Brand Building Propels Lauder Net Up 23.1% in Second Quarter

NEW YORK — The Estée Lauder Cos. on Thursday reaped a 23.1 percent rise in profits as earlier investments in its brands paid a handsome...

"In the U.S. we are seeing progress from the investment we have made in the Estée Lauder brand renewal over the past year, stemming from product innovation as well as new advertising and reduced promotions. For the Lauder brand we strategically shortened the time of the holiday blockbuster program to create a high degree of desirability for the sets, while supporting it with more broadcast media," he said.

The move exceeded expectations with a 98 percent sell-through rate.

Despite Wall Street pressure to conserve cash and tepid top-line growth, Lauder in recent quarters made a concrete effort to support its brands and fattened its advertising spending. Strength in the second quarter "validates our strategy to invest in marketing activity to generate growth," said the ceo in a statement.

When asked about the firm’s 7 percent increase in advertising, sampling and merchandising expenditures in the second quarter, Langhammer didn’t mince words.

"Don’t drive me crazy about the quarters. I’m looking at the annual scenario. We have two major seasons here: the fall and the spring season. Managing this business by quarter drives everybody crazy. I let the quarters come out the way they come out."

Besides, expenditures were down slightly as a percentage of sales.

Banc of America Securities analyst William Steele noted, "It was a very good quarter, good top line, good bottom line, improvement in the balance sheet. It’s what the investment community wants in any consumer product company."

The firm, he said, has invested behind its brands "through thick and thin" and that consistent brand promotion, along with the introduction of new products, is beginning to resonate with the consumer.

"They did spend behind the brand at the expense of near-term profitability and because of the nearsightedness of Wall Street, they took a lot of heat," he noted. "People are going to back off a little bit."

Standard & Poor’s debt analyst Lori Harris was encouraged by the results as they show Lauder "is executing against its plan, which is particularly impressive given the lackluster global economy and soft holiday selling season. Significant and growing cash balances provide the company with substantial financial flexibility, whether to make an acquisition and/or continue with share repurchases."
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