Estee Lauder 2002 Annual Report Download - page 43

THEEST{E LAUDER COMPANIES INC.
FISCAL 2002 AS COMPARED WITH FISCAL 2001
NET SALES
Net sales increased 2% or $76.0 million to $4.74 billion
reflecting continued growth in the makeup, skin care and
hair care categories, partially offset by a decline in fra-
grance net sales. Excluding the impact of foreign currency
translation, net sales increased 3%. The unusual events
that occurred during the current fiscal year and their
effect on the economy, particularly in the United States,
have adverselyimpacted our business. In addition, the
decline in worldwide travel during most of fiscal 2002 led
to a 13% reduction in our travel retail sales. Sales growth
from certain newer brands and recently launched prod-
ucts partially offset these decreases.
The following discussions of Net Sales by Product
Categories and Geographic Regions exclude the impact
of the restructurings in fiscal 2002 and fiscal 2001. Neither
restructuring was material to our net sales, and the
discussions represent the manner in which we conduct
and view our business. For a discussion of the restruc-
turings, see “Operating Expenses — Restructuring and
Other Non-Recurring Expenses” in this section and under
the same heading under “Fiscal 2001 as compared with
Fiscal 2000”.
Product Categories
Skin Care Net sales of skin care products increased 3%
or $42.6 million to $1.70 billion. The net sales increase is
primarilyattributable to recently launched products such
as Total Turnaround Visible Skin Renewer, Advanced
Night Repair Eye Recovery Complex, Moisture Surge
Extra and Moisture Surge Eye Gel, A Perfect World,
LightSource Transforming Moisture Lotion and Cream,
and Re-Nutriv Ultimate Lifting Creme. Partially offsetting
these increases were lower net sales of certain existing
products such as Turnaround Cream and Resilience Lift, as
well as products in Clinique’s 3-Step Skin Care System.
Makeup Makeup net sales increased 4% or $68.9 million
to $1.79 billion. Newer brands such as M.A.C, Bobbi
Brown and Stila, which are primarily makeup products,
contributed through growth at existing doors and
increased distribution. In addition, strong sales of the Pure
Color Line of products, the worldwide launch of Gentle
Light Makeup and Illusionist Mascara contributed posi-
tively to net sales growth. Partially offsetting the increase
in net sales were lower sales of Two-in-One Eye Shadow,
Lucidity Makeup, and Long Last Soft Shine Lipstick.
Fragrance Net sales of fragrance products decreased 6%
or $67.8 million to $1.02 billion. This category continued
to be impacted by the softness of the fragrance business
in the United States and the decline in our travel retail
business, which depends substantially on fragrance prod-
ucts. Lower net sales of Beautiful, Estée Lauder pleasures,
DKNY for Women and certain existing Tommy Hilfiger
licensed products were partially offset by the recent
launch of T, a new fragrance in the Tommy Hilfiger line,
and Intuition for Men, as well as strong sales of Donna
Karan Cashmere Mist.
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The following table presents certain consolidated earnings data as a percentage of net sales:
YEAR ENDED JUNE 30 2002 2001 2000
Net sales 100.0% 100.0% 100.0%
Cost of sales 26.8 26.3 27.9
Gross profit 73.2 73.7 72.1
Operating expenses:
Selling, general and administrative 63.3 61.5 59.8
Restructuring 2.3 0.8 —
Other non-recurring —0.3 —
Related party royalties 0.4 0.5 0.7
66.0 63.1 60.5
Operating income 7.2 10.6 11.6
Interest expense, net 0.2 0.2 0.4
Earnings before income taxes, minority interest and accounting change 7.0 10.4 11.2
Provision for income taxes 2.4 3.7 4.1
Minority interest, net of tax (0.1) (0.1) —
Net earnings before accounting change 4.5 6.6 7.1
Cumulative effect of a change in accounting principle, net of tax (0.4) (0.1) —
Net earnings 4.1% 6.5% 7.1%