Estee Lauder 2004 Annual Report Download - page 17

Net sales in makeup were $2.15 billion, up 14% on a reported basis and 10% in constant currency. Growth was
led, in part, by the continued momentum of our two leading makeup artist brands — M.A.C and Bobbi Brown.
Furthermore, both Clinique and Estée Lauder made strong progress in the mascara segment, with Clinique gaining
significant share in this important category around the world and Estée Lauder receiving the prestigious award
for the best new eye product from Cosmetic Executive Women for MagnaScopic Maximum Volume Mascara.
Foundation also continued to show strong sales in North America, Europe and Asia for Clinique and Estée Lauder.
Skin care net sales, which benefited from heightened interest in anti-aging and other technologically-advanced
products, were $2.14 billion, an increase of 13% on a reported basis and 8% in constant currency. Our two core
brands — Estée Lauder and Clinique — each posted strong results in the category, supported by new products like
Idealist Micro-D Deep Thermal Refinisher and Hydra Complete Multi-Level Moisture Crème by Estée Lauder and
the Pore Minimizer line of products from Clinique. Skin care was also strengthened by the inclusion of two new
brands — Darphin and Rodan + Fields — and by the rapid growth of one of our cult brands, La Mer.
Our performance in hair care was led by strong growth in our two salon brands, Aveda and Bumble & bumble,
which continue to distinguish themselves with high quality products and by leading the prestige hair care category
with cutting-edge ideas in training for styling techniques and salon management. Overall, net sales in hair care for
the year grew 9% to $249.4 million on a reported basis and 7% in constant currency.
RESOURCE MANAGEMENT
In fiscal 2004, we continued to place strong emphasis on managing our resources wisely. Cost savings from our
Global Operations group improved our profitability and eliminated inefficiencies, allowing us to re-deploy
resources to areas that directly impact the consumer and drive top-line growth. For example, cost of goods
as a percentage of net sales improved 50 basis points over last year as a result of supply chain initiatives and
reductions in promotional spending in favor of advertising. Reported operating expenses, as a percentage of net
sales, improved 70 basis points due in part to savings in selling, distribution and administration costs.
STRONG DISTRIBUTION DYNAMICS
On the distribution front, we experienced continued recovery and growth in the profitable travel retail channel
following its two-year slump. Our own freestanding retail stores also performed well, as did our e-commerce
business. Finally, and perhaps most noteworthy, we saw a terrific recovery in domestic department stores as well as
a particularly strong recovery in high-end specialty retailers like Neiman Marcus, Nordstrom and Saks Fifth Avenue.
LOOKING AHEAD
As we begin a new chapter in the Company’s history, we look forward to your continued support. Going into
this year, we will maintain our focus on building talent and building brands — the two catalysts that will take us
to the next level.
Thank you, stockholders, for your belief in our brands, our Company and our people.
Sincerely,
Fred H. Langhammer William P. Lauder
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TWO OF OUR CATEGORIES, SKIN CARE AND
MAKEUP, REACHED MILESTONES THIS YEAR,
WITH BOTH EXCEEDING $2 BILLION IN SALES
FOR THE FIRST TIME IN OUR HISTORY.