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Estée Lauder shrugged off worries about the struggling US prestige beauty sector when it posted Q4 and full-year 2019 earnings that beat analyst expectations. The New York-based beauty giant reported net sales of $3.59 billion in the three months to June 30, a 9 per cent increase on the year-ago period. Full-year turnover also increased by 9 per cent to $14.86 billion. Investors welcomed the results, sending Estée Lauder’s stock in New York up by about 10 per cent during Monday morning trading.
The company’s performance was built from sustained growth in the Asia-Pacific region, a robust travel retail channel and the strength of its prestige skincare flagships Estée Lauder and La Mer, said Estée Lauder president and chief executive Fabrizio Freda on a call with analysts. Every non-US region and category expanded, except fragrance, where sales dropped 1 per cent. Estée Lauder continues to forecast sales growth of between 7 and 8 per cent through mid-2020.
Estée Lauder managed to capitalise on customer spending shifting from cosmetics to skincare thanks to its diverse portfolio, which includes its namesake label, Tom Ford Beauty, and newcomers like Becca Cosmetics and Too Faced. Hero products like Estée Lauder’s Advanced Night Repair and La Mer’s Crème de La Mer allowed the company to cash in on strong demand, particularly in Asia. Both of its heritage brands reported sales of over $1 billion and double-digit growth, driving a 17 per cent sales increase for the skincare category. (Makeup revenues grew by 4 per cent globally.)
“The growth of skincare in Asia is here to stay for the long-term,” said Freda, commenting on the volatility of beauty trends. “Asian consumers are very heavy users of skincare; they are very interested in high-quality products and, most importantly, the Asian consumer who uses skincare is much younger… each consumer you conquer in Asia has a much higher life value than in other markets.”
Despite growing trade tensions between the US and China, the group gained market share in Asia’s largest economy last year and remains confident of double-digit growth off strong demographics, increased spending from young consumers and growing online penetration, which allows the company to reach shoppers in 650 cities. Estée Lauder is well-equipped to face the ongoing political volatility in Hong Kong, which represents less than 4 per cent of the company’s business, said Freda, adding that the company had refocused efforts on local consumers as opposed to tourists after protests in 2014.
Estée Lauder has been investing in data analytics to create locally relevant marketing initiatives and product launches. In the US, a bilingual campaign by Revitalizing Supreme+ aimed at Latinx consumers led to a 35 per cent jump in sales. Similar moves in China, India, the Middle East and Southeast Asia helped full-year revenues expand by over 30 per cent, the company said.
Increased investment in emerging markets also indirectly impacted the travel retail business, which constitutes 23 per cent of total sales, as consumers exposed to the brands at home are more inclined to look for the same brands when travelling. Pre-retail, or buying a product online and picking it up duty-free at an airport, could boost travel retail sales further, Freda said.
Sales in the Americas dropped by 5 per cent. Estée Lauder is flagging slight improvement for fiscal 2020 and Freda highlighted marketing progress at Clinique and 30 per cent sales growth at Too Faced thanks to the launch of Damn Girl as encouraging signs. The company will continue investing in speciality channels and specific subcategories relevant to the US but thinks the environment will continue to be soft.
“The issue is that we have 50 per cent of business in North America in a part of the market that is under pressure in terms of low traffic and decline in business,” said Freda.
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