - Deutsche Bank AG, Research Division

Mark S. Astrachan - Stifel, Nicolaus & Co., Inc., Research Division

Linda Bolton-Weiser - Caris & Company, Inc., Research Division

John A. Faucher - JP Morgan Chase & Co, Research Division

Victoria Watson Collin - Atlantic Equities LLP

Presentation

Operator

Good day, everyone, and welcome to The Estée Lauder Companies Fiscal 2013 First Quarter Conference Call. Today's call is being recorded and webcast. 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; Tracey Travis, Executive Vice President and Chief Financial Officer; and Karen Buglisi, Group President of our M-A-C brand. Karen will discuss the evolution of M-A-C and its future opportunities. 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. Except when noted, our discussion of our financial results and our expectations are before restructuring and other charges. You can find a reconciliation between GAAP and non-GAAP figures in our press release and on the Investor Relations section of our website. I'll turn the call over to Fabrizio.

Fabrizio Freda

Thank you, Dennis. Good morning, everyone. Before we discuss the quarter, I want to acknowledge how terrific it is to be sitting here and holding this call on schedule beyond the difficult situation in the New York area this week. I am proud of the dedication of our employees who have enabled it to take place. I also appreciate all of you, taking the time to hear our discussion, where you may have more pressing matters. I hope you and your families are well and safe.

Now I want to officially welcome our new Chief Financial Officer, Tracey Travis, to her first Estée Lauder Companies conference call. Tracey will review the quarter financials in a few minutes. I am pleased to report that our fiscal '13 first quarter sales in local currency were on target with our expectation, while diluted earnings per share came in slightly better than we anticipated.

Sales grew 6%, a solid performance, following a 14% sales gain in last year's first quarter and worse than expected market challenges in Western Europe and Korea. Sales rose solidly in each of the 3 biggest brands and increased in our top 5 markets and emerging markets in general.

In China, our third largest market, sales were again exceptionally strong, even against a tough comparison to last year. Additionally, our North America department store business continued to thrive, thanks to well-received product launches, effective advertising programs and excellent personalized service.

Many of our brands and channels that have been growing rapidly in recent quarters maintained their momentum. Our luxury brands, including La Mer, Jo Malone and Tom Ford, continued strong double-digit growth, as did channels that tend to attract young consumers, mainly online and North America specialty retail.

On reported sales -- our reported sales rose 3%, which was higher than we forecasted because currency movements were not as negative as we had expected. EPS rose 12% to $0.79, demonstrating how our winning business model leverages our sales growth into even greater profitability.

We are encouraged that fiscal 2013 is off to a healthy start and our strategy continues to be successful every season. By focusing investment in the fastest-growing opportunities across our diverse brands, categories and geographies, we are able to increase sales even when faced with pockets of weakness and lower consumer spending.

This quarter, we achieved share gains in several emerging markets including China, Turkey and in Brazil. Many of our brands gained share in established markets, including some in Western Europe. Since we have a lot of activity going on around the world, let me provide further details on our business by region.

This quarter, our strongest sales growth came from the Americas, led by the United States, where our business was buoyant. U.S. prestige beauty continued to outperform mass during this quarter by 4 percentage points. La Mer increased its ranking to become the fourth largest prestige skin care brand on the strength of its new moisturizing soft cream, which is expected to be its biggest launch and account for a sizable amount of its global sales the first year.

Our company's brands now represents 3 of the top 4 prestige skin care brands in the United States. We stepped up our commitment to the Canadian retailers about a year ago, and our combined efforts paid off with a high-single digit sales growth. Higher sales in Latin America were led by Brazil due to our initiatives to further establish our prestige presence.

All told, we did well in Asia Pacific, but the region showed a sharp divide, with business rising in some markets, sliding in others. In China, our sales climbed 32%, primarily from reaching new consumers through expansion into Tier 2 and 3 cities. As we said in our last call, more of our growth will come from broadening our geographic presence. We took our brands into 6 new cities, bringing the total to 64, and opened 78 counters. We expect the new consumers to also purchase our products in airport shops in international destination when they travel.

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