Estee Lauder 2011 Annual Report Download - page 105

THE EST{E LAUDER COMPANIES INC. 103
Hair Care Hair care net sales increased 4%, or $18.4 mil-
lion, to $432.3 million, primarily reflecting the recent
launches of Be Curly Style-Prep and Control Force from
Aveda. The category also benefited from net sales gener-
ated from expanded global distribution. These increases
were partially offset by the current-year reformulation of
Ojon brand products, which was relaunched in the fourth
quarter of fiscal 2011. The impact of foreign currency
translation on hair care net sales was de minimis.
Geographic Regions
Net sales in the Americas increased 10%, or $354.2 mil-
lion, to $3,796.3 million. The increase in the current year
was primarily attributable to growth in the United States
and Canada from our heritage and makeup artist brands,
which benefited from an improved retail environment,
new skin care and makeup product offerings and an
increase in sales of higher-end prestige skin care products.
Net sales also reflected the addition of the Smashbox
brand to our portfolio. While partially offset by the exit
from the global wholesale distribution of the Prescriptives
brand and the current-year reformulation of Ojon brand
products, all of these factors contributed to higher net
sales in the United States and Canada of approximately
$328 million. We are continuing to work with retailers in
the U.S. department store channel on strengthening the
“High-Touch” concepts used to help market our products.
Net sales in Latin America increased approximately $26
million, reflecting growth in emerging markets such as
Brazil. The growth in this region was partially offset by the
impact of unfavorable exchange rates in Venezuela. The
impact of foreign currency translation on the Americas
net sales was de minimis.
In Europe, the Middle East & Africa, net sales increased
14%, or $398.3 million, to $3,257.6 million, due to growth
from our travel retail business and from most countries in
the region and from each product category. This reflects
our strategy to strengthen our geographic presence and
to succeed in the travel retail channel. Approximately
$306 million of the increased net sales came from our
travel retail business, the United Kingdom, Russia, the
Middle East, South Africa and France. This was attribut-
able to improved retail environments, successful launches
of skin care products and higher combined sales from our
makeup artist brands. The net sales improvement in
our travel retail business also reflected an increase
in global airline passenger traffic, new points of distribution
and benefits of programs designed to enhance con sumers’
“High-Touch” experiences and convert travelers into
purchasers. The higher results also reflect the favorable
comparison to the prior year which included a charge
related to our long-term perfumery strategy of approxi-
mately $31 million, as previously discussed. Partially
offsetting these increases were lower net sales of approxi-
mately $13 million in the Balkans and Spain, primarily
reflecting the economic situation in those markets. The
impact of foreign currency translation on Europe, the
Middle East & Africa net sales was de minimis.
Net sales in Asia/Pacific increased 17%, or $250.6 mil-
lion, to $1,760.7 million, reflecting growth from all coun-
tries in the region and each product category. This reflects
our strategy to strengthen and expand our geographic
presence in Asia, particularly in China. Approximately
$181 million of this increase was generated in China,
Hong Kong, Korea and Taiwan primarily reflecting strong
sales of skin care products. Our businesses in Japan and
Australia continued to be challenged due to difficult eco-
nomic conditions, but they reported net sales gains of
approximately $33 million, which were generated from
the strengthening of their respective currencies. At this
time, we believe the ongoing consequences of the disas-
ters in Japan may continue for the short term, however,
we cannot predict with certainty the magnitude or dura-
tion of the impact and we will continue to monitor the
situation. The region also benefited from the favorable
impact of foreign currency translation. Excluding the
impact of foreign currency translation, Asia/Pacific net
sales increased 10%.
Although our financial performance in fiscal 2011
reflected improved economic conditions in certain coun-
tries, we expect the recent global economic uncertainties
and volatility in financial markets will have an impact on
our business. Unless the current conditions worsen or are
prolonged, the impact will not be significant. We cannot
predict with certainty the magnitude or duration of the
impact of global economic uncertainties and volatilities or
how it will vary across each of our geographic regions.
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 22.0% as compared with 23.5% in the prior year. This
improvement primarily reflected our efforts in connection
with the Program, including favorable changes in the mix
of our business of approximately 70 basis points and
favorable manufacturing variances of 30 basis points. Also
contributing to the improvements of cost of sales margin
was the favorable effect of exchange rates of 30 basis
points and a decrease in obsolescence charges of approx-
imately 20 basis points.