Estée Lauder Cos Inc. and Elizabeth Arden Inc. forecast strong results for their new fiscal years, raising investor hopes that the US cosmetics makers could withstand a weak global economy and sending their shares sharply higher.
Like Revlon Inc. and Avon Products Inc., Estée and Arden also reported quarterly profits that met or topped Wall Street estimates, demonstrating that tough times do not cause women to cut back as much on make-up, skin creams and perfumes as they do in other areas.
"I'm not going to tell you that women are buying themselves lipstick to feel better because they can't buy gas," said BMO Capital Markets analyst Connie Maneaty. "But the strength of the sales growth is pretty clear. This is a resilient category worldwide."
While cosmetics companies struggle with rising fuel prices as much as other consumer goods manufacturers, Ms Maneaty said the costs of their main ingredients were not as inflated.
Estée, known for brands like MAC and Clinique, and Arden, which makes Red Door and Britney Spears perfumes, both cited a benefit from the weak US dollar and higher sales abroad that helped offset the impact of the deteriorating US economy.
Estée Lauder said net income soared 36 per cent to €81 million, or 61 cents a share, in the fourth quarter, ended June 30, from €60 million, or 45 cents a share, a year earlier. That easily topped analysts' average forecast of 56 cents, according to Reuters Estimates.
Quarterly sales rose 14 per cent to €1.35 billion. Excluding the effect of foreign currency translation, which boosted the dollar value of overseas business, revenue was up nine per cent.
"The bulk of the gains came from our vibrant international business, which fuelled momentum and more than compensated for slower US growth," Estée chief executive officer William Lauder said on a conference call. He said 59 per cent of total sales came from outside the US, up from 54 per cent a year earlier.
Another key area for Estée, much like Arden, is the travel retail segment, which accounts for only about 8 per cent of its total sales but more than 20 per cent of profits.
The segment's shops, mostly located inside airports, don't usually offer discounts, meaning margins remain high. They also target customers waiting for flights, encouraging "high impulse" purchases, said Goldsmith & Harris analyst Gary Giblen.
Estée said it expected the segment to deliver double-digit sales growth, even though passenger traffic is slowing due to higher fares and fewer flights. Arden executives said they were "bullish" about the channel as it moves into fiscal 2009, with many initiatives to expand in the segment.