Estee Lauder Companies Inc. (EL) posted second-quarter fiscal 2014 earnings of $1.09 per share (excluding restructuring charges). The earnings exceeded the Zacks Consensus Estimate of $1.06 by 2.8% and management’s guidance of a range of 99 cents–$1.04.
However, earnings were down 6.0% from $1.16 reported in the prior-year quarter due to shift of orders from third-quarter fiscal 2013 to second-quarter 2013.
Quarter in Detail
Excluding the impact of one-time restructuring activities and shift of sales orders from the third quarter to second quarter of fiscal 2013, net sales went up 7% to $3.02 billion on the back of higher sales in most of the geographic regions and major product categories. However, quarterly sales were in line with the Zacks Consensus Estimate.
In the quarter under review, the Makeup category was strongest with 8% growth benefiting from strong growth from the company’s makeup artist brands. Fragrance product line followed with 4% growth over the year-ago quarter. Hair Care reported only 2% growth year over year. Skin Care’s net sales remained flat year over year. Other products, contributing less than 1% to total revenue, registered a maximum growth of 16%.
Gross margin inflated 10 basis points (bps) to 80.7% in the second quarter of fiscal 2014 owing to lower cost of sales. Lower selling, general & administrative expenses led to operating income margin expansion of 90 bps to 21.7%.
Segment Details
Americas: Sales in the Americas rose 8.0% to $1.2 billion. Sales increased on the back of growth in the company's makeup artist brands. Operating income shot up 40% to $152.2 million backed by increased sales and tight spending.
Europe, the Middle East & Africa: Double-digit growth in travel retail drove overall sales for this segment. Sales grew 8% on a constant currency basis to $1.2 billion. Operating income increased 6% to $332.4 million on the back of higher results from the company’s travel retail business, the United Kingdom, Russia, Israel and Iberia.
Asia/Pacific: Sales in the region improved 1% to $643.0 million, backed by double-digit sales growth in China, Hong Kong and Taiwan which was, however, partially offset by weak sales growth in Korea. Operating income remained flat year over year at $168.2 million as higher results in Korea and Australia were offset by lower results in China, Hong Kong and Taiwan.
Other Financial Update
EL has announced a dividend of 20 cents per share payable on Mar 17, 2014 to stockholders of record at the close of business on Feb 28, 2014.
Guidance for Fiscal 2014
Following better-than-expected results in the second quarter, for fiscal 2014, Estee Lauder reaffirmed it earnings per share outlook to the range of $2.80 to $2.87. EL, however, narrowed its sales guidance to a range of 6%–7% compared to previously announced range of 6%–8% in constant currency.
Guidance for Third-Quarter Fiscal 2014
For the third quarter of fiscal 2014, earnings per share excluding restructuring charges are projected in the range of 52 cents to 55 cents. Net sales are expected to increase between 10%–11% in constant currency, negatively impacted by foreign currency translation of 1%–2%. Estee Lauder expects to augment its advertising spend to back its product launches.
Other Stocks to Consider
Headquartered in New York, Estee Lauder engages in the manufacture and sale of skin care, makeup, fragrance and hair care products and currently carries a Zacks Rank #2 (Buy). Other stocks in the retail sector worth considering are Green Mountain Coffee Roasters Inc. (GMCR), Hain Celestial Inc. (HAIN) andSJM Smucker Inc. (SJM). All these stocks carry a Zacks Rank #2.
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