Additionally, comparisons between the current and prior year third quarters were affected by the acceleration of $94 million in sales shifted into the Company’s fiscal 2013 second quarter in advance of the January 2013 implementation of SAP as part of its Strategic Modernization Initiative (SMI). This amounted to approximately $78 million in operating income, equal to approximately $.13 per diluted common share.

Excluding the impact of the shift, the Venezuela remeasurement charge and restructuring activities, net sales in local currency and operating income for the three months ended March 31, 2014 would have increased 8% and 18%, respectively. A reconciliation between GAAP and non-GAAP financial measures is included in this release.

“Our outlook for the balance of the year remains positive and we expect to achieve our financial objectives,” Mr. Freda said. “We continue to forecast local currency sales growth of 6% to 7%, and we are raising our earnings per share guidance to $2.86 to $2.90, before charges and the effect of potential accelerated sales orders relating to our SMI go-live in July 2014. Driving this performance will be new and recent product offerings across categories, particularly in skin care and makeup. For the remainder of the fiscal year we also expect our growth will continue to be fueled by our success in high-growth channels and emerging markets, while enhancing our local relevance. Importantly, our mid-size brands continue to grow faster than the average, increasing their contribution to the Company’s sales and profitability, while strengthening our portfolio. We are flexible in our investment spending, targeting opportunities that provide the highest returns, promote demand for our brands and foster global growth. At the same time, we are improving operating leverage and eliminating non-value added costs to further improve operating margins and profitability.”
 

Results by Product Category
 
    Three Months Ended March 31
(Unaudited; Dollars in millions) Net Sales   Percent Change  

Operating Income (Loss)

Percent Change
2014   2013

Reported Basis
 

Local Currency
2014 2013

Reported Basis
 
Skin Care $ 1,132.1 $ 1,015.0 12 % 13 % $ 179.0 $ 134.4 33 %
Makeup 1,015.7 919.2 10 11 149.9 107.3 40
Fragrance 270.5 233.2 16 16 (1.9 ) (0.2 ) (100 )+
Hair Care 120.8 116.2 4 5 13.2 5.1 100 +
Other 10.7 8.2 30 32 1.6 (3.2 ) 100 +
Subtotal 2,549.8 2,291.8 11 12 341.8 243.4 40

Returns and charges associated

with restructuring activities
(0.2 ) 1.7
Total $ 2,549.8 $ 2,291.8 11 % 12 % $ 341.6 $ 245.1 39 %
 

The change in net sales and operating income for the quarter was favorably impacted by the prior year shift in orders from certain retailers, due to the Company’s implementation of SAP, as previously mentioned, in the following product categories:
  • Net sales: Skin care, approximately $48 million; makeup, approximately $32 million; fragrance, approximately $10 million; and hair care, approximately $4 million.
  • Operating income: Skin care, approximately $40 million; makeup, approximately $26 million; fragrance, approximately $9 million; and hair care, approximately $3 million.

Excluding the impact of the shift in orders:
  • Reported net sales in skin care, makeup, fragrance and hair care would have increased 7%, 7%, 11% and 1%, respectively.
  • Operating results in skin care, makeup, fragrance and hair care would have increased/(decreased) 3%, 12%, (100)+% and 63%, respectively.

The current-year period remeasurement of net monetary assets in Venezuela, as previously mentioned, primarily impacted the operating income of the skin care, makeup and fragrance product categories by $12 million, $16 million and $10 million, respectively.

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