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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15 (d) of The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported)
October 26, 2005
The Estee Lauder Companies Inc.
(Exact name of registrant as specified in its charter)
Delaware 1-14064 11-2408943
(State or other jurisdiction of (Commission (IRS Employer Identification No.)
incorporation) File Number)
767 Fifth Avenue, New York, New York 10153
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code
212-572-4200
Not Applicable
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (see General Instruction A.2. below):
[ ] Written communications pursuant to Rule 425 under the Securities Act (17
CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange
Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange
Act (17 CFR 240.13e-4(c))
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ITEM 2.02 Results of Operations and Financial Condition.
On October 26, 2005, The Estee Lauder Companies Inc. (the "Company") issued a
press release announcing its financial results for the fiscal quarter ended
September 30, 2005. The release also includes revised estimates for its fiscal
2006 first half and full year net sales and diluted earnings per share. A copy
of the press release is attached hereto as Exhibit 99.1 and is incorporated
herein by reference.
The information furnished under Item 2.02 of this Current Report on Form 8-K,
including Exhibit 99.1 is not deemed to be "filed" for purposes of Section 18 of
the Securities Exchange Act of 1934, as amended.
ITEM 9.01 Financial Statements and Exhibits.
(d) Exhibits.
Exhibit No. Description
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99.1 Press release dated October 26, 2005 of The Estee Lauder
Companies Inc.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
THE ESTEE LAUDER COMPANIES INC.
Date: October 26, 2005 By: /s/RICHARD W. KUNES
-------------------------
Richard W. Kunes
Executive Vice President
and Chief Financial Officer
(Principal Financial and
Accounting Officer)
THE ESTEE LAUDER COMPANIES INC.
EXHIBIT INDEX
Exhibit No. Description
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99.1 Press release dated October 26, 2005 of The Estee Lauder
Companies Inc.
Exhibit 99.1
THE News
ESTEE Contact:
LAUDER Investor Relations:
COMPANIES INC. Dennis D'Andrea
(212) 572-4384
Media Relations:
767 Fifth Avenue Sally Susman
New York, NY 10153 (212) 572-4430
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FOR IMMEDIATE RELEASE:
ESTEE LAUDER COMPANIES REPORTS FIRST QUARTER RESULTS
ACCELERATES ACTIONS SUPPORTING STRATEGIC IMPERATIVES
REVISES FULL YEAR EXPECTATIONS
New York, NY, October 26, 2005 - The Estee Lauder Companies Inc. (NYSE: EL)
today reported net sales for its first fiscal quarter ended September 30, 2005
of $1.50 billion, compared with $1.49 billion reported in the prior year.
Excluding the impact of foreign currency translation, net sales decreased
slightly.
Sales in each product category in the United States, for the quarter ended
September 30, 2005, were tempered by weakness at certain retailers, lower sales
from Fall promotional programs, and to a lesser extent, the closure of stores in
the Southern region caused by the severe weather conditions there as well as the
general consumer response to higher energy costs.
The Company reported net earnings from continuing operations for the quarter
ended September 30, 2005, of $61.8 million, compared with $95.7 million last
year. Diluted earnings per common share from continuing operations for the
quarter were $.28 compared with $.41 reported in the prior year.
The Company announced that it is accelerating several actions as part of its
strategic imperatives that will further support its long-term financial
objectives. As part of its plan to increase its return on investment and its
profitability, the Company made the decision to sell Stila, a color cosmetics
makeup artist brand, which was acquired in 1999. The Company believes that its
other makeup artist brands, M.A.C and Bobbi Brown, are well positioned to meet
the Company's strategic objectives. Accordingly, Stila is being accounted for as
a discontinued operation.
As part of its ongoing cost discipline, the Company has identified additional
savings opportunities that it expects to realize in fiscal 2006. Those savings
include streamlined process and organizational changes in line with its brand
portfolio management objectives, and aggressive reduction of indirect
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procurement and non-critical spending. These initiatives are expected to deliver
between $40 and $45 million in incremental savings in the current fiscal year
ending June 30, 2006, and improve the Company's profitability going forward. The
Company may incur certain one-time costs associated with these savings
initiatives.
William P. Lauder, President and Chief Executive Officer, said, "This quarter we
faced several challenges that resulted in flat net sales and lower earnings.
Some of these challenges were external in nature while others stem from
company-specific issues which we are addressing. I am optimistic that the
programs we have in place for the remainder of the fiscal year, along with the
immediate actions we are taking, lay the groundwork for further strengthening
our leadership position and continuing our record of solid growth. As we focus
our resources on the greatest opportunities for growth, I expect our performance
to improve during the balance of the fiscal year and that we will be well
positioned to achieve our revised full year financial objectives."
Results by Product Category
---------------------------
Net sales of skin care products for the quarter were relatively unchanged on a
reported basis at $523.4 million, compared with the prior period, and declined
1% in local currencies. In last year's first quarter, skin care net sales grew
13%. Skin care benefited from higher sales from new or recent launches by Estee
Lauder in the Perfectionist line, such as Perfectionist [CP+], Superdefense
Triple Action Moisturizers SPF 25 by Clinique and Modern Friction by Origins.
Net sales also reflected a lower performance of certain existing products such
as Future Perfect Anti-Wrinkle Radiance Creme SPF 15 and the White Light line of
products by Estee Lauder as well as Active White Lab Solutions skin care
products from Clinique.
Makeup net sales for the quarter rose 3% to $604.9 million on a reported basis
and increased 3% in local currencies. This category was up against a difficult
comparison to the prior-year quarter which grew 23% and reflected major new
product launches. Growth was generated from the Company's M.A.C brand, as well
as from new or recently launched products like Repairwear Anti-Aging Makeup SPF
15 and Coulour Surge Butter Shine TM Lipstick from Clinique, and Individualist
Natural Finish Makeup from Estee Lauder. Lower sales of certain existing
products like Superbalanced Compact Makeup SPF 20 from Clinique and Lash XL
Maximum Length Mascara by Estee Lauder partially offset these positive results.
The fragrance category continues to be challenging. Net sales in the quarter on
a reported basis decreased 6% to $293.2 million compared to the prior period and
declined 6% in local currencies. Fragrance sales benefited from the continued
success of DKNY Be Delicious and recent launches of True Star Men from Tommy
Hilfiger and DKNY Be Delicious Men. These increases were more than offset by
lower sales of certain Tommy Hilfiger fragrances, Estee Lauder Beyond Paradise
and Lauder Beyond Paradise Men.
Net sales of hair care products and services for the quarter rose 12% to $70.4
million on a reported basis and increased 11% in local currencies, due primarily
to higher sales at Aveda and Bumble and bumble. Aveda net sales growth was due
to ongoing demand for professional color products, the success of Pure Abundance
products and the recent launch of Damage Remedy hair care products. Higher sales
at Bumble and bumble were primarily due to growth in existing salon
distribution,
Page 2 of 8
while new points of distribution, as well as the success of
existing and new products contributed to the sales growth.
Operating income decreased in skin care and fragrance primarily due to flat and
lower sales, respectively, and increased investment spending. Makeup operating
income declined reflecting slightly higher sales which were more than offset by
planned new product investment spending, along with a difficult comparison to
prior year results among the Company's BeautyBank brands. Hair care operating
results were higher due to the increased sales.
Results by Geographic Region
----------------------------
In the Americas, net sales for the quarter were relatively unchanged at $881.0
million. Net sales benefited from the success of new and certain existing
products, primarily in the makeup and hair care categories, and growth from most
developing brands. These results were offset by the timing of planned product
launches for later in the fiscal year, lower fragrance sales, weakness at
certain retailers, and lower sales from promotional programs in our core Estee
Lauder and Clinique brands, which continue to be challenged. To a lesser extent,
the current quarter was also negatively impacted by the closure of stores in the
Southern part of the United States caused by severe weather conditions, as well
as the general consumer response to higher energy costs. Operating income in the
Americas decreased due to the above mentioned factors that affected sales, as
well as costs related to stock-based compensation and the company-wide
initiative to upgrade processes and information systems.
In Europe, the Middle East & Africa, net sales decreased 1% from the prior-year
period to $417.5 million, and declined 1% in local currency. This region was up
against a difficult comparison to the prior-year quarter which grew 29%. In
constant currency, the lower sales were led in Spain, the United Kingdom,Italy
and Austria. Sales in certain markets in this region were also adversely
impacted by temporary disruptions due to the transition to a new regional
inventory center in Belgium. The logistical issues associated with this center
have been addressed and the Company expects it to be operating as originally
planned by the end of its fiscal second quarter. Partially offsetting these
results were higher sales in Germany and the Company's travel retail and
distributor businesses. Operating profitability decreased primarily due to lower
results in Spain, the United Kingdom, the Company's travel retail and
distributor businesses and Italy. The impact of the logistical issues at the new
European inventory center also negatively affected operating results. These
decreases were partially offset by improved results in France and Germany.
Asia/Pacific net sales grew 5% over the prior-year quarter to $198.6 million. On
a local currency basis, this region's net sales rose 2% led by double-digit
increases in China and Hong Kong. These increases were partially offset by lower
sales in Japan, Thailand and Korea. Operating profit in the region decreased,
reflecting lower results in Hong Kong, Taiwan, Malaysia and Thailand, as well as
China, where we continue to invest in new brand expansion and business
opportunities, partially offset by improved results in Australia.
Cash Flows
----------
For the three months ended September 30, 2005, net cash flows used for operating
activities were $61.6 million versus $98.3 million in the prior-year period. The
improvement primarily reflects
Page 3 of 8
changes in certain seasonal working capital components, partially offset by
lower net earnings. Operating cash flow was utilized primarily for capital
investments and the repurchase of shares of the Company's Class A Common Stock.
Estimate of Fiscal 2006 First Half and Full Year
------------------------------------------------
Effective July 1, 2005, the Company adopted the new accounting rule requiring
the expensing of stock-based compensation. In accordance with the rule, prior
year results have not been restated. Net earnings guidance for the fiscal 2006
first half and full year includes a charge of $.07 and $.12 per diluted common
share, respectively, to reflect the costs associated with the expensing of
stock-based compensation.
Fiscal first half and full year 2006 estimates include a revised estimated
impact of potential store closures and/or business disruptions related to the
merger of Federated Department Stores, Inc. ("Federated") and The May Department
Stores Company ("May"). The Company previously believed this action would begin
late in fiscal 2006. However, certain business disruptions were experienced in
the Company's fiscal first quarter and are expected to continue throughout the
Company's fiscal year. The Company now assumes that Federated will accelerate
more than half its announced store closings to early calendar 2006. As a result
of the expected acceleration of store closures and anticipated business
disruptions, the Company now estimates the adverse impact of these actions will
affect its reported diluted earnings per share of approximately $.04 for the
first half and $.09 to $.10 for the full year.
The Company's revised estimates also include the effect it believes higher
energy costs and other economic trends may have on consumer spending.
Net sales for the first half of fiscal 2006 are expected to grow between 3% and
4% in constant currency. Foreign currency translation is estimated to negatively
impact first half sales by approximately one percent, versus the first half of
fiscal 2005. Geographic region net sales growth in constant currency is expected
to be led by Europe, the Middle East & Africa, followed by Asia/Pacific and the
Americas. On a product category basis, in constant currency, hair care and
makeup are expected to be the leading growth categories, followed by skin care,
while fragrance is expected to decline. The Company expects diluted earnings per
share from continuing operations for the first half of between $.83 and $.88,
including the $.07 impact from expensing stock-based compensation and $.04
impact of the Federated and May merger.
For the Company's fiscal 2006 full-year results, net sales are expected to grow
between 3% and 4% in constant currency. The Company expects foreign currency to
negatively impact its reported results by approximately 1.5% versus fiscal 2005.
At the same time the Company expects to achieve diluted earnings per share from
continuing operations of between $1.87 and $1.94 for the fiscal 2006 year, which
includes the above mentioned approximately $.22 per share impact from expensing
stock-based compensation as well as the potential impact of the Federated and
May merger. Full year expectations also include approximately $.12 related to
the Company's incremental savings initiatives. Geographic region net sales
growth in constant currency is expected to be led by Asia/Pacific, followed by
Europe, the Middle East & Africa and the Americas. On a product category basis,
in constant currency, hair care and makeup are expected to be the leading sales
growth categories, followed by skin care and fragrance.
Page 4 of 8
Forward-Looking Statements
--------------------------
The forward-looking statements in this press release, including those containing
words like "expect," "believe," "planned," "may," "could," "should,"
"anticipate," "estimate," those in Mr. Lauder's remarks and those in the
"Estimate of Fiscal 2006 First Half and Full Year" section involve risks and
uncertainties. Factors that could cause actual results to differ materially from
those forward-looking statements include the following:
(1) increased competitive activity from companies in the skin care,
makeup, fragrance and hair care businesses, some of which have greater
resources than the Company does;
(2) the Company's ability to develop, produce and market new products on
which future operating results may depend;
(3) consolidations, restructurings, bankruptcies and reorganizations in
the retail industry causing a decrease in the number of stores that
sell the Company's products, an increase in the ownership
concentration within the retail industry, ownership of retailers by
the Company's competitors and ownership of competitors by the
Company's customers that are retailers;
(4) shifts in the preferences of consumers as to where and how they shop
for the types of products and services the Company sells;
(5) social, political and economic risks to the Company's foreign or
domestic manufacturing, distribution and retail operations, including
changes in foreign investment and trade policies and regulations of
the host countries and of the United States;
(6) changes in the laws, regulations and policies that affect, or will
affect, the Company's business, including changes in accounting
standards, tax laws and regulations, trade rules and customs
regulations, and the outcome and expense of legal or regulatory
proceedings, and any action the Company may take as a result;
(7) foreign currency fluctuations affecting the Company's results of
operations and the value of its foreign assets, the relative prices at
which the Company and its foreign competitors sell products in the
same markets and the Company's operating and manufacturing costs
outside of the United States;
(8) changes in global or local conditions, including those due to natural
or man-made disasters or energy costs, that could affect consumer
purchasing, the willingness of consumers to travel, the financial
strength of the Company's customers or suppliers, the Company's
operations, the cost and availability of capital which the Company may
need for new equipment, facilities or acquisitions, the cost and
availability of raw materials and the assumptions underlying the
Company's critical accounting estimates;
(9) shipment delays,depletion of inventory and increased production costs
resulting from disruptions of operations at any of the facilities that
manufacture nearly all of the Company's supply of a particular type of
product (i.e., focus factories) or at the Company's distribution and
inventory centers;
(10) real estate rates and availability, which may affect the Company's
ability to increase the number of retail locations at which the
Company sells its products and the costs associated with the
Company's other facilities;
(11) changes in product mix to products which are less profitable;
(12) the Company's ability to acquire, develop or implement new information
and distribution technologies, on a timely basis and within the
Company's cost estimates;
(13) the Company's ability to capitalize on opportunities for improved
efficiency, such as publicly-announced cost-savings initiatives and
the disposition of Stila, and to integrate acquired businesses and
realize value therefrom;
(14) consequences attributable to the events that are currently taking
place in the Middle East, including terrorist attacks, retaliation and
the threat of further attacks or retaliation;
(15) the impact of repatriating certain of the Company's foreign earnings
to the United States in connection with The American Jobs Creation Act
of 2004; and
(16) additional factors as described in the Company's filings with the
Securities and Exchange Commission, including its Annual Report on
Form 10-K for the fiscal year ended June 30, 2005.
The Company assumes no responsibility to update forward-looking statements
made herein or otherwise.
page 5 of 8
The Estee Lauder Companies Inc. is one of the world's leading manufacturers and
marketers of quality skin care, makeup, fragrance and hair care products. The
Company's products are sold in over 130 countries and territories under
well-recognized brand names, including Estee Lauder, Clinique, Aramis,
Prescriptives, Origins, M.A.C, Bobbi Brown, Tommy Hilfiger, La Mer, Donna Karan,
Aveda, Jo Malone, Bumble and bumble, Darphin, Michael Kors, Rodan + Fields,
American Beauty, Flirt!, Good Skin TM, Donald Trump The Fragrance and
Grassroots.
An electronic version of this release can be found at the Company's website,
www.elcompanies.com.
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- Tables Follow -
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THE ESTEE LAUDER COMPANIES INC.
-------------------------------
SUMMARY OF CONSOLIDATED RESULTS
(Unaudited; Dollars in millions, except per share data)
Three Months Ended
September 30 Percent
-------------------
2005 2004 Change
-------- -------- --------
Net Sales................................................. $1,497.1 $1,490.3 0.5%
Cost of sales............................................. 419.5 407.7
-------- --------
Gross Profit.............................................. 1,077.6 1,082.6 (0.5)%
-------- --------
Gross Margin....................................... 72.0% 72.6%
Operating expenses:
Selling, general and administrative.................... 972.5 926.3 5.0%
-------- --------
Operating Expense Margin........................... 65.0% 62.1%
Operating Income.......................................... 105.1 156.3 (32.8)%
Operating Income Margin............................ 7.0% 10.5%
Interest expense, net..................................... 5.6 4.1
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Earnings before Income Taxes, Minority Interest
and Discontinued Operations............................. 99.5 152.2 (34.6)%
Provision for income taxes................................ 35.8 56.3
Minority interest, net of tax............................. (1.9) (0.2)
-------- --------
Net Earnings from Continuing Operations................... 61.8 95.7 (35.4)%
Discontinued operations, net of tax (A)................... (3.3) (0.7)
-------- --------
Net Earnings.............................................. $ 58.5 $ 95.0 (38.4)%
======== ========
Basic net earnings per common share:
Net earnings from continuing operations................ $ .28 $ .42 (33.5)%
Discontinued operations, net of tax.................... (.02) -
-------- --------
Net earnings........................................... $ .26 $ .42 (36.6)%
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Diluted net earnings per common share:
Net earnings from continuing operations................ $ .28 $ .41 (33.3)%
Discontinued operations, net of tax.................... (.02) -
-------- --------
Net earnings........................................... $ .26 $ .41 (36.3)%
======== ========
Weighted average common shares outstanding:
Basic.................................................. 220.6 227.1
Diluted................................................ 223.6 231.2
(A) On September 30, 2005, the Company committed to a plan to sell the assets
and operations of its reporting unit that markets and sells Stila brand
products and to actively seek a buyer for the brand. As a result of this
decision, the Company has reflected the operating loss of $3.3 million and
$0.7 million, net of tax, for the three months ended September 30, 2005 and
2004, respectively, as discontinued operations. All statement of earnings
information for the prior period has been restated for comparative
purposes, including the restatement of the makeup product category and each
of the geographic regions.
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THE ESTEE LAUDER COMPANIES INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited; In millions)
September 30 June 30 September 30
2005 2005 2004
--------- --------- ---------
ASSETS
Current Assets
Cash and cash equivalents.............................................. $ 389.5 $ 553.3 $ 387.1
Accounts receivable, net............................................... 915.2 776.6 902.2
Inventory and promotional merchandise, net............................. 814.8 768.3 712.8
Prepaid expenses and other current assets.............................. 232.1 204.4 265.7
Assets held for sale................................................... 127.8 - -
--------- --------- ---------
Total Current Assets.............................................. 2,479.4 2,302.6 2,267.8
--------- --------- ---------
Property, Plant and Equipment, net..................................... 690.8 694.2 641.2
Other Assets ......................................................... 797.5 889.0 865.3
--------- --------- ---------
Total Assets...................................................... $ 3,967.7 $ 3,885.8 $ 3,774.3
========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Short-term debt........................................................ $ 253.6 $ 263.6 $ 77.5
Accounts payable....................................................... 255.1 249.4 260.7
Other current liabilities.............................................. 1,025.3 984.7 1,027.1
Liabilities related to assets held for sale............................ 6.4 - -
--------- --------- ---------
Total Current Liabilities.............................................. 1,540.4 1,497.7 1,365.3
--------- --------- ---------
Noncurrent Liabilities
Long-term debt......................................................... 444.9 451.1 472.6
Other noncurrent liabilities and minority interest..................... 248.8 244.2 200.0
Total Stockholders' Equity............................................. 1,733.6 1,692.8 1,736.4
--------- --------- ---------
Total Liabilities and Stockholders' Equity........................ $ 3,967.7 $ 3,885.8 $ 3,774.3
========= ========= =========
SELECTED CASH FLOW DATA
(Unaudited; In millions)
Three Months Ended
September 30
---------------------
2005 2004
-------- --------
Cash Flows from Operating Activities
Net earnings......................................................................... $ 58.5 $ 95.0
Depreciation and amortization........................................................ 47.2 46.9
Deferred income taxes................................................................ (9.8) 11.3
Other items.......................................................................... 14.6 1.6
Changes in operating assets and liabilities:
Increase in accounts receivable, net............................................. (144.8) (228.1)
Increase in inventory and promotional merchandise, net........................... (57.6) (52.8)
Increase in accounts payable and other accrued liabilities....................... 48.7 22.9
Other operating assets and liabilities, net...................................... (18.4) 4.9
-------- --------
Net cash flows used for operating activities of continuing operations.......... $ (61.6) $ (98.3)
======== ========
Capital expenditures................................................................. 45.9 38.4
Payments to acquire treasury stock................................................... 71.1 88.3
# # #
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