Estee Lauder 2014 Annual Report Download - page 55

Download and view the complete annual report

Please find page 55 of the 2014 Estee Lauder annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 118

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118

THE EST{E LAUDER COMPANIES INC. 53
and prestige salon channels. The travel retail channel
continues to be an important source of sales growth and
profitability. Our business in this channel has benefited
from the implementation of programs we designed to
target consumers in distinct travel corridors, enhance
consumers’ “High-Touch” experiences and convert travel-
ers into purchasers.
While our overall business is performing well, we are
seeing continued softness in certain Southern European
countries and Korea due to challenging economic envi-
ronments, as well as intensifying competitive pressures
globally. Elsewhere, we are cautious of an uncertain retail
environment in the United States in the short term,
unfavorable foreign exchange rates in certain emerging
countries, and the lower growth rates we have been expe-
riencing in China. We also continue to see an adverse
impact of Chinese government actions on the travel and
spending of Chinese consumers, which are affecting sales
in the travel retail channel, at their travel destinations and
within their home market.
We believe we have and will continue to offset to some
extent the impact of these challenges as a result of our
strategy to mitigate weaknesses we find in certain areas
by utilizing the strengths of our diverse brand portfolio
and geographic presence in other areas. However, if
economic conditions or the degree of uncertainty or vol-
atility worsen, or the adverse conditions previously dis-
cussed are further prolonged, 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.
Looking ahead to fiscal 2015, 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
incorporate our personalized “High-Touch” philosophy
through customization with key retailers, expansion in
freestanding retail stores and extending it to fast-growing
digital platforms. We remain dedicated to investing in
select areas to improve our capabilities or develop new
ones. Our main focuses are digital capabilities, research
and development, product innovation, consumer insight,
information technology improvements and operational
excellence.
We rolled out the last major wave of SMI in July 2014
in certain of our remaining locations. As a result, some
retailers accelerated their sales orders that we believe
would normally occur in our fiscal 2015 first quarter into
our fiscal 2014 fourth quarter in advance of this imple-
mentation to provide adequate safety stock to mitigate
any potential short-term business interruption associated
with the SMI rollout. The impact on net sales and operat-
ing results by product category and geographic region is
as follows:
YEAR ENDED JUNE 30, 2014
(In millions) Net Sales Operating Results
Product Category:
Skin Care $ 91 $ 72
Makeup 65 41
Fragrance 21 14
Hair Care 1 —
Other — —
Total $178 $127
Region:
The Americas $ 84 $ 53
Europe, the Middle East
& Africa 68 53
Asia/Pacific 26 21
Total $178 $127
These actions created a favorable comparison between
fiscal 2014 and fiscal 2013 of approximately $178 million
in net sales and approximately $127 million in operating
results and impacted our operating margin comparisons.
While these additional orders benefited our fiscal 2014
net sales and operating results comparisons, we expect
there to be a corresponding adverse effect on our first
quarter and full year fiscal 2015 net sales and operating
results. We believe the presentation of certain year-to-
date comparative information in the following discussions
that excludes the impact of the timing of these orders is
useful in analyzing the net sales performance and operat-
ing results of our business.
IMPACT OF RECENT ECONOMIC EVENTS
IN VENEZUELA
Our Venezuelan subsidiary has been operating in a
highly inflationary economy since January 2010. Ongoing
macro economic uncertainties in Venezuela have resulted
in stringent controls on foreign currency exchange. In
February 2013, there was a devaluation of the Venezuelan
currency, the bolivar fuerte (“VEF”), from an official rate
of 4.3 to 6.3. We recorded a devaluation charge in our
fiscal 2013 third quarter, which did not have a significant
impact on our consolidated net sales or operating
income. In October 2013, the Venezuelan government
introduced an auction-based foreign currency exchange
mechanism (“SICAD I”). Participation in the weekly