Estee Lauder 2005 Annual Report Download - page 44

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THE EST{E LAUDER COMPANIES INC.
FISCAL 2005 AS COMPARED WITH FISCAL 2004
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 and launching these new products influ-
ence our sales and operating performance each period.
The introduction of new products may have some canni-
balizing effect on sales of existing products, which we take
into account in our business planning.
NET SALES
Net sales increased 9% or $545.9 million to $6,336.3 mil-
lion reflecting growth in all major product categories, led
by makeup and skin care, and growth in all geographic
regions, led by Europe, the Middle East & Africa. Excluding
the impact of foreign currency translation, net sales
increased 7%.
Product Categories
Skin Care Net sales of skin care products increased
10% or $212.0 million to $2,352.1 million. Approximately
$179 million of this sales increase was related to the intro-
duction of Future Perfect Anti-Wrinkle Radiance Creme
SPF 15 and launches in the Perfectionist and Re-Nutriv
product lines by Estée Lauder, launches of Superdefense
Triple Action Moisturizers SPF 25 and certain Repairwear
products by Clinique, the introduction of certain American
Beauty and Good Skin™ products and the recent launch
of Modern Friction by Origins. On a combined basis,
strong sales of products in Clinique’s 3-Step Skin Care
System and The Lifting Face Serum & The Lifting Intensifier
by La Mer contributed approximately $29 million to
the sales increase. Partially offsetting these increases
was a decrease of approximately $52 million in sales of
Perfectionist Correcting Serum for Lines/Wrinkles, Idealist
Micro-D Deep Thermal Refinisher, and the White Light and
LightSource lines of products by Estée Lauder. Excluding
the impact of foreign currency translation, skin care net
sales increased 7%.
Makeup Makeup net sales increased 13% or $274.8 mil-
lion to $2,423.1 million. The growth included approxi-
mately $62 million of net sales from the launches of
American Beauty and Flirt!, and higher sales of Bobbi
Brown and Stila products, collectively. An increase of
approximately $105 million was attributable to the recent
launches of Superbalanced Compact Makeup SPF 20 and
Colour Surge Eye Shadow from Clinique and Lash XL
Maximum Length Mascara, Tender Blush, Pure Pops
Brush-on Color and AeroMatte Ultralucent Pressed
Powder by Estée Lauder. Also contributing to sales growth
was approximately $70 million of increased sales from
M.A.C’s Small Eye Shadow, Studio Fix, Lustreglass and Pro
Longwear Lipcolour. Partially offsetting these increases was
a decrease of approximately $38 million in sales of the
High Impact Mascara and High Impact Eye Shadow col-
lections and the Glosswear line of products by Clinique as
well as of Pure Color Lip Vinyl by Estée Lauder. Excluding
the impact of foreign currency translation, makeup net
sales increased 11%.
43
The following table presents certain consolidated earnings data as a percentage of net sales:
YEAR ENDED JUNE 30 2005 2004 2003
Net sales 100.0% 100.0% 100.0%
Cost of sales 25.5 25.5 26.0
Gross profit 74.5 74.5 74.0
Operating expenses:
Selling, general and administrative 63.1 63.1 63.3
Special charges —— 0.4
Related party royalties —0.3 0.4
63.1 63.4 64.1
Operating income 11.4 11.1 9.9
Interest expense, net 0.2 0.4 0.2
Earnings before income taxes, minority
interest and discontinued operations 11.2 10.7 9.7
Provision for income taxes 4.6 4.0 3.2
Minority interest, net of tax (0.2) (0.2) (0.1)
Net earnings from continuing operations 6.4 6.5 6.4
Discontinued operations, net of tax —(0.6) (0.1)
Net earnings 6.4% 5.9% 6.3%