Estee Lauder 2010 Annual Report Download - page 90

THE EST{E LAUDER COMPANIES INC. 89
countries where there remain soft retail environments,
select retailer destocking and tight working capital man-
agement activities by retailers.
At this time, our business in the Asia/Pacific region has
been least affected by the global economic uncertainties,
with net sales growing in all countries in the region,
several of which reflected significant favorable impact of
foreign currency translation. Net sales in China rose at a
fast pace as we continue our growth in this emerging mar-
ket. New skin care product launches and an improving
retail environment helped most countries in the region
generate strong net sales increases during fiscal 2010.
Our business in Japan continued to be challenging due to
difficult economic conditions, as reported net sales
increases were generated by the strengthening of the
Japanese yen.
Looking ahead to fiscal 2011, we believe we have a
strong, diverse brand portfolio with global reach and
potential. We have a history of outstanding creativity,
innovation and entrepreneurship, and initial successes in
expanding our High-Touch service model beyond depart-
ment stores, and believe we have a passionate, highly-
talented workforce to help us achieve our long-term
strategy. Our balance sheet, cash flows and gross margin
are strong. However, we continue to operate in a chal-
lenging environment. We have a number of areas to
improve, including further enhancements to our cost
structure, sharing operational best practices internally,
increasing traffic to where our products are sold, and
further diversification of distribution channels.
CHARGES ASSOCIATED WITH
RESTRUCTURING ACTIVITIES
In an effort to drive down costs and achieve synergies
within our organization, in February 2009, we announced
the implementation of a multi-faceted cost savings pro-
gram (the “Program”) to position the Company to achieve
long-term profitable growth. We anticipate the Program
will result in related restructuring and other special
charges, inclusive of cumulative charges recorded to date
and over the next few fiscal years, totaling between $350
million and $450 million before taxes.
We expect that the implementation of this Program,
combined with other on-going cost savings efforts, will
result in savings of approximately $450 million to $550
million (beginning with approximately $360 million of sav-
ings in fiscal 2010) including the reduction of certain costs
relative to an assumed normalized spending pattern. Our
financial discipline. Although we remain cautious regard-
ing global economic uncertainties and other risks that
may affect our business, we accelerated investment
spending behind our brands and key priorities during the
latter part of the fiscal year.
In the Americas region, the increase in net sales during
the current-year period was primarily attributable to
growth in Canada and Latin America. Net sales in the
United States benefited from new skin care and makeup
product offerings and an increase in sales of certain
designer fragrances through self-select outlets. We have
also seen an improvement in the net sales of many of our
higher-end prestige products, which were negatively
impacted by a change in spending patterns of consumers
as a result of the economic downturn in the prior year.
Offsetting these improvements were lower net sales due
to our exit from the global wholesale distribution of the
Prescriptives brand. In addition, the U.S. department store
channel continues to be negatively impacted by a soft
retail environment, low store traffic and competitive pres-
sures, particularly in the fragrance product category. Net
sales results in alternative channels within the region were
generally mixed. In our freestanding retail stores, net
sales growth was fueled by new product launches from
M.A.C, partially offset by lower sales resulting from the
closing of certain underperforming stores for various
brands. We had strong growth in net sales of our products
sold over the Internet, while direct response television
sales declined.
Our business in Europe, the Middle East & Africa gen-
erated a strong net sales increase during fiscal 2010, aided
by the favorable impact of foreign currency translation.
Sales and profits in our travel retail business have
exceeded our expectations as a result of successful
product launches, higher global airline passenger traffic,
select trade re-stocking and new points of distribution.
The travel retail business has also begun to reap the ben-
efits of the implementation of many programs designed
to enhance the consumer’s High-Touch experience. Our
High-Touch approach promotes the total value we offer,
by leveraging our in-person and virtual assets, as well as
merchandising and education, to provide a customized
consumer experience. Net sales in most markets also
increased during the current year, reflecting an improving
retail environment, new product launches and rebound-
ing sales from many of our higher-end prestige products.
Despite these positive results, the impact of the global
economic uncertainties are still being felt in certain