Estée Lauder(US:EL)2024-02-04 16:00Sales Performance - Skin care net sales declined by 10% to $2,173 million for the three months ended December 31, 2023, primarily due to lower sales from Estée Lauder and Clinique[172]. - Makeup net sales decreased by 8% to $1,167 million for the three months ended December 31, 2023, driven by lower sales from M·A·C and Estée Lauder[181]. - Fragrance net sales remained flat at $737 million for the three months ended December 31, 2023, with growth from Le Labo and Jo Malone London offset by declines from Estée Lauder[181]. - Hair care net sales declined by 5% to $173 million for the three months ended December 31, 2023, primarily due to lower sales from Aveda[183]. - Net sales in The Americas remained virtually flat, with net sales of $4,279 million for the three months ended December 31, 2023, a decrease of 7% from $4,620 million in the prior year[186]. - Net sales in Europe, the Middle East & Africa decreased by 13% for the same period, primarily due to the decline in the Asia travel retail business[186]. - Net sales in Asia/Pacific decreased by 8%, reflecting ongoing softness in overall prestige beauty in mainland China[186]. - Reported net sales decreased by 7% for the three months ended December 31, 2023, driven by a volume decrease of 12% and partially offset by a pricing increase of 4%[201]. - Skin care net sales decreased by 10% for the three months ended December 31, 2023, primarily due to lower sales from Estée Lauder and Clinique, reflecting a decline in the Asia travel retail business[205]. - Makeup net sales decreased by 8% for the three months ended December 31, 2023, driven by a volume decrease of 11%[213]. - The total net sales decrease was impacted by approximately $8 million of favorable foreign currency translation for the three months ended December 31, 2023[199]. - Reported net sales in The Americas increased 1% to $1,242 million for the three months ended December 31, 2023, and 4% to $2,450 million for the six months ended December 31, 2023, driven by strong performance in Brazil and Mexico[227][231]. - Reported net sales in Europe, the Middle East & Africa decreased 13% to $1,589 million for the three months ended December 31, 2023, and 19% to $2,841 million for the six months ended December 31, 2023, primarily due to lower sales from the Asia travel retail business[233][236]. - Reported net sales in Asia/Pacific decreased 8% to $1,449 million for the three months ended December 31, 2023, and 7% to $2,507 million for the six months ended December 31, 2023, reflecting ongoing softness in the prestige beauty market in mainland China[237][242]. - The company experienced a 9% decline in net sales across all regions for the six months ended December 31, 2023[303]. - The Hair Care category reported a 6% decrease in sales, totaling $173 million for the three months ended December 31, 2023[300]. Financial Performance - Operating income increased to $574 million for the three months ended December 31, 2023, compared to $556 million in the same period of 2022[172]. - Gross profit margin decreased to 73.0% for the three months ended December 31, 2023, down from 73.6% in 2022[174]. - Selling, general and administrative expenses increased to 59.5% of net sales for the three months ended December 31, 2023, compared to 56.9% in 2022[174]. - The Profit Recovery Plan aims to rebuild profit margins, with expected restructuring charges between $500 million and $700 million, and annual gross benefits of $350 million to $500 million once fully implemented[195][196]. - The restructuring program is expected to result in a net reduction of approximately 1,800 to 3,000 positions globally, representing about 3-5% of total positions[194]. - For the three months ended December 31, 2023, the operating income was $574 million, a 3% increase from $556 million in the prior year, while for the six months, it decreased by 45% to $672 million from $1,217 million[252]. - Operating expenses as a percentage of net sales were 59.6% for the three months and 62.9% for the six months ended December 31, 2023, compared to 61.6% and 59.5% in the prior-year periods[248]. - Skin care operating income decreased by 4% to $415 million for the three months and by 53% to $452 million for the six months ended December 31, 2023, primarily due to lower net sales[257]. - Makeup operating income improved significantly for the three months ended December 31, 2023, reaching $30 million, compared to a loss of $24 million in the prior year[262]. - Fragrance operating income decreased by 14% to $131 million for the three months and to $238 million for the six months ended December 31, 2023, impacted by lower net sales and license terminations[269]. - The company experienced higher obsolescence charges due to excess inventory, particularly in the travel retail business and mainland China, affecting both gross and operating margins[259]. - The favorable impact on operating expense margin for the three months ended December 31, 2023, was partially offset by higher selling costs and store operating costs[250]. - The Ordinary brand showed improved operating results, driven by increased net sales and a shift in manufacturing production to in-house facilities[260]. - The company continues to invest in advertising and promotional activities, which contributed to increased operating results from certain brands despite overall declines in net sales[266]. - Reported operating income in Europe, the Middle East & Africa decreased by 30% for the six months ended December 31, 2023, driven by lower results from the travel retail business[278]. - Operating income in Asia/Pacific decreased by approximately $145 million for the six months ended December 31, 2023, primarily due to lower results from mainland China and Taiwan[283]. - Interest expense increased to $98 million for the three months ended December 31, 2023, reflecting a higher debt balance and increased interest rates compared to the prior-year period[287]. - The effective tax rate increased to 37.6% for the three months ended December 31, 2023, primarily due to a higher effective tax rate on foreign operations[289]. - Net earnings attributable to The Estée Lauder Companies Inc. decreased by 21% to $313 million for the three months ended December 31, 2023, compared to $394 million in the prior year[291]. - Diluted net earnings per share decreased by 20% to $0.87 for the three months ended December 31, 2023, compared to $1.09 in the prior year[291]. - For the six months ended December 31, 2023, net sales were $7,797 million, down 9% from $8,550 million in the previous year[297]. - Operating income for the six-month period dropped 45% to $672 million from $1,217 million in 2022[297]. - Diluted net earnings per common share, as adjusted, fell 66% to $0.98 compared to $2.91 in the same period last year[297]. Cash Flow and Debt Management - Cash and cash equivalents as of December 31, 2023, were $3,939 million, down from $4,029 million at June 30, 2023[309]. - The company plans to purchase the remaining interest in DECIEM in Q4 2024, based on performance, which will settle stock options and redeemable noncontrolling interest[310]. - The company anticipates that cash on hand and generated from operations will support working capital needs and planned business operations[310]. - As of December 31, 2023, total debt amounted to $8,140 million, with long-term debt at $6,640 million and current debt at $1,500 million, representing 59% of total capitalization[316]. - Net cash flows from operating activities for the six months ended December 31, 2023, were $937 million, an increase from $751 million in the same period of 2022[318]. - Cash flows used for investing activities increased to $(557) million in the six months ended December 31, 2023, compared to $(285) million in 2022, primarily due to capital expenditures for a new manufacturing facility in Japan[319]. - Cash flows used for financing activities were $(489) million, a decrease from $(685) million in the prior year, driven by increased proceeds from short-term commercial paper[320]. Market Risks and Future Outlook - The company expects continued challenges in the Asia travel retail business and overall softness in prestige beauty in mainland China, negatively impacting net sales and profitability[184]. - The effective tax rate is expected to be adversely affected by changes in the geographical mix of earnings due to ongoing business disruptions[184]. - The company is evaluating its inventory position, which may lead to increased charges in future periods[184]. - Inflation is expected to continue impacting operating results, prompting plans for new product introductions at higher prices and operational efficiencies[313]. - A hypothetical 10% weakening of the U.S. dollar would have resulted in a net decrease in the fair value of the foreign currency portfolio by approximately $254 million as of December 31, 2023[329]. - The estimated fair value of interest rate derivatives would decrease by approximately $53 million based on a hypothetical 100 basis point increase in interest rates as of December 31, 2023[331]. - The company has no off-balance sheet arrangements that would materially affect its financial condition or results of operations[333]. - There have been no significant changes to pension and post-retirement funding since the last annual report[322]. - The company continues to manage market risks through foreign currency forward contracts to mitigate fluctuations in exchange rates[329]. - The company reported a favorable change in working capital, reflecting improvements in inventory and promotional merchandise[318]. - No responsibility is assumed to update forward-looking statements made in the report[342]. - Market risk information is detailed in Item 2 of the Quarterly Report under Liquidity and Capital Resources[343].