Estée Lauder’s Fragrance Segment’s Brands Saw Mixed Results



Fragrance segment’s fiscal 3Q16 revenue

Estée Lauder’s (EL) fragrance segment’s reported revenue rose 4.6% in reported terms and 7% on a constant-currency basis to $0.3 billion in fiscal 3Q16.

The rise primarily reflected strong double-digit gains from luxury brands Jo Malone London and Tom Ford and incremental sales from recent acquisitions.

The increase in sales was due to the success of luxury brands including Le Lebo, Tom Ford Noir, and the Neroli Portofino line of fragrances, as well as Jo Malone’s recent launch of Mimosa & Cardamom. In addition, designer fragrances, including the Michael Kors (KORS) Gold Collection and Tory Burch, contributed to revenue gains.

Estée Lauder is a global licensee for fragrances sold under brand names such as Coach (COH), Tory Burch, and Tommy Hilfiger (PVH).

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Operating income fell

Operating income for fragrance segment fell 133% to -$0.01 billion in fiscal 3Q16. The fall was primarily due to lower sales of certain designer fragrances and of the Estée Lauder brand, partially offset by higher results from Jo Malone.

However, artisanal luxury fragrance brands such as Frederic Malle and AERIN contributed to higher revenue in China in fiscal 3Q16. According to CEO Fabrizio Freda, Jo Malone’s business doubled in China, with strong growth in both department stores and freestanding stores.

By Kilian acquisition

On February 25, 2016, EL acquired By Kilian, a Paris-based luxury fragrance brand, for an undisclosed amount. By Kilian is sold in more than 40 countries. Its current product offerings include fragrances, candles, accessories, and exclusive collections available in certain regions.

Through this acquisition, Estée Lauder will hold a strong portfolio of fragrances in comparison to peers Coty (COTY) and L’Oréal (LRLCY). Also, this acquisition will give EL a strategic opportunity to gain market share in the ultra-luxury fragrance category. In addition, the company continues to expand distribution and roll out exciting new scents.

EL makes up ~0.1% of the iShares Core S&P Total U.S. Stock Market ETF (ITOT).[1. Updated as of May 6, 2016]


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