Estee Lauder 2015 Annual Report Download - page 66

THE EST{E LAUDER COMPANIES INC. 63
In order to meet the demands of consumers, we continu-
ally introduce new products, support new and established
products through advertising, merchandising and sam-
pling and phase out existing products that no longer meet
the needs of our consumers or our objectives. The eco-
nomics of developing, producing, launching, supporting
and discontinuing products impact our sales and operat-
ing 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, operating results and diluted net earnings
per common share 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 year
results using prior year weighted-average foreign currency
exchange rates.
OVERVIEW
We believe the best way to continue to increase stock-
holder value is to provide our customers and consumers
with superior products and services that they have come
to expect from us in the most efficient and profitable man-
ner while recognizing consumers’ changing behaviors
and shopping preferences. To be the global leader in
prestige beauty, we are guided by our long-term strategy
through fiscal 2018, which has numerous initiatives across
geographic regions, product categories, brands, channels
of distribution and functions that are designed to grow
our sales, leverage our strengths and make us more pro-
ductive and profitable. We also plan to continue to build
upon and leverage our history of outstanding creativity,
innovation and entrepreneurship in high quality products
and services and engaging communications.
We believe our diverse and highly desirable brand
portfolio positions us well to capitalize on opportunities
in fast growing and profitable areas in prestige beauty.
Skin care, our most profitable product category, remains
a strategic priority for us and, as a result, we continue to
support our large, long-standing skin care product lines
including Advanced Night Repair from Estée Lauder,
Clinique’s 3-Step Skin Care System and Crème de la Mer
from La Mer. We are also developing and introducing
new products, such as New Dimension from Estée Lauder,
t he Clinique Sonic System Purifying Cleansing Brush
and Clinique Smart custom-repair serum, as well as
skin care masks from La Mer. We also supplemented
our skin care offerings in fiscal 2015 through the recent
acquisitions of GLAMGLOW and RODIN olio lusso.
While global prestige skin care growth was slower in fiscal
2015, global growth in prestige makeup accelerated, in
part due to social media activities. This benefited our
makeup sales, and we continue to believe that the
makeup category represents one of our most compelling
growth opportunities. During the year, we successfully
launched a number of new products, including new col-
lections from our makeup artist brands, Pure Color Envy
sculpting lipstick and sculpting eye shadow palette from
Estée Lauder, and Pop Lip Colour and Primer, Beyond
Perfecting foundation and concealer and Chubby Stick
sculpting products from Clinique. Our fragrance category
has benefited from new launches, expanded distribution
from our luxury fragrance brands and our recent acquisi-
tions of Le Labo and Editions de Parfums Frédéric Malle.
In addition, we are expanding our hair care brands in
salons and other retail channels. To complement the strat-
egies in our existing business, we are continuously look-
ing to acquire and incubate smaller brands that we believe
have growth potential and may provide unique opportu-
nities for profitable growth in the future.
Our global footprint provides us many avenues of
growth, enabling us to quickly utilize our strengths to cap-
ture opportunities around the world by leveraging our
regional organization and to align the talents and exper-
tise of our people in an effort to assure that we are locally
relevant with our products, services, channels, marketing
and visual merchandising. We are seeking share growth in
large, image-building cities within core markets such as
the United States, the United Kingdom, France, Italy and
Japan by strengthening our geographic presence there.
In addition, we continue to expand our presence and
accelerate growth in emerging markets such as China, the
Middle East, Eastern Europe, Brazil, Russia and South
Africa. During fiscal 2015, we have seen a general slow-
down in department store traffic in some markets, which
has particularly affected Estée Lauder and Clinique, but
we have been able to grow our business in other chan-
nels. In North America, we continued to expand our pres-
ence in specialty multi-brand retailers and freestanding
retail stores. Internationally, we expanded our business in
freestanding stores, in European perfumeries and pharma-
cies, and in department stores, particularly in the United
Kingdom and certain markets in Asia. Travel retail remains
an important source of sales growth, profitability and