Estee Lauder 2Q14 Earnings Call Notes

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This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings. Full transcripts can be found at Seeking Alpha

Strong sales in China

“in China, our sales climbed double digits, and we remained the largest prestige beauty company”

UK business was exceptionally strong

“In our established markets, our UK business was exceptionally strong, led by M-A-C. and Jo Malone. We gained share by seeking opportunities in smaller cities and underserved areas in catering to multicultural consumers”

Accomplished some big things in 5 years

“Our fiscal 2014 performance build upon the dramatic progress we’ve made in the past five years. Over that period, our sales grew by $3.5 billion, excluding the accelerated orders in fiscal year 2014. This was a compound annual growth rate of 8.1% and twice as fast as global prestige beauty on average.

We oriented the company distribution to high-growth channels. As a result, our online sales have tripled, our travel retail business more than doubled and we have added nearly 220 freestanding store, bringing our account to almost 950 directly owned store today across the globe. We eliminated more than $800 million of costs which enabled us to reinvest in business driving activities including substantially increasing advertising. We increased our operating margin by 910 basis points faster than we expected allowing us to raise our long-term operating margin targets.

We posted double-digit EPS growth every year. We increased our dividend rates sharply and all told, our stockholders saw a total return on investment of 383%. As I noted, this five years period is a solid foundation for our future growth and underscores the confidence in our strategy, that we are updating our long-term operating margin goal to 17.5% in fiscal year 2017 with at least a 50-basis-point improvement on average each year.”

Measuring the digital audience

“M-A-C also expanded its digital audience through successful social media channels. It became the largest beauty brand on Instagram, and increased its Facebook fans by 25% in fiscal 2014.”

“Bobbi is also rapidly and successfully embraced the digital world. Its e-commerce site in the United States is its number one door worldwide, and it is accretive and outstanding social media results with 72 global digital platforms that are followed by a subscriber base of 4.5 million consumers. The brand has been number one ranked branded beauty channel on YouTube with videos that have been viewed globally 10 million times.”

Growth is in tier 2-3 cities in China

“Again, I explained it that the big cities, because of the development of your line, because of the saturation of the market are now growing anymore in same-door sales for sure. While the big expansion is in secondary city in – Tier 3, Tier 4 cities and online, basically expanding their reach of the many interested Chinese consumers and being able to sell to them. And that’s what we are doing, and that’s why we are successful. We continue build the reach. So, we get new consumers into our brands, new Chinese consumer into our brands every quarter.”

Retailers that do well offline tend to do well online too

“There is a clear strong connection between success of a retail online and success of the same retailer in brick and mortar. So we are participating to the development of the business of our retail partners both in brick and mortar and online’