Estee Lauder Companies Inc. (EL) posted third-quarter fiscal 2014 earnings of 54 cents per share (excluding restructuring charges) which was within management’s guidance range of 52 to 55 cents. Earnings surpassed prior-year results by 20%. Earnings, however, missed the Zacks Consensus Estimate by a penny.
Results included impact of charges, principally related to the Venezuela remeasurement of exchange rate. Excluding the effect of the remeasurement, Estee Lauder reported earnings per share of 64 cents, up 42.2% from prior–year quarter’s results.
Quarter in Detail
Excluding the impact of one-time restructuring activities, the Venezuela remeasurement charge and shift of sales orders from the third quarter of fiscal 2013 to the second, net sales went up 8% to $2.5 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 Skincare category was strongest with 13% growth benefiting from strong growth from the company’s makeup artist brands. Fragrance product line followed with 16% growth over the year-ago quarter. Makeup category came next with year-over-year growth of 11%. Hair Care reported only 5% growth year over year. Other products, contributing less than 1% to total revenue, registered the maximum growth of 32%.
Gross margin shrank 30 basis points (bps) to 80.4% in the third quarter of fiscal 2014 owing to higher cost of sales. Higher operating expenses led to operating income margin contraction of 300 bps to 67.0%.
Segment Details
Americas: Excluding the effect of shift of orders, sales in the Americas rose 5.0% on a constant currency basis to $1.1 billion. Sales increased on the back of growth in the company's makeup artist, luxury and certain heritage brands. Excluding the effect of shift of orders, operating income shot up 22% to $111.5 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 11% on a constant currency basis to $959.4 million. Operating income increased 11% to $160.2 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 2% on a local currency basis to $518.4 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 decreased 13% year over year to $70.1 due to soft results in Hong Kong and Philippines.
Other Financial Update
Estee Lauder has announced a dividend of 20 cents per share payable on Jun 16, 2014 to stockholders of record at the close of business on Mar 31.
Guidance for Fiscal 2014
Following better-than-expected results in the second quarter, for fiscal 2014, Estee Lauder raised it earnings per share outlook to a range of $2.86 to $2.90 compared with $2.80 to $2.87. Estee Lauder, however, reaffirmed its organic sales guidance to a range of 6–7%. Estee Lauder expects growth to be fuelled by success in high-growth channels and emerging markets.
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 #3 (Hold). Better-ranked stock in the cosmetics and toiletries sector includes Helen of Troy Limited (HELE), Coty Inc. (COTY). Both the stocks have a Zacks Rank #2 (Buy). Another stock in the retail sector worth considering is American Apparel, Inc. (APP) carrying the same Zacks Rank as Helen of Troy.
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