Net Sales Decreased 11% and Diluted EPS
Decreased 28% to $1.35
Organic Net Sales1 Decreased 5% and Adjusted
Diluted EPS Fell 24% in Constant Currency, As Expected
Headwinds Will Continue to Pressure Second
Quarter; Strong Growth Expected to Gradually Resume in the Second
Half of Fiscal 2023
The Estée Lauder Companies Inc. (NYSE: EL) today reported net
sales of $3.93 billion for its first quarter ended September 30,
2022, a decline of 11% from $4.39 billion in the prior-year period,
including negative impacts from foreign currency. Organic net sales
fell 5%, in line with the Company’s expectations, despite pressures
which intensified as the quarter progressed. COVID-19 restrictions
in China presented a greater challenge than expected. Tourism to
Hainan was largely curtailed, which led to strict inventory
management by certain retailers in travel retail, and traffic in
brick-and-mortar in the rest of China was limited. These greater
pressures were offset by several markets in Asia/Pacific, as well
as many emerging and developed markets in the west, which delivered
strong organic net sales growth. Organic net sales in both
fragrance and hair care grew double digits.
The Company reported net earnings of $489 million, compared with
net earnings of $692 million in the prior-year period2. Diluted net
earnings per common share was $1.35, compared with $1.88 reported
in the prior-year period. Excluding restructuring and other charges
as detailed on page 3, adjusted diluted net earnings per common
share declined 28% to $1.37, decreasing 24% in constant currency,
better than the Company’s expectations. This decline includes a
negative impact of 4% from certain foreign currency transactions in
key international travel retail locations.
Fabrizio Freda, President and Chief Executive Officer said, “For
the first quarter, we delivered organic sales in line with our
outlook and adjusted EPS ahead of it even as the transitory
external pressures of COVID-19 restrictions in China, high
inflation globally, and a strong U.S. dollar intensified. Our
multiple engines of growth strategy empowered us to seize
prevailing growth opportunities amid the complexity.
“Fragrance and Hair Care each rose double digits organically,
and Makeup’s renaissance continued to realize its promise in
markets reopening. Skin Care was the most challenged by COVID-19
restrictions in China, which significantly impacted the category in
travel retail. All told, 13 brands grew organically, as M·A·C
excelled in Makeup, La Mer in luxury Skin Care, Jo Malone London in
Fragrance, and Aveda in Hair Care. Encouragingly, we realized
strong double-digit gains in many large developed and emerging
markets around the world.”
_________________________________
1 Organic net sales represents net sales
excluding returns associated with restructuring and other
activities; non-comparable impacts of acquisitions, divestitures
and brand closures; as well as the impact from foreign currency
translation. The Company believes that the Non-GAAP measure of
organic net sales growth provides year-over-year sales comparisons
on a consistent basis. See page 2 for reconciliations to GAAP. 2
Net earnings attributable to The Estée Lauder Companies Inc. which
excludes net (earnings) attributable to redeemable noncontrolling
interests for the first fiscal quarter of fiscal 2023 and fiscal
2022 and noncontrolling interests for the first quarter of fiscal
2022.
Freda concluded, “For fiscal 2023, we are lowering our outlook
primarily to reflect tighter inventory management in Asia travel
retail, given reduced traffic as a result of COVID-19 restrictions,
tightening of inventory by some retailers in the United States, and
a greater negative impact from the far-stronger U.S. dollar. We
anticipate sequential acceleration to strong organic sales and
adjusted EPS growth in the second half of our fiscal year as these
pressures begin to abate, momentum continues to build in other
areas of our business, and our ongoing investments in innovation
and advertising drive growth. Our optimism in the long-term growth
opportunities for our brands and for prestige beauty remains
intact. Reflecting our confidence, today we raised our quarterly
dividend.”
Business Update The COVID-19
pandemic continued to disrupt the Company’s operating environment
through the fiscal 2023 first quarter, including COVID-related
restrictions in China, affecting travel retail in Hainan as well as
retail traffic in mainland China. In Hainan, the ongoing
restrictions led to prolonged store closures and the curtailment of
travel and caused the tightening of inventory by certain retailers
who had previously placed orders in anticipation of the return of
travel that was since delayed.
During the quarter, the Company’s business was also negatively
impacted by inflationary pressures and recession concerns, which
caused certain retailers in the United States to tighten
inventory.
Fiscal 2023 First Quarter
Results Product category and geographic region net sales
commentary reflect organic performance.
Reconciliation between GAAP
and Non-GAAP Net Sales Growth
(Unaudited)
Three Months Ended September
30, 2022
As Reported - GAAP(1)
(11
)%
Organic, Non-GAAP(2)
(5
)%
Impact of the license terminations related
to certain of the Company’s designer fragrances
(1
)
Impact of foreign currency translation
(4
)
Returns associated with restructuring and
other activities
(1
)
As Reported - GAAP(1)
(11
)%
(1)Includes returns associated with
restructuring and other activities
(2)Organic net sales growth represents net
sales growth excluding returns associated with restructuring and
other activities; non-comparable impacts of acquisitions,
divestitures and brand closures (the license terminations related
to certain of the Company’s designer fragrances); as well as the
impact of foreign currency translation.
Adjusted diluted net earnings per common share excludes
restructuring and other charges and adjustments as detailed in the
following table.
Reconciliation between GAAP
and Non-GAAP - Diluted Net Earnings Per Share (“EPS”)
(Unaudited)
Three Months Ended
September 30
2022
2021
Growth
As Reported EPS - GAAP(1)
$
1.35
$
1.88
(28
)%
Non-GAAP
Restructuring and other charges
.02
.01
Adjusted EPS - Non-GAAP
$
1.37
$
1.89
(28
)%
Impact of foreign currency translation on
earnings per share
.06
Adjusted Constant Currency EPS -
Non-GAAP
$
1.43
$
1.89
(24
)%
(1)Includes restructuring and other
charges
Net sales and operating income in the Company’s product
categories and regions were unfavorably impacted by a stronger U.S.
dollar in relation to most currencies. Reported net sales was
negatively impacted by 4% of foreign currency translation, with
negative impacts in Asia/Pacific and Europe, the Middle East &
Africa of 8% and 4%, respectively. In addition, reported and
organic net sales was negatively impacted by 1% from foreign
currency transactions in key international travel retail locations,
with a negative impact in Europe, the Middle East & Africa of
2%.
Total reported operating income was $661 million, a 29% decrease
from $935 million in the prior-year period. In constant currency,
adjusted operating income decreased 26%, primarily reflecting lower
net sales, and excludes the unfavorable impact of foreign currency
translation of $31 million, as well as the impacts from
restructuring and other charges and the change in fair value of
DECIEM acquisition-related stock options.
Results by Product
Category
(Unaudited)
Three Months Ended September
30
Net Sales
Percentage Change
Operating Income
(Loss)
Percentage Change
($ in millions)
2022
2021
Reported Basis
Constant
Currency
2022
2021
Reported Basis
Skin Care
$
2,104
$
2,449
(14
)%
(11
)%
$
530
$
717
(26
)%
Makeup
1,052
1,174
(10
)
(6
)
16
91
(82
)
Fragrance
607
609
—
5
133
131
2
Hair Care
158
148
7
11
(12
)
2
(100
+)
Other
14
13
8
8
—
—
—
Subtotal
$
3,935
$
4,393
(10
)%
(6
)%
$
667
$
941
(29
)%
Returns/charges associated with
restructuring and other activities
(5
)
(1
)
(6
)
(6
)
Total
$
3,930
$
4,392
(11
)%
(7
)%
$
661
$
935
(29
)%
Organic Net Sales Growth -
Reconciliation to GAAP
(Unaudited)
Three Months Ended September
30
2022 vs. 2021
Organic Net Sales
Growth (Non-GAAP)(1)
Impact of Acquisitions,
Divestitures and Brand Closures, Net
Impact of Foreign Currency
Translation
Net Sales Growth
(GAAP)
Skin Care
(11
)%
—
%
(3
)%
(14
)%
Makeup
(6
)
—
(4
)
(10
)
Fragrance
18
(12
)
(6
)
—
Hair Care
11
—
(4
)
7
Other
8
—
—
8
Subtotal
(5
)%
(1
)%
(4
)%
(10
)%
Returns associated with restructuring and
other activities
(1
)
Total
(5
)%
(1
)%
(4
)%
(11
)%
(1)Organic net sales growth represents net
sales growth excluding returns associated with restructuring and
other activities; non-comparable impacts of acquisitions,
divestitures and brand closures (the license terminations related
to certain of the Company’s designer fragrances); as well as the
impact of foreign currency translation.
Skin Care
- Skin care net sales declined 11%, primarily reflecting the
impacts of the prolonged COVID-related restrictions in Hainan,
including the tightening of inventory by certain retailers, and in
mainland China. The tightening of inventory by certain retailers in
the United States also negatively impacted the category’s growth.
Net sales growth from La Mer, Bobbi Brown and The Ordinary was
offset by declines from Estée Lauder, Dr.Jart+ and Origins.
- Growth from La Mer reflected increases in hero products,
including the upgrade to The Treatment Lotion and Crème de la Mer,
and targeted expanded consumer reach.
- Bobbi Brown net sales grew double digits across every region,
driven by increases in hero products, including Soothing Cleansing
Oil and Vitamin Enriched Face Base, and targeted expanded consumer
reach.
- Hero products drove net sales growth from The Ordinary.
- Net sales from Estée Lauder, Dr.Jart+ and Origins declined,
reflecting challenges due to the COVID-related restrictions in
China, including those impacting travel retail. Strong innovation
from Estée Lauder, including the launches of Re-Nutriv Ultimate
Diamond Transformative Brilliance Serum and the new Advanced Night
Repair Eye Supercharged Gel-Creme Synchronized Multi-Recovery Eye
Cream, partially offset the decline in net sales.
- Skin care operating income decreased, reflecting the decline in
net sales, partially offset by disciplined expense management.
Makeup
- Makeup net sales decreased 6%, primarily reflecting the ongoing
COVID-related restrictions impacting travel retail in Hainan and
mainland China, partially offset by the progression of the makeup
renaissance as usage occasions increased in many markets. The
decline in net sales also reflected a difficult comparison due to
the timing of shipments in the prior-year period when certain
retailers secured earlier shipments for holiday. Net sales growth
from M·A·C was offset by declines from Estée Lauder and Tom Ford
Beauty.
- M·A·C high single-digit net sales growth was driven by hero
products, such as Studio Fix foundation and Matte Lipstick, the
recent launches of M·A·CStack mascara and Powder Kiss Velvet Blur
Slim Stick lipstick, and the recovery in brick-and-mortar, as the
brand’s high-touch services drove conversion.
- Net sales from Estée Lauder and Tom Ford Beauty were negatively
impacted by the decline in retail traffic and travel due to the
COVID-related restrictions.
- Net sales grew strong double digits in both Southeast Asia and
in the emerging markets in Europe, the Middle East &
Africa.
- Makeup operating income decreased, primarily reflecting lower
net sales, partially offset by disciplined expense management.
Fragrance
- Net sales grew in every region and across all brands that sell
fragrances, driven by continued desirability of the Company’s
luxury and artisanal fragrance portfolio and strategic expansion of
freestanding stores. The Company achieved strong growth despite
global supply constraints, particularly of glass.
- The license terminations related to certain of the Company’s
designer fragrances was dilutive to reported net sales growth by
approximately 12 percentage points.
- Tom Ford Beauty net sales grew strong double digits, powered by
launches, such as Noir Extreme Parfum and Ebene Fume, as well as
organic growth in existing hero franchises like Oud Wood and Ombre
Leather.
- Jo Malone London net sales grew high single digits primarily
driven by strength in colognes, particularly in hero franchises, as
well as strength in home and bath & body. The Night Collection
and the fiscal 2022 Brit Collection also contributed to
growth.
- Net sales from Le Labo rose strong double digits, primarily
reflecting growth in brick-and-mortar, and targeted expanded
consumer reach. Growth was driven by hero fragrances, such as
Santal 33, as well as the annual City Exclusives collection.
- Increased productive distribution in select retailers and the
success of the Clinique Happy franchise line of products drove
double-digit growth from the brand.
- Fragrance operating income increased, driven primarily by
disciplined expense management.
Hair Care
- Hair care net sales rose 11%, reflecting growth in every region
and brand.
- Aveda’s net sales growth reflected strength in Europe, the
Middle East & Africa, the launch of the brand in mainland
China, the continued success of its hero franchises, including
Botanical Repair, and the launch of the Color Control franchise
line of products.
- Net sales from DECIEM benefited from the recent launch of The
Ordinary’s hair care products.
- Hair care operating results decreased, reflecting strategic
investments to support innovation, partially offset by higher net
sales.
Results by Geographic
Region
(Unaudited)
Three Months Ended September
30
Net Sales
Percentage Change
Operating Income
(Loss)
Percentage
Change
($ in millions)
2022
2021
Reported Basis
Constant
Currency
2022
2021
Reported
Basis
The Americas
$
1,123
$
1,194
(6
)%
(7
)%
$
125
$
254
(51
)%
Europe, the Middle East & Africa
1,682
1,873
(10
)
(6
)
334
465
(28
)
Asia/Pacific
1,130
1,326
(15
)
(7
)
208
222
(6
)
Subtotal
$
3,935
$
4,393
(10
)%
(6
)%
$
667
$
941
(29
)%
Returns/charges associated with
restructuring and
other activities
(5
)
(1
)
(6
)
(6
)
Total
$
3,930
$
4,392
(11
)%
(7
)%
$
661
$
935
(29
)%
Organic Net Sales Growth -
Reconciliation to GAAP
(Unaudited)
Three Months Ended September
30 2022 vs. 2021
Organic Net Sales
Growth (Non-GAAP)(1)
Impact of Acquisitions,
Divestitures and Brand Closures, Net
Impact of Foreign Currency
Translation
Net Sales Growth
(GAAP)
The Americas
(3
)%
(4
)%
1
%
(6
)%
Europe, the Middle East & Africa
(5
)
(1
)
(4
)
(10
)
Asia/Pacific
(7
)
—
(8
)
(15
)
Subtotal
(5
)%
(1
)%
(4
)%
(10
)%
Returns associated with restructuring and
other activities
(1
)
Total
(5
)%
(1
)%
(4
)%
(11
)%
(1)Organic net sales growth represents net
sales growth excluding returns associated with restructuring and
other activities; non-comparable impacts of acquisitions,
divestitures and brand closures (the license terminations related
to certain of the Company’s designer fragrances); as well as the
impact of foreign currency translation.
The Americas
- Net sales declined 3%, driven by a difficult comparison to the
prior-year period when some retailers in the United States secured
orders earlier for holiday due to global logistics constraints, as
well as the negative impact in the current year from tighter
inventory management by certain retailers.
- The license terminations related to certain of the Company’s
designer fragrances contributed approximately 4 percentage points
to the decline in reported net sales.
- In Latin America, net sales grew double digits, fueled by
growth in the Makeup category.
- Operating income in The Americas decreased, reflecting the
decline in net sales while the Company continued to support
strategic investments in advertising and promotional
activities.
Europe, the Middle East &
Africa
- Net sales declined 5%, primarily due to the continued
challenges from the COVID-related restrictions affecting travel
retail in Hainan.
- The license terminations related to certain of the Company’s
designer fragrances contributed approximately 1 percentage point to
the decline in reported net sales.
- Double-digit net sales growth from DECIEM drove the increase in
net sales in the United Kingdom.
- Net sales from most emerging markets in the region increased,
led by India, the Middle East and Turkey, driven by growth in the
makeup category. Developed markets also grew, led by Spain, Italy
and Germany.
- Global travel retail net sales decreased double digits,
reflecting the ongoing travel restrictions in China that led to
reduced travel, particularly to Hainan. Travel retail net sales
grew in Europe, the Middle East & Africa and The Americas,
benefiting from increased resumption of professional and personal
travel compared to the prior-year period.
- Operating income decreased, driven by the decline in net sales,
partially offset by disciplined expense management.
Asia/Pacific
- Net sales declined, due to the ongoing COVID-related
restrictions impacting brick-and-mortar in Greater China and
Dr.Jart+ travel retail in Korea.
- In other markets in Asia/Pacific, COVID recovery drove strong
net sales growth in most countries, led by Thailand, Malaysia and
Japan. In Korea, double-digit growth from nearly all brands was
more than offset by the decline from Dr.Jart+’s travel retail
business.
- Net sales declined in skin care and makeup, reflecting the
ongoing COVID-19 restrictions, and were only partly offset by net
sales growth from fragrance and hair care in the region.
- Operating income decreased, driven by the decline in net sales,
partially offset by disciplined expense management.
Cash Flows
- For the three months ended September 30, 2022, net cash flows
used for operating activities were $650 million, compared with $81
million in the prior-year period. This reflects higher working
capital, primarily accounts payable, due to the timing of payments,
and higher inventory levels, as well as lower earnings before
taxes, excluding non-cash items.
- Capital Expenditures decreased to $152 million compared to $205
million last year, primarily reflecting timing of investments and
favorable foreign currency translation relating to the new
manufacturing facility in Japan.
- The Company ended the quarter with $2.94 billion in cash and
cash equivalents after returning $0.33 billion cash to stockholders
through dividends and share repurchases.
Outlook for Fiscal 2023 Second Quarter
and Full Year The Company expects the remainder of the
fiscal year to be pressured by the temporary disruptions due to
headwinds from the COVID-19 restrictions in China, the
strengthening of the U.S. dollar, record-high inflation, supply
chain disruptions, and the risk of a slowdown in certain markets
globally. The Company remains optimistic about the prospects and
future growth in global prestige beauty and plans to invest in its
business during this difficult environment to support share gains
and long-term growth. With multiple engines of growth across
regions, brands, product categories and channels, the Company is
well-positioned to drive diversified growth across its portfolio as
it manages through these challenges.
The full year outlook reflects the following assumptions and
expectations:
- Ongoing tightening of inventory by certain of our retailers in
Asia travel retail and in the United States.
- A more tempered expectation on the timing of traffic recovery
in travel retail in Hainan to the second half of the fiscal
year.
- Increased productive distribution throughout the year to
retailers that provide new consumer reach and continued strategic
entry into new countries for some of our brands.
- The mitigation of most inflationary pressures through strategic
price increases, mix optimization and cost savings in other
areas.
- Incremental savings from the Post-COVID Business Acceleration
Program and reinvestment in advertising and capabilities.
- Full-year effective tax rate of approximately 25%.
The Company is mindful of ongoing risks related to the COVID-19
pandemic as well as risks related to the effects of the global
macro environment, including the risk of recession; foreign
currency volatility; increasing inflationary pressures; supply
chain disruptions; social and political issues; regulatory matters,
including the imposition of tariffs and sanctions; geopolitical
tensions; and global security issues. The Company is also mindful
of inflationary pressures on our cost base and consumer
behaviors.
Second Quarter Fiscal
2023
Sales Outlook
- Reported net sales are forecasted to decrease between 19% and
17% versus the prior-year period. This range includes the negative
impacts from tighter inventory management in travel retail in
response to the decreased traffic driven by COVID-related
restrictions, foreign currency translation of 7% as well as an
additional unfavorable impact from certain foreign currency
transactions in key international travel retail locations of 2%,
and the termination of the Company’s license agreements for the
Donna Karan New York, DKNY, Michael Kors, Tommy Hilfiger and
Ermenegildo Zegna product lines effective June 30, 2022.
- Organic net sales, which excludes returns associated with
restructuring and other activities; non-comparable impacts from
acquisitions, divestitures and brand closures; as well as the
impact of foreign currency translation, are forecasted to decrease
between 11% and 9%. This includes the negative impact related to
foreign currency transactions, noted above.
Earnings per Share Outlook Despite
the forecasted decrease in net sales, the Company plans to continue
to make strategic investments to drive long-term growth, including
investments in advertising, innovation, its innovation center in
Shanghai and its manufacturing facility in Japan. These investments
will have a greater impact to diluted net earnings per common share
due to the expected decline in net sales.
- Reported diluted net earnings per common share are projected to
be between $1.14 and $1.26. Excluding restructuring and other
charges, diluted net earnings per common share are projected to be
between $1.19 and $1.29.
- Adjusted diluted earnings per common share are expected to
decrease between 54% and 50% on a constant currency basis. Currency
exchange rates are volatile and difficult to predict. Using
mid-October 2022 spot rates for the second quarter of fiscal 2023:
- The negative foreign currency translation impact equates to
about $.20 of diluted earnings per share.
- The impact from certain foreign currency transactions in key
international travel retail locations, which is included in the
constant currency decline of 54% to 50%, is expected to negatively
impact adjusted diluted earnings per common share growth by
7%.
Full Year Fiscal 2023
The Company expects its first-half results to be negatively
impacted by the ongoing challenges from the COVID-related
restrictions affecting Asia travel retail, including tightening of
retailer inventory, and mainland China. The Company also expects
the tightening of inventory in the United States to negatively
impact its first-half results. For the second half, the Company
expects sequential improvement to its results and a gradual
recovery as restrictions are lifted, travel resumes to Hainan and
the tightening of inventory subsides.
Sales Outlook
- Reported net sales are forecasted to decrease between 8% and 6%
versus the prior-year period. This range includes:
- Tighter inventory management in travel retail in response to
the decreased traffic driven by COVID-related restrictions.
- A negative 6% due to foreign currency translation, as well as
an additional 2% due to certain foreign currency transactions in
key international travel retail locations.
- The negative impact of 1% from the termination of the Company’s
license agreements for the Donna Karan New York, DKNY, Michael
Kors, Tommy Hilfiger and Ermenegildo Zegna product lines effective
June 30, 2022.
- A negative impact of 1% related to returns associated with
restructuring and other activities.
- Organic net sales, which excludes returns associated with
restructuring and other activities; non-comparable impacts from
acquisitions, divestitures and brand closures; as well as the
impact of foreign currency translation, are forecasted to be flat
to increase by 2%. This includes the negative impact related to
foreign currency transactions, noted above.
Earnings per Share Outlook Despite
the forecasted decrease in net sales, the Company plans to continue
to make strategic investments to drive long-term growth, including
investments in advertising, innovation, its innovation center in
Shanghai and its manufacturing facility in Japan. These investments
will have a greater impact to diluted net earnings per common share
due to the expected decline in net sales.
- Reported diluted net earnings per common share are projected to
be between $5.01 and $5.21. Excluding restructuring and other
charges, diluted net earnings per common share are projected to be
between $5.25 and $5.40.
- Adjusted diluted earnings per common share are expected to
decrease between 21% and 19% on a constant currency basis. Currency
exchange rates are volatile and difficult to predict. Using
mid-October 2022 spot rates for fiscal 2023:
- The negative foreign currency translation impact equates to
about $.44 of diluted earnings per share.
- The impact from certain foreign currency transactions in key
international travel retail locations, which is included in the
constant currency decline of 21% to 19%, is expected to negatively
impact adjusted diluted earnings per common share growth by
10%.
Reconciliation between GAAP
and Non-GAAP - Net Sales Growth
(Unaudited)
Three Months Ending
Twelve Months Ending
December 31, 2022(F)
June 30, 2023(F)
As Reported - GAAP(1)
(19%) - (17
%)
(8%) - (6
%)
Organic, Non-GAAP(2)
(11%) - (9
%)
0% - 2
%
Impact of the license terminations related
to certain of our designer
fragrances
(1
)
(1
)
Impact of foreign currency translation
(7
)
(6
)
Returns associated with restructuring and
other activities
—
(1
)
As Reported - GAAP(1)
(19%) - (17
%)
(8%) - (6
%)
(1)Includes returns associated with
restructuring and other activities
(2)Organic net sales growth represents net
sales growth excluding returns associated with restructuring and
other activities; non-comparable impacts of already announced
acquisitions, divestitures and brand closures (the license
terminations related to certain of our designer fragrances); as
well as the impact of foreign currency translation.
(F)Represents forecast
Reconciliation between GAAP
and Non-GAAP - Diluted Net Earnings Per Share (“EPS”)
(Unaudited)
Three Months Ending
Twelve Months Ending
December 31
June 30
2022(F)
2021
Growth
2023(F)
2022
Variance
Forecasted/As Reported EPS -
GAAP(1)
$1.14 - $1.26
$
2.97
(62%) - (58%)
$5.01 - $5.21
$
6.55
(23%) - (20%)
Non-GAAP
Restructuring and other charges
.03 - .05
.03
.19 - .24
.31
Change in fair value of
acquisition-related stock
options (less the portion attributable
to
redeemable noncontrolling interest)
—
.01
—
(.12
)
Goodwill, other intangible and long-lived
asset
impairments
—
—
—
.50
Forecasted/Adjusted EPS -
Non-GAAP
$1.19- $1.29
$
3.01
(60%) - (57%)
$5.25 - $5.40
$
7.24
(27%) - (25%)
Impact of foreign currency translation
.20
.44
Forecasted/Adjusted Constant Currency
EPS -
Non-GAAP
$1.39 - $1.49
$
3.01
(54%) - (50%)
$5.69 - $5.84
$
7.24
(21%) - (19%)
(1)Includes restructuring and other
charges and adjustments
(F)Represents forecast
Conference Call The Estée
Lauder Companies will host a conference call at 9:30 a.m. (ET)
today, November 2, 2022 to discuss its results. The dial-in
number for the call is 877-883-0383 in the U.S. or 412-902-6506
internationally (conference ID number: 2490710). The call will also
be webcast live at
http://www.elcompanies.com/investors/events-and-presentations.
Cautionary Note Regarding
Forward-Looking Statements Statements in this press
release, in particular those in “Outlook,” as well as remarks by
the CEO and other members of management, may constitute
forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. Such statements may
address our expectations regarding sales, earnings or other future
financial performance and liquidity, other performance measures,
product introductions, entry into new geographic regions,
information technology initiatives, new methods of sale, our
long-term strategy, restructuring and other charges and resulting
cost savings, and future operations or operating results. These
statements may contain words like “expect,” “will,” “will likely
result,” “would,” “believe,” “estimate,” “planned,” “plans,”
“intends,” “may,” “should,” “could,” “anticipate,” “estimate,”
“project,” “projected,” “forecast,” and “forecasted” or similar
expressions.
Factors that could cause actual results to differ materially
from our forward-looking statements include the following:
(1)
increased competitive activity from
companies in the skin care, makeup, fragrance and hair care
businesses;
(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 the Company’s
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,
an increase in the ownership concentration within the retail
industry, ownership of retailers by the Company’s competitors or
ownership of competitors by the Company’s customers that are
retailers and our inability to collect receivables;
(4)
destocking and tighter working capital
management by retailers;
(5)
the success, or changes in timing or
scope, of new product launches and the success, or changes in
timing or scope, of advertising, sampling and merchandising
programs;
(6)
shifts in the preferences of consumers as
to where and how they shop;
(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 interpretations and enforcement thereof)
that affect, or will affect, the Company’s business, including
those relating to its products or distribution networks, changes in
accounting standards, tax laws and regulations, environmental or
climate change laws, regulations or accords, 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 volatility in the global credit and equity
markets, natural or man-made disasters, real or perceived
epidemics, supply chain challenges, inflation, or increased 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, suppliers or other contract counterparties, the
Company’s operations, the cost and availability of capital which
the Company may need for new equipment, facilities or acquisitions,
the returns that the Company is able to generate on its pension
assets and the resulting impact on funding obligations, the cost
and availability of raw materials and the assumptions underlying
the Company’s critical accounting estimates;
(11)
impacts attributable to the COVID-19
pandemic, including disruptions to our global business;
(12)
shipment delays, commodity pricing,
depletion of inventory and increased production costs resulting
from disruptions of operations at any of the facilities that
manufacture the Company’s products or at the Company’s distribution
or inventory centers, including disruptions that may be caused by
the implementation of information technology initiatives, or by
restructurings;
(13)
real estate rates and availability, which
may affect the Company’s ability to increase or maintain the number
of retail locations at which the Company sells its products and the
costs associated with the Company’s other facilities;
(14)
changes in product mix to products which
are less profitable;
(15)
the Company’s ability to acquire, develop
or implement new information and distribution technologies and
initiatives on a timely basis and within the Company’s cost
estimates and the Company’s ability to maintain continuous
operations of such systems and the security of data and other
information that may be stored in such systems or other systems or
media;
(16)
the Company’s ability to capitalize on
opportunities for improved efficiency, such as publicly-announced
strategies and restructuring and cost-savings initiatives, and to
integrate acquired businesses and realize value therefrom;
(17)
consequences attributable to local or
international conflicts around the world, as well as from any
terrorist action, retaliation and the threat of further action or
retaliation;
(18)
the timing and impact of acquisitions,
investments and divestitures; and
(19)
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, 2022.
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, marketers and sellers of quality skin care, makeup,
fragrance and hair care products. The Company’s products are sold
in approximately 150 countries and territories under brand names
including: Estée Lauder, Aramis, Clinique, Lab Series, Origins,
M·A·C, La Mer, Bobbi Brown, Aveda, Jo Malone London, Bumble and
bumble, Darphin Paris, TOM FORD BEAUTY, Smashbox, AERIN Beauty, Le
Labo, Editions de Parfums Frédéric Malle, GLAMGLOW, KILIAN PARIS,
Too Faced, Dr.Jart+, and the DECIEM family of brands, including The
Ordinary and NIOD.
ELC-F ELC-E
CONSOLIDATED STATEMENT OF
EARNINGS
(Unaudited)
Three Months Ended
September 30
Percentage Change
($ in millions, except per share data)
2022
2021
Net sales(A)
$
3,930
$
4,392
(11
)%
Cost of sales(A)
1,023
1,057
(3
)
Gross profit
2,907
3,335
(13
)
Gross margin
74.0
%
75.9
%
Operating expenses
Selling, general and administrative(B)
2,244
2,394
(6
)
Restructuring and other charges(A)
2
6
(67
)
Total operating expenses
2,246
2,400
(6
)
Operating expense margin
57.2
%
54.6
%
Operating income
661
935
(29
)
Operating income margin
16.8
%
21.3
%
Interest expense
46
42
10
Interest income and investment income,
net
15
4
100
+
Other components of net periodic benefit
cost
(3
)
1
(100
+)
Other income
—
1
(100
)
Earnings before income taxes
633
897
(29
)
Provision for income taxes
143
202
(29
)
Net earnings
490
695
(29
)
Net earnings attributable to
noncontrolling interests
—
(1
)
100
Net earnings attributable to redeemable
noncontrolling interest
(1
)
(2
)
50
Net earnings attributable to The Estée
Lauder Companies Inc.
$
489
$
692
(29
)%
Net earnings attributable to The Estée
Lauder Companies Inc. per common share
Basic
$
1.37
$
1.91
(29
)%
Diluted
$
1.35
$
1.88
(28
)%
Weighted-average common shares
outstanding
Basic
357.9
362.2
Diluted
361.4
367.9
(A)In August 2020, the Company announced a
two-year restructuring program, Post-COVID Business Acceleration
Program (the “PCBA Program”), designed to realign its business to
address the dramatic shifts to its distribution landscape and
consumer behaviors in the wake of the COVID-19 pandemic. The PCBA
Program will help improve efficiency and effectiveness by
rebalancing resources to growth areas of prestige beauty. It is
expected to further strengthen the Company by building upon the
foundational capabilities in which the Company has invested. The
PCBA Program’s main areas of focus include accelerating the shift
to online with the realignment of the Company’s distribution
network reflecting freestanding store and certain department store
closures, with a focus on North America and Europe, the Middle East
& Africa; the reduction in brick-and-mortar point of sale
employees and related support staff; and the redesign of the
Company’s regional branded marketing organizations, plus select
opportunities in global brands and functions. This program is
expected to position the Company to better execute its long-term
strategy while strengthening its financial flexibility. The Company
approved specific initiatives under the PCBA Program through fiscal
2022 and expects to substantially complete those initiatives
through fiscal 2023. The Company expects that the PCBA Program will
result in related restructuring and other charges totaling between
$500 million and $515 million, before taxes.
(B)For the three months ended September
30, 2022, the Company recorded $1 million ($1 million, less the
portion attributable to redeemable noncontrolling interest and net
of tax), of income related to the change in fair value of
acquisition-related stock options related to DECIEM.
Returns and Charges Associated
With Restructuring and Other Activities and Other
Adjustments
(Unaudited)
Three Months Ended September
30, 2022
Sales Returns
Cost of Sales
Operating Expenses
Total
After Redeemable
Noncontrolling Interest and Tax
Diluted EPS
(In millions, except per share data)
Restructuring
Charges
Other Charges/
Adjustments
PCBA Program
5
(1
)
2
—
6
4
.02
Change in fair value of
acquisition-related stock
options
—
—
—
1
1
1
—
Total
$
5
$
(1
)
$
2
$
1
$
7
$
5
$
.02
Three Months Ended September
30, 2021
Sales Returns
Cost of Sales
Operating Expenses
Total
After Tax
Diluted EPS
(In millions, except per share data)
Restructuring
Charges
Other Charges/
Adjustments
Leading Beauty Forward
$
—
$
—
$
1
$
3
$
4
$
3
$
.01
PCBA Program
1
(1
)
—
2
2
2
—
Total
$
1
$
(1
)
$
1
$
5
$
6
$
5
$
.01
This earnings release includes some non-GAAP financial measures
relating to charges associated with restructuring and other
activities and adjustments, as well as organic net sales. Included
herein are reconciliations between the non-GAAP financial measures
and the most directly comparable GAAP measures for certain
consolidated statements of earnings accounts before and after these
items. The Company uses certain non-GAAP financial measures, among
other financial measures, to evaluate its operating performance,
which represent the way the Company conducts and views its
business. Management believes that excluding certain items that are
not comparable from period-to-period, or do not reflect the
Company’s underlying ongoing business, provides transparency for
such items and helps investors and others compare and analyze
operating performance from period-to-period. In the future, the
Company expects to incur charges or make adjustments similar in
nature to those presented herein; however, the impact to the
Company’s results in a given period may be highly variable and
difficult to predict. Our non-GAAP financial measures may not be
comparable to similarly titled measures used by, or determined in a
manner consistent with, other companies. While the Company
considers the non-GAAP measures useful in analyzing its results,
they are not intended to replace, or act as a substitute for, any
presentation included in the consolidated financial statements
prepared in conformity with GAAP.
The Company operates on a global basis, with the majority of its
net sales generated outside the United States. Accordingly,
fluctuations in foreign currency exchange rates can affect the
Company’s results of operations. Therefore, the Company presents
certain net sales, operating results and diluted earnings per share
information excluding the effect of foreign currency rate
fluctuations to provide a framework for assessing the performance
of its underlying business outside the United States. Constant
currency information compares results between periods as if
exchange rates had remained constant period-over-period. The
Company calculates constant currency information by translating
current-period results using prior-year period monthly average
foreign currency exchange rates and adjusting for the
period-over-period impact of foreign currency cash flow hedging
activities.
Reconciliation of Certain
Consolidated Statements of Earnings Accounts
Before and After Returns,
Charges and Other Adjustments
(Unaudited)
Three Months Ended September
30
2022
2021
% Change
($ in millions, except per share data)
As Reported
Returns/ Charges/
Adjustments
Non- GAAP
Impact of Foreign Currency
Translation
Non- GAAP, Constant
Currency
As Reported
Returns/ Charges/
Adjustments
Non- GAAP
Non- GAAP
Non- GAAP, Constant
Currency
Net sales
$
3,930
$
5
$
3,935
$
176
$
4,111
$
4,392
$
1
$
4,393
(10
)%
(6
)%
Cost of sales
1,023
1
1,024
30
1,054
1,057
1
1,058
Gross profit
2,907
4
2,911
146
3,057
3,335
—
3,335
(13
)%
(8
)%
Gross margin
74.0
%
74.0
%
74.4
%
75.9
%
75.9
%
Operating expenses
2,246
(3
)
2,243
115
2,358
2,400
(6
)
2,394
(6
)%
(2
)%
Operating expense
margin
57.2
%
57.0
%
57.4
%
54.6
%
54.5
%
Operating income
661
7
668
31
699
935
6
941
(29
)%
(26
)%
Operating income
margin
16.8
%
17.0
%
17.0
%
21.3
%
21.4
%
Provision for income
taxes
143
2
145
7
152
202
1
203
(29
)%
(25
)%
Net earnings
attributable to The
Estée Lauder
Companies Inc.
$
489
$
5
$
494
$
24
$
518
$
692
$
4
$
696
(29
)%
(26
)%
Diluted EPS
$
1.35
$
.02
$
1.37
$
.06
$
1.43
$
1.88
$
.01
$
1.89
(28
)%
(24
)%
CONDENSED CONSOLIDATED BALANCE
SHEETS
(Unaudited, except where
noted)
September 30, 2022
June 30, 2022
September 30, 2021
($ in millions)
(Audited)
ASSETS
Cash and cash equivalents
$
2,938
$
3,957
$
3,995
Accounts receivable, net
2,156
1,629
2,265
Inventory and promotional merchandise
3,018
2,920
2,633
Prepaid expenses and other current
assets
754
792
593
Total current assets
8,866
9,298
9,486
Property, plant and equipment, net
2,654
2,650
2,358
Operating lease right-of-use assets
1,858
1,949
2,113
Other assets
6,611
7,013
7,623
Total assets
$
19,989
$
20,910
$
21,580
LIABILITIES AND EQUITY
Current debt
$
266
$
268
$
281
Accounts payable
1,392
1,822
1,485
Operating lease liabilities
340
365
371
Other accrued liabilities
3,273
3,360
3,182
Total current liabilities
5,271
5,815
5,319
Long-term debt
5,107
5,144
5,267
Long-term operating lease liabilities
1,781
1,868
2,073
Other noncurrent liabilities
1,505
1,651
1,964
Total noncurrent liabilities
8,393
8,663
9,304
Redeemable noncontrolling
interest
808
842
842
Total equity
5,517
5,590
6,115
Total liabilities and equity
$
19,989
$
20,910
$
21,580
SELECT CASH FLOW DATA
(Unaudited)
Three Months Ended September
30
($ in millions)
2022
2021
Net earnings
$
490
$
695
Adjustments to reconcile net earnings to
net cash flows from operating
activities:
Depreciation and amortization
178
183
Deferred income taxes
(53
)
(57
)
Other items
69
94
Changes in operating assets and
liabilities:
Increase in accounts receivable, net
(579
)
(583
)
Increase in inventory and promotional
merchandise
(229
)
(178
)
Decrease (increase) in other assets,
net
3
(19
)
Decrease in accounts payable and other
liabilities, net
(529
)
(216
)
Net cash flows used for operating
activities
$
(650
)
$
(81
)
Other Investing and Financing Sources
(Uses):
Capital expenditures
$
(152
)
$
(205
)
Settlement of net investment hedges
138
58
Payments to acquire treasury stock
(110
)
(557
)
Dividends paid
(215
)
(192
)
Proceeds from current debt, net
249
3
Repayments and redemptions of long-term
debt, net
(254
)
(4
)
View source
version on businesswire.com: https://www.businesswire.com/news/home/20221102005035/en/
Investors: Rainey Mancini rmancini@estee.com
Media: Jill Marvin jimarvin@estee.com
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