The Estée Lauder Companies Inc F3Q10 (Qtr End 3/31/10) Earnings Call Transcript

The Estée Lauder Companies Inc F3Q10 (Qtr End 3/31/10) Earnings Call Transcript
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The Estée Lauder Companies Inc (EL)

F3Q10 (Qtr End 3/31/10) Earnings Call

April 27, 2010 9:30 am ET

Executives

Dennis D'Andrea - VP of IR

Fabrizio Freda - President and CEO

Rick Kunes - EVP and CFO

Cedric Prouve - Group President - International

Analysts

William Schmitz - Deutsche Bank

Alice Longley - Buckingham Research

Andrew Sawyer - Goldman Sachs

Ali Dibadj - Sanford Bernstein & Company

Lauren Lieberman - Barclays

Wendy Nicholson - Citi Investment Research

Linda Bolton-Weiser - Caris & Company

Mark Astrachan - Stifel Nicolaus

Connie Maneaty - BMO Capital Markets

Victoria Collin - Atlantic Equities

Chris Ferrara - Bank of America-Merrill Lynch

Presentation

Operator

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Welcome to The Estée Lauder Companies Fiscal 2010 Third 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. We have on today’s call Fabrizio Freda, President and Chief Executive Officer; and Rick Kunes, Executive Vice President and Chief Financial Officer. Also on the call is Cedric Prouve, Group President - International. Cedric has responsibility for our business outside the United States and Canada representing more than half of the company’s sales.

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. You can also find a reconciliation between GAAP and non-GAAP figures in our press release and in the Investor Section of our web site.

I'll turn the call over to Fabrizio.

Fabrizio Freda

Thank you Dennis. Good morning. I am pleased you had joined us for our fiscal 2010 third quarter earnings call. In our discussion today, I will review our performance and progress on our strategy. Cedric will talk about the company international business and Rick will follow-up with financial details.

This morning we again announced strong results with solid sales gains and greater profitability. Third quarter sales were $1.86 billion, up 10% compared to the same period a year ago, with improvements in all regions and categories.

Diluted earnings per share were $0.34, more than double last year's results before restructuring charges.

I am also gratified that we continued advancing in many of our strategic goals. Let me give you some highlights; first, we believe that retail sales of our products grew at a faster pace than Prestige beauty trends in many critical countries and channels, which means that we increased share.

Excluding Prescriptives, we saw gains in US department store, as well as Russia and China among others. Our international business expanded more rapidly than our domestic business and we are approaching our target of generating more than 60% of sales outside our home market.

Our operating margin widened the gain, moving as closer to our long-range goal of 12% to 15%. Our Turnaround brands collectively showed continue improvement in operating results this quarter and we made additional progress in our cost savings initiatives.

In each of our three quarters, so far this fiscal year, we met or exceeded our sales and earnings estimates and successfully moved ahead of our strategic journey.

All of our employees should be extremely proud of these accomplishments, which are the results of their hard work and creativity and I want to thank them for their efforts.

Now let me turn to some of the specific areas that drove our growth this quarter. Our international business provided the greatest momentum. Asia Pacific remain robust led by strong gains in Greater China.

Sales in our European region climbed driven by travel retail Russia and the Middle East. Our strategy is to continue emphasis on our regions, which has enabled us to be more locally-relevant and accelerate our growth.

Estée Lauder brand enjoyed solid growth internationally in the quarter particularly in Asia-Pacific and travel retailing led by skin care sales.

Estée Lauder is the leading Prestige brand in Asia in our distribution. One of the most exciting developments in our foreign markets this quarter was the launch for our Origins brand in mainland China. The brand highly successful repositioning powered by nature proven by science has been directed by Senior Vice President and Origin General Manager, Jane Lauder.

She led the kick-off at the Parkson Department Store in Shanghai, joined by Executive Chairman William Lauder one of the founders of Origins 20 years ago and other company executives and local celebrities. Cedric will give you more details about our international business in a few minutes, so, now I want to discuss other areas that drove our sales.

Clinique skin care sales grew over 11% at retail, thanks to strong launch activity and gained share in the US department stores. Clinique is the largest US cosmetic brand, so when a brand of its size gained share it is an impressive feat.

We were confident by the fact that US retail sales jumped strongly in March led by upscale department stores, which points to a possible initial recovery in consumer spending.

We are working closely with our large retail partners to create innovative shopping experiences in department stores. For example, we are refining our High-Touch services from education through post purchase. We are also leveraging in-store services differentiating by store size to better serve the needs of our consumer and improved profitability.

Our e-commerce business grew 25% with most of our brand sites reporting double-digit growth. Retailer side in North America also posted solid sales gain. In addition, we expanded our global web presence, Clinique launched online sales in Germany and M.A.C started e-commerce and mobile commerce in Japan.

Bobbi Brown will follow with both types of online shopping in Japan next month. As you know, one of our key mission is to build up on our global leadership position in skin care. This universal focus across our brands is reflected in our results.

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