Estee Lauder 2015 Annual Report Download - page 67

64 THE EST{E LAUDER COMPANIES INC.
brand building, although it is susceptible to a number of
external factors, including fluctuations in foreign currency
exchange rates and consumers’ willingness and ability to
travel. We have strategies focused on consumers who
purchase in this channel, in stores at their travel destina-
tions or when they return to their home market. In addi-
tion, we have identified opportunities to expand our
online portfolio around the world, resulting in strong net
sales growth in this channel, and we are in the early stages
of developing and testing omnichannel concepts to better
serve consumers as they shop across channels. We are
applying what we have learned from our digital strategy in
the United States to other markets such as Brazil and
Russia. To further drive our online sales, we are expanding
our presence on key third-party platforms in China, where
we are seeing promising results.
While our business is performing well overall, we con-
tinue to see competitive pressures and economic chal-
lenges in certain countries around the world. We remain
cautious of slower retail growth in Hong Kong and China,
a decline in spending by Russian and Brazilian travelers,
unfavorable foreign exchange due to the strength of the
U.S. dollar in relation to most currencies, and lower net
sales from our travel retail business in Korea, one of our
largest markets for travel retail, due to a decrease in the
number of travelers there as a result of the recent outbreak
of the MERS virus. Additionally, we are monitoring the
effects of economic instability in Russia, Greece and Brazil.
We believe we can, to some extent, offset the impact
of these challenges by accelerating areas where we see
more strength by utilizing the various growth drivers
among our brands, channels and markets. However, if
economic conditions or the degree of uncertainty or vol-
atility worsen, or the adverse conditions previously dis-
cussed are further prolonged, then we expect there could
be a negative effect on ongoing consumer confidence,
demand and spending and, as a result, our business. We
will continue to monitor these and other risks that may
affect our business.
Looking ahead to fiscal 2016, we plan to execute our
strategy by focusing on the multiple growth engines that
we believe will promote long-term sustainable growth.
These include strengthening our presence in emerging
markets, continuing to revitalize and accelerate growth
in our heritage brands, focusing on key demographics
and seeking opportunities to add to our diverse brand
portfolio. We will continue to drive innovation and cre-
ativity that we believe will enable us to introduce products
that resonate with consumers. Some will involve new
sub-categories and others may expand key franchises.
We expect to leverage our topline growth through greater
productivity, due in part to cost savings and efficiencies
from our Strategic Modernization Initiative (“SMI”).
We plan to continue allocating our resources to growth
drivers such as digital capabilities, including the develop-
ment of omnichannel concepts, retail store expansion and
information technology enhancements. We also plan to
continue to succeed in high growth product categories,
sub-categories and channels of distribution, benefit from
regional opportunities, focus on emerging market and
luxury consumers and enhance our local relevance.
Investment in our global information systems is
ongoing. We have implemented initiatives to leverage our
SMI foundation that are focused on sustainment and
global efficiencies. As we continue to modernize our key
processes, related systems and infrastructure, we are also
developing upgraded capabilities to support our human
resource operations and are making investments to
upgrade our global technology infrastructure, as well
as our retail systems and retail capabilities globally.
These initiatives are expected to improve profitability by
enhancing gross margin and supporting efficiencies in
select operating expenses and working capital, freeing
resources to strategically reinvest in activities to support
our future growth.
We rolled out the last major wave of SMI in July 2014
and currently most of our locations are SAP-enabled. We
plan to continue the implementation of SAP at our
remaining locations throughout the next few fiscal years.
In connection with the July 2014 implementation, some
retailers accelerated their sales orders that would have
occurred in our fiscal 2015 first quarter into our fiscal
2014 fourth quarter in advance of this implementation to
provide adequate safety stock to mitigate any potential
short-term business interruption associated with the SMI
rollout. The impact on net sales and operating results by
product category and geographic region was as follows:
YEAR ENDED JUNE 30, 2014
(In millions) Net Sales Operating Results
Product Category:
Skin Care $ 91 $ 72
Makeup 65 41
Fragrance 21 14
Hair Care 1 —
Other — —
Total $178 $127
Region:
The Americas $ 84 $ 53
Europe, the Middle East
& Africa 68 53
Asia/Pacific 26 21
Total $178 $127