Estee Lauder 2005 Annual Report Download - page 47

THE EST{E LAUDER COMPANIES INC.
NET EARNINGS
Net earnings and diluted net earnings per common share
increased approximately 19% and 20%, respectively. Net
earnings as compared with the prior fiscal year improved
$64.0 million to $406.1 million and diluted net earnings per
common share improved to $1.78 from $1.48. Net earnings
from continuing operations increased by $30.7 million or
8% and diluted net earnings per common share from con-
tinuing operations increased 10% to $1.78 from $1.62 in
the prior fiscal year. The planned repatriation of foreign
earnings in accordance with the AJCA, as discussed above,
resulted in an incremental tax charge of approximately $28
million, or $0.12 per diluted common share. As noted
above, net earnings in fiscal 2006 are expected to be
adversely impacted by the adoption of SFAS No. 123(R),
“Share-Based Payment.” In addition, we expect results in
the Americas region to be adversely impacted by the
August 2005 merger of Federated Department Stores, Inc.
and The May Department Stores Company.
FISCAL 2004 AS COMPARED WITH FISCAL 2003
NET SALES
Net sales increased 14% or $694.4 million to $5,790.4 mil-
lion, reflecting growth in all product categories and all geo-
graphic regions led by double-digit growth in Europe, the
Middle East & Africa and Asia/Pacific and the inclusion of a
full year of net sales of the Darphin line of products, which
was acquired during the fourth quarter of fiscal 2003. Net
sales results in Europe, the Middle East & Africa and
Asia/Pacific benefited from the weakening of the U.S. dol-
lar. Excluding the impact of foreign currency translation,
net sales increased 9%.
Product Categories
Skin Care Net sales of skin care products increased 13%
or $246.4 million to $2,140.1 million. Approximately $60
million of this increase was attributable to the new launches
of Hydra Complete Multi-Level Moisture Cream and
Idealist Micro-D Deep Thermal Refinisher by Estée Lauder
and Pore Minimizer by Clinique. Additionally, growth of
approximately $134 million was due to strong sales of
Clinique’s 3-Step Skin Care System and the Repairwear line
of products from Clinique, Re-Nutriv Intensive Lift Serum
and Re-Nutriv Intensive Eye Crème by Estée Lauder and
the inclusion of a full year of net sales of the Darphin line of
products, which are primarily skin care. Partially offsetting
these increases were approximately $34 million of lower
net sales of certain existing products such as Advanced
Stop Signs by Clinique and White Light and LightSource
product lines by Estée Lauder. Excluding the impact of for-
eign currency translation, skin care net sales increased 8%.
Makeup Makeup net sales increased 14% or $260.5 mil-
lion to $2,148.3 million, in part, due to net sales increases
of our M.A.C and Bobbi Brown makeup artist lines of
approximately $122 million, collectively. The increase in
net sales also reflected approximately $79 million from the
fiscal 2004 launches of Ideal Matte Refinishing Makeup
SPF 8 and Electric Intense LipCreme by Estée Lauder and
Perfectly Real Makeup and Colour Surge Bare Brilliance by
Clinique. Also contributing to net sales growth were strong
sales of approximately $53 million of High Impact Mascara,
High Impact Eye Shadow and Skin Clarifying Makeup by
Clinique, as well as Pure Color Lip Vinyl and Artist’s Lip and
Eye Pencils from Estée Lauder. Partially offsetting these
increases were approximately $30 million of lower net
sales of certain existing products such as So Ingenious
Multi-Dimension Liquid Makeup and Pure Color Lipstick
from Estée Lauder and Moisture Surge Lipstick from
Clinique. Excluding the impact of foreign currency transla-
tion, makeup net sales increased 10%.
Fragrance Net sales of fragrance products increased 15%
or $161.5 million to $1,221.1 million, primarily attributable
to the fiscal 2004 launches of Estée Lauder Beyond
Paradise, Aramis Life, Clinique Simply and the Tommy Jeans
collection, which together contributed approximately $194
million to the growth. These product launches primarily
contributed to increased fragrance net sales outside the
United States and are inclusive of improved results from
our travel retail business. These net sales increases were
partially offset by lower net sales of Estée Lauder pleasures,
Intuition and Beautiful, certain Tommy Hilfiger products
and Clinique Happy of approximately $90 million, collec-
tively. Excluding the impact of foreign currency translation,
fragrance net sales increased 10%.
Hair Care Hair care net sales increased 9% or $20.5 mil-
lion to $249.4 million. This increase resulted from sales
growth from Aveda and Bumble and bumble products due
to an increase in sales at existing salons and spas, new
salon and spa openings and the success of new and exist-
ing products. Aveda net sales also increased as a result of
the opening of new Company-owned Aveda Experience
Centers. Partially offsetting the increase were lower net
sales of Clinique’s Simple Hair Care System. Excluding the
impact of foreign currency translation, hair care net sales
increased 7%.
The introduction of new products may have some can-
nibalizing effect on sales of existing products, which we
take into account in our business planning.
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