Estee Lauder 2008 Annual Report Download - page 67

THE EST{E LAUDER COMPANIES INC. 65
a new hotel amenities program, sales growth in its existing
salon distribution and new points of distribution. Exclud-
ing the impact of foreign currency translation, hair care
net sales increased 17%.
Geographic Regions
Net sales in the Americas increased 3%, or $114.5 million,
to $3,560.9 million. The increase was led by growth in the
United States of approximately $152 million from our
makeup artist brands, our hair care business, our internet
distribution and the fi scal 2007 launch of the Unforgivable
fragrance by Sean John. Partially offsetting this growth
was approximately $90 million related to weaknesses in
our core brands as a result of competitive pressures and
retailer consolidations. Net sales growth in Canada,
Latin America and Mexico contributed an additional
$31 million to the increase. The fiscal 2006 results
reflected an incremental provision of approximately
$16 million for returns that were anticipated at that time
as a result of then-announced store closings from retailer
consolidations.
In Europe, the Middle East & Africa, net sales increased
16%, or $345.7 million, to $2,493.4 million, including an
exchange rate benefi t due to the weakening of the U.S.
dollar of approximately $122 million. The growth in the
region refl ected higher net sales of approximately $260
million in the United Kingdom, our travel retail business,
Russia, Germany and Spain, with all benefi ting from an
improving retail environment, and in Turkey, where we
acquired a distributor. On a local currency basis, net sales
in Europe, the Middle East & Africa increased 10%.
Net sales in Asia/Pacifi c increased 13%, or $113.5 mil-
lion, to $983.2 million. The growth in this region refl ected
higher net sales of approximately $86 million in Korea,
China, Hong Kong and Australia. These markets benefi ted
from an improved economy across the region while
China’s growth in net sales primarily refl ected our contin-
ued strategic expansion in this country. We also experi-
enced modest sales growth in Japan, our largest market in
this region. Excluding the impact of foreign currency trans-
lation, Asia/Pacifi c net sales increased 11%.
We strategically stagger our new product launches by
geographic market, which may account for differences in
regional sales growth.
COST OF SALES
Cost of sales as a percentage of total net sales decreased
to 25.2% as compared with 26.1% in fi scal 2006. Cost of
sales as a percentage of net sales refl ected a favorable
change in the mix of our business of approximately 40
basis points, a decrease in the level and timing of promo-
tional activities of approximately 20 basis points, the effect
and Repairwear Lift Firming Night Cream, Continuous
Rescue Antioxidant Moisturizer, All About Eyes Rich and
Repairwear Contour Firming Formula from Clinique con-
tributed incremental sales of approximately $95 million,
combined. Net sales increases from our fast-growing La
Mer brand, Resilience Lift Extreme Ultra Firming products
and other existing Advanced Night Repair products from
Estée Lauder, along with products in the Clinique 3-Step
Skin Care System and Superdefense from Clinique, totaled
approximately $97 million. These improvements were
partially offset by approximately $35 million of lower
sales from certain other Resilience Lift products and
Perfectionist [CP+] from Estée Lauder. Excluding the
impact of foreign currency translation, skin care net sales
increased 6%.
Makeup Makeup net sales increased 8%, or $208.5 mil-
lion, to $2,712.7 million, reflecting growth from our
makeup artist brands of approximately $191 million. This
increase was supported by new points of distribution and
new product launches as well as M.A.C Viva Glam lip
products, the proceeds of which are donated to AIDS-
related charities. Higher sales of Double Wear Foundation
and the fi scal 2007 launch of Resilience Lift Extreme Ultra
Firming Makeup SPF 15 by Estée Lauder contributed
approximately $56 million to the growth in this product
category. Lower sales of approximately $35 million of
Pure Color Gloss and Individualist Natural Finish Makeup
by Estée Lauder, and Repairwear Anti-Aging Makeup SPF
15 by Clinique partially offset this growth. Excluding the
impact of foreign currency translation, makeup net sales
increased 6%.
Fragrance Net sales of fragrance products increased 8%,
or $95.3 million, to $1,308.6 million, primarily driven by
incremental international sales from newer fragrance
offerings. DKNY Red Delicious, Pure White Linen from
Estée Lauder, Sean John Unforgivable, DKNY Red
Delicious Men and Donna Karan Gold collectively con-
tributed approximately $128 million to the category.
Lower sales of approximately $67 million of True Star and
True Star Men by Tommy Hilfi ger, and Estée Lauder
pleasures partially offset the growth in this product cate-
gory. Excluding the impact of foreign currency translation,
fragrance net sales increased 5%.
Hair Care Hair care net sales increased 18%, or $58.4
million, to $377.1 million, primarily due to sales growth
from Aveda and Bumble and bumble products. Aveda net
sales increases were primarily due to sales of professional
color products, the fi scal 2007 launch of Be Curly sham-
poo and conditioner and the acquisition of an indepen-
dent distributor. Bumble and bumble sales benefi ted from