The Estée Lauder Companies Reports Fiscal 2020 Third Quarter Results.
Company Sees Continued Acceleration of Global Online Net Sales and Initial Recovery in Mainland China.
Continues Global Relief Efforts, Launches ELC Cares Employee Relief Fund.
The Estée Lauder Companies reported net sales of $3.35 billion for its third quarter ended March 31, 2020, a decrease of 11% from $3.74 billion in the prior-year period. Excluding the impact of currency translation, net sales decreased 9%. The net sales decline was driven by retail store closures as a result of the global spread of COVID-19 that was partially offset by the inclusion of net sales from the Company’s recent acquisition of Have&Be Co. Ltd. (“Dr. Jart+”), which contributed approximately 2 percentage points to reported net sales growth.
The beauty company reported a net loss of $(6) million, compared with net earnings of $555 million last year.
Fabrizio Freda, President and Chief Executive Officer said, “While the terrific double-digit momentum in sales growth from the first half of our fiscal year carried into January, the dynamics in the quarter changed significantly as COVID-19 spread beyond Asia. By early March, consumers around the world began social distancing which resulted in lower traffic in retail locations. As March evolved, most retail stores temporarily closed and consumers increasingly stayed home. In this very complex and unprecedented environment, there were several bright spots across our portfolio which drove global prestige beauty share expansion in the quarter. The Estée Lauder, Darphin, and Le Labo brands grew, global online sales rose strong double-digits, sales in mainland China and global travel retail increased, and skincare sales grew internationally, including Dr. Jart+. The surge in our online business worldwide, coupled with the recovery we are seeing emerge in China, confirm consumers’ passion for our prestige beauty portfolio.
“In light of ongoing temporary store closures in many regions, we have begun to adjust our cost structure and have enhanced our liquidity during this challenging time. We remain focused on our proven strategy built on multiple engines of growth and the desirability of our brands and their hero franchises. Our diverse portfolio of categories, channels and geographies affords us the needed agility to navigate through this environment and emerge strongly. We stand ready to leverage the recovery when stores reopen and consumers restock at home.”
Freda emphasized, “As the global community continues to confront the COVID-19 pandemic, the health and well-being of our employees and consumers remain paramount to us. We are continuing to find ways to make meaningful contributions worldwide, both monetary and in-kind. We are producing over one million hand sanitizers at our plants in the United States and Europe. This week, we established the ELC Cares Employee Relief Fund, our newest giving initiative, which will be funded through contributions from the Company, the Lauder family and our employees to provide immediate and critical financial relief to employees whose lives have been impacted by the pandemic.”
COVID-19 Business Update
During the third quarter of fiscal 2020, the outbreak and global spread of COVID-19 caused a significant disruption in the Company’s operating environment. Accordingly, the Company modified a number of its business practices, in part due to legislation, executive orders and guidance from government entities and healthcare authorities (collectively, “COVID-19 Directives”). These include the temporary closing of businesses deemed “non-essential,” travel bans and restrictions, social distancing and quarantines.
As a result of the COVID-19 Directives, retail stores across most regions, whether operated by the Company or its customers, have been closed for some period of time. In Asia/Pacific, some retail stores in northern Asia have been reopening after closing for most of February and March while most retail stores in southern Asia remain closed, and retail stores in Europe, the Middle East & Africa and in The Americas began closing in early March. In addition, air travel has been largely curtailed to and from Asia since the end of January and the remaining international travel routes since March, adversely impacting the growth trend of the travel retail business.
During this time, a majority of the Company’s facilities continued to manufacture and distribute products globally, albeit in a much- reduced capacity in light of safety measures taken to protect the Company’s employees.
In the Asia/Pacific region, operations in mainland China were meaningfully impacted from late January through March as a result of COVID-19. At the peak in February, over 70% of retail doors, whether operated by the Company or its customers, were closed, and the remaining stores were operating on reduced hours. During that period, online net sales growth accelerated as beauty advisors and retailers worked to capture consumer demand online. Net sales in mainland China returned to double-digit growth in constant currency in March, mainly driven by online. As of mid-April 2020, virtually all doors are open in Greater China and Korea. The Company has also reopened its corporate offices in Shanghai. Net sales in mainland China grew year-over-year during the third quarter of fiscal 2020 and net sales in Korea have returned to growth since the beginning of April. In the rest of Asia/Pacific, between 80% and 100% of doors in most markets remained closed as of mid-April.
In The Americas and in Europe, the Middle East & Africa, most retail doors began closing in March in accordance with guidance from government entities and healthcare authorities. At the same time, consumers started staying home to maintain proper social distancing. Many retail locations in the Balkan peninsula and the Nordic region have remained open. Some countries have recently announced plans to gradually reopen in the coming months, including Germany and Italy. Consistent with the trends in mainland China, online net sales growth has also accelerated in The Americas and in Europe, the Middle East & Africa.
COVID-19 and its various impacts have also influenced consumer preferences due to the closures of offices, retail stores and other businesses and the significant decline in social gatherings. The demand for skin care and hair care products has been more resilient than the demand for makeup and fragrance. Within skin care, the demand for products in hero franchises has remained strong, driving high single-digit growth at the Estée Lauder brand during the third quarter of fiscal 2020.
COVID-19 Corporate Giving Initiatives Update
The Company, its brands and its foundations have made numerous donations including commitments to Doctors Without Borders, The New York City COVID-19 Response and Impact Fund, Red Cross Society of China, Shanghai Charity Foundation, Give2Asia, and Community Chest of Korea. And, the Company is making over one million hand sanitizers for front line workers, high-risk individuals and its employees.
The Estée Lauder brand donated two million surgical masks for front-line workers in New York, Clinique donated 50,000 skincare products to doctors and nurses in New York City’s hospitals, Aveda launched Aveda Cares, a relief program to benefit independent salons and stylists in the United States, and the M•A•C VIVA GLAM fund is donating funds to local organizations globally that are providing essential needs and services to people at higher risk of being infected with COVID-19.
To support its employees worldwide facing financial hardships due to COVID-19, the Company has established an ELC Cares Employee Relief Fund, consisting of contributions from the Company, the Lauder family and the Company’s employees.