Estee Lauder 2015 Annual Report Download - page 68

THE EST{E LAUDER COMPANIES INC. 65
The higher orders at the end of fiscal 2014, coupled with
the resulting lower orders in the beginning of fiscal 2015
created a difficult comparison between fiscal 2015 and
fiscal 2014, which resulted in a variance of approximately
$357 million in net sales and approximately $254 million
in operating results and adversely impacted our operating
margin comparisons. While these additional orders had
an adverse impact on our fiscal 2015 net sales and
operating results comparisons, we expect there to be cor-
responding favorable comparisons on our first quarter
and full year fiscal 2016 net sales and operating results.
We believe the presentation of certain year-to-date com-
parative information in the following discussions that
excludes the impact of the timing of these orders is useful
in analyzing the net sales performance and operating
results of our business.
See “Non-GAAP Financial Measures” below for recon-
ciliations between non-GAAP financial measures and the
most directly comparable U.S. GAAP measures.
FISCAL 2015 AS COMPARED WITH FISCAL 2014
NET SALES
Net sales decreased 2%, or $188.4 million, to $10,780.4
million, entirely driven by the negative impact of foreign
currency translation of approximately $519 million and
the difficult comparison due to the accelerated orders, as
discussed above, of approximately $357 million. Inclusive
of these items, higher net sales in our makeup and hair
care product categories were more than offset by declines
in our skin care and fragrance product categories, while
geographically, we experienced lower net sales in each
region. Our makeup artist and luxury brands continued to
grow net sales through successful product launches and
expanded global distribution. However, net sales from
Estée Lauder and Clinique have been challenged in all of
our product categories and reflect a difficult comparison
to the prior year, which featured significant launch activity
related to the reformulation of certain iconic skin care
products and several significant fragrance launches. In
addition, we are experiencing strong growth in certain
channels such as specialty-multi, online and freestanding
stores, as well as expansion in emerging markets. Exclud-
ing the impact of foreign currency translation and the
impact of the accelerated orders, net sales would have
increased 6%, with growth in each of our major product
categories and within each geographic region.
Product Categories
The change in net sales in each product category was
negatively impacted by the accelerated orders into the
fiscal 2014 fourth quarter from certain of our retailers due
to our implementation of SMI as follows: skin care,
approximately $183 million; makeup, approximately $131
million; fragrance, approximately $42 million; and hair
care, approximately $1 million.
Skin Care Net sales of skin care products decreased 6%,
or $291.1 million, to $4,478.7 million. This decrease
reflected the negative impact of foreign currency transla-
tion of approximately $215 million. The decrease, as
reported, reflected lower net sales of Estée Lauder and
Clinique products of approximately $303 million, com-
bined, primarily due to the accelerated orders and signifi-
cant launch activity in the prior year related to the
reformulation of certain iconic products. These decreases
were partially offset by higher sales of La Mer products,
primarily due to new launches and expanded distribution
in the travel retail channel, and incremental sales from our
recent acquisitions of approximately $23 million, com-
bined. Excluding the impact of foreign currency transla-
tion and the impact of the accelerated orders, skin care
net sales would have increased 2%. Excluding the impact
of foreign currency translation, skin care net sales
decreased 2%. Adjusting for the impact of the accelerated
orders, reported net sales in skin care would have
decreased 2%.
Makeup Makeup net sales increased 2%, or $94.4
million, to $4,304.6 million. This change reflected the neg-
ative impact of foreign currency translation of approxi-
mately $205 million. The net sales increase, as reported,
primarily reflected higher net sales from our makeup artist
brands, Tom Ford and Smashbox of approximately $293
million, combined. Sales from our makeup artist brands
benefited from new product offerings, as well as
expanded distribution in a number of channels, including
our freestanding retail stores. The higher net sales from
Tom Ford and Smashbox were primarily due to expanded
distribution of Tom Ford in the travel retail channel and
Smashbox in specialty multi-brand retailers. Partially off-
setting these increases were lower sales of Clinique and
Estée Lauder products of approximately $161 million,
combined. Excluding the impact of foreign currency trans-
lation and the impact of the accelerated orders, makeup
net sales would have increased 10%. Excluding the impact
of foreign currency translation, makeup net sales
increased 7%. Adjusting for the impact of the accelerated
orders, reported net sales in makeup would have
increased 5%.
Fragrance Net sales of fragrance products decreased
1%, or $8.6 million, to $1,416.4 million. This decrease was
entirely driven by the negative impact of foreign currency
translation of approximately $75 million. The decrease, as