Estee Lauder 2010 Annual Report Download - page 89

88 THE EST{E LAUDER COMPANIES INC.
retail environment in North America to continue to be
challenging, we recognize the need to restore profitable
growth in our traditional department store channel. We
have implemented changes to reshape our organization
to meet the needs of the changing retail landscape.
Internationally, we plan to achieve profitable growth in
European perfumeries and pharmacies and in department
stores in Asia, while accentuating our makeup and skin
care initiatives to boost our travel retail business and con-
tinuing efforts to grow online, specialty retailers and pres-
tige salons. To optimize our portfolio, we will focus on
improving our margins and share in our distribution chan-
nels. We plan to re-energize certain of our brands through
the introduction of products that feature advances in
research and technology. At the same time, we will be
investing in initiatives to incubate and develop next gen-
eration products and brands, as well as driving turnaround
brands toward sustainable profitability levels. We intend
to leverage our regional organizations to increase effec-
tiveness and efficiencies while utilizing strategic partner-
ships, alliances and licensing to build scale in research and
development, distribution and third-party manufacturing.
During fiscal 2010, the first year of our strategy, our
business continued to rebound from the global economic
challenges and uncertainties that had a significant impact
on our results during the prior fiscal year. Despite these
conditions, some of which continue to exist, our results
for the year ended June 30, 2010 exceeded our net sales
and profitability expectations that we had at the begin-
ning of the fiscal year. These results, in part, stem from
stronger net sales, and savings achieved in connection
with our multi-faceted cost savings program, including
favorable product mix (which reflects our strategic empha-
sis on skin care products), resizing, restructuring and other
cost containment initiatives. The improved net sales
reflected growth in our three largest brands, continued
strong growth in Asia, a substantial rebound in the
Company’s travel retail business and a better-than-
expected holiday selling season in the United States and
the United Kingdom. Net sales also benefited from further
favorability in foreign currency translation.
During most of fiscal 2010, we engaged in a more stra-
tegically focused approach to spending in light of the
global economic downturn and the management of sev-
eral external potential risks which did not materialize in
the current year. This was accomplished, in part, by exe-
cuting on certain initiatives designed to drive out non-
value added costs, optimize productivity and increase
In order to meet the demands of consumers, we continu-
ally introduce new products, support new and established
products through advertising, sampling and merchandis-
ing and phase out existing products that no longer meet
the needs of our consumers. The economics of develop-
ing, producing, launching and supporting products
influence our sales and operating performance each
period. The introduction of new products may have some
cannibalizing effect on sales of existing products, which
we take into account in our business planning.
We operate on a global basis, with the majority of our
net sales generated outside the United States. Accord-
ingly, fluctuations in foreign currency exchange rates can
affect our results of operations. Therefore, we present cer-
tain net sales information excluding the effect of foreign
currency rate fluctuations to provide a framework for
assessing the performance of our underlying business
outside the United States. Constant currency information
compares results between periods as if exchange rates
had remained constant period-over-period. We calculate
constant currency information by translating current-
period results using prior-year period weighted average
foreign currency exchange rates.
OVERVIEW
We believe that the best way to increase stockholder
value is to provide our customers and consumers with the
products and services that they have come to expect from
us in the most efficient and profitable manner while rec-
ognizing their changing shopping habits. To achieve our
goal to be the global leader in prestige beauty, we are
implementing a long-term strategy to guide the Company
through fiscal 2013. The plan has numerous initiatives
across regions, product categories, brands and functions
that are designed to leverage our strengths, make us more
cost efficient and grow our sales.
As part of our strategy, we plan to shift our category
mix towards higher margin categories with greater global
growth potential. Skin care, our most profitable category,
is a strategic priority for our innovation and investment
spending, particularly in the Asia/Pacific region. We also
plan to strengthen our geographic presence by seeking
share growth in large, image-building cities within core
markets such as the United States, the United Kingdom,
France, Italy and Japan. In addition, we will continue to
prioritize efforts to expand our presence and accelerate
share growth in emerging markets such as China, Russia,
the Middle East and Eastern Europe. While we expect the