Estee Lauder 2013 Annual Report Download - page 123

While our overall business is performing well, we are
seeing continued weakness in certain Southern European
countries and Korea due to challenging economic envi-
ronments. In Korea, we are also seeing competitive pres-
sures in prestige beauty. Elsewhere, we are cautious of
a slowing retail environment in the United States in the
short term and a slowing of the future growth trend in
China. During the first half of fiscal 2013, we also saw a
slowing in the exceptional growth we had experienced in
fiscal 2012 in travel retail, due in part to select retailer
destocking to enable tighter working capital manage-
ment. However, our sales growth in the channel has since
improved and we expect this trend to continue into fiscal
2014. We believe we have and will continue to offset to
some extent the impact of these events as a result of our
strategy to mitigate weaknesses we find in certain areas
with strengths in others. However, if economic conditions
or the degree of uncertainty or volatility worsen or the
adverse conditions previously discussed are further pro-
longed, then we expect there to be a negative effect on
ongoing consumer confidence, demand and spending
and, as a result, our business. We will continue to monitor
these and other risks that may affect our business. Our
Venezuelan subsidiary has been operating in a highly
inflationary economy since January 2010. In February
2013, the Venezuelan government announced the devalu-
ation of its currency, the bolivar fuerte. This devaluation
did not have a significant impact on our business or our
consolidated financial statements for the year ended June
30, 2013. We do not expect this devaluation to have a
significant impact on our ongoing future consolidated net
sales or operating income. However, any further devalua-
tion could have a negative effect on our local business.
We plan to continue to invest in the significant mod-
ernization of our global information systems, which
includes the Strategic Modernization Initiative (“SMI”) as
well as other initiatives. As part of SMI, we anticipate the
continued migration of our operations to SAP-based tech-
nologies, with the majority of our locations being enabled
through calendar 2014. During the fiscal 2013 third quar-
ter SMI implementation of the global supply planning
component, challenges emerged which caused some cus-
tomer service delays and certain products to be out of
stock. As a result, we decided to defer the previously
scheduled January 2014 SMI implementation by six
months. Subsequently, we resolved the SMI-related chal-
lenges, so that customer service delays and products out
of stock related to this rollout have improved as expected.
These challenges did not have a significant impact on our
business or our consolidated financial results for the year
ended June 30, 2013. We expect our initiatives should
over time provide for overall profitability improvements by
enhancing gross margin and supporting efficiencies in
select operating expenses, which should enable us to stra-
tegically reinvest our savings in activities that will support
our future growth.
Looking ahead to fiscal 2014, we plan to continue
building on our strengths and our heritage of innovation
to bring unique and high-performance products with
long-term appeal and enduring quality to our consumers.
We expect our strategy will enable us to continue to suc-
ceed in high growth channels, benefit from regional
opportunities, focus on emerging market consumers and
enhance our local relevance. We plan on continuing to
bring highly innovative products to consumers and elevat-
ing our personalized “High-Touch” philosophy through
customization with key retailers, expansion in freestand-
ing stores and extending it to fast-growing digital plat-
forms. We remain dedicated to investing in select areas to
improve our capabilities or develop new ones. Our main
focuses are accelerating our digital capabilities, research
and development, product innovation, consumer insight
and local relevance.
RETURNS AND CHARGES ASSOCIATED WITH
RESTRUCTURING ACTIVITIES
In an effort to drive down costs and achieve synergies
within our organization, in February 2009, we announced
the implementation of a multi-faceted cost savings pro-
gram (the “Program”) to position the Company to achieve
long-term profitable growth. We anticipated the Program
would result in total cumulative restructuring charges and
other costs to implement those initiatives of between
$350 million and $450 million before taxes. During the
second quarter of fiscal 2013, we closed the Program. We
concluded the approval of all initiatives under the Pro-
gram and anticipate commencing the execution of those
initiatives through fiscal 2014. As a result of the closure of
the Program and evaluation of the initiatives that have
been implemented, as of June 30, 2013, we anticipate
total cumulative restructuring charges and other costs to
implement those initiatives to total between $320 million
and $330 million and that such charges have been sub-
stantially recorded through fiscal 2013. We will continue
to monitor the progress of these initiatives and revise esti-
mates as appropriate.
THE EST{E LAUDER COMPANIES INC. 121