The Estée Lauder Companies Reports Outstanding Fiscal 2022 First Quarter Results

Net Sales Increased 23% and Diluted EPS Rose 32% to $1.88

Organic Net Sales¹ Grew 18% and Adjusted Diluted EPS Increased 29% in Constant Currency

Positioned to Deliver Strong Holiday and Key Events

Confirming Full Year Outlook

NEW YORK–(BUSINESS WIRE)–The Estée Lauder Companies Inc. (NYSE: EL) today reported net sales of $4.39 billion for its first quarter ended September 30, 2021, an increase of 23% from $3.56 billion in the prior-year period. Net sales grew in every region and product category, reflecting the recovery in brick-and-mortar retail stores, primarily in western markets. Organic net sales increased 18%.

The Company reported net earnings of $692 million, compared with net earnings of $523 million in the prior-year period. Diluted net earnings per common share was $1.88, compared with $1.42 reported in the prior-year period. Excluding restructuring and other charges and adjustments as detailed on page 3, adjusted diluted earnings per common share increased 31% to $1.89, and rose 29% in constant currency.

Fabrizio Freda, President and Chief Executive Officer said, “We delivered excellent performance to begin fiscal 2022, despite the increased volatility and variability globally during the quarter, by virtue of our dynamic multiple engines of growth strategy. Our growth engines increasingly diversified, as we expected. Makeup, developed markets in the West, and brick-and-mortar reignited and complemented momentum in Skin Care, Fragrance, mainland China, Travel Retail in Asia/Pacific, and global Online². Impressively, relative to the pre-pandemic first quarter of fiscal 2020, the overall business is much bigger and more profitable.

Thirteen brands contributed double-digit organic sales growth versus the prior-year period, demonstrating the breadth of strength across our portfolio. Estée Lauder and M·A·C drove Makeup’s emerging renaissance, while La Mer and Clinique delivered stand-out results in Skin Care. Fragrance soared double-digits in every region, driven by Tom Ford Beauty and Jo Malone London. Our hero products performed exceptionally well and our innovation proved, once more, to uniquely capture consumer desires.”

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1 Organic net sales represents adjusted net sales excluding non-comparable impacts of acquisitions, divestitures and brand closures as well as the impacts from currency. We believe the Non-GAAP measure of organic net sales growth provides year-over-year sales comparisons on a consistent basis. See pages 3 for reconciliations to GAAP.

2 Online sales discussed throughout includes sales of our products from our websites and third-party platforms, as well as estimated sales of our products sold through our retailers’ websites.

Freda emphasized, “Looking ahead, we remain focused on the safety and well-being of our employees and consumers. For fiscal 2022, we continue to expect strong net sales and adjusted earnings per share growth with margin expansion. Our confidence in the long-term growth opportunities for global prestige beauty and our Company is reflected in the announcement today to raise the quarterly dividend.”

Freda concluded, “Today, we will release our Fiscal 2021 Social Impact and Sustainability Report. We are incredibly inspired by the achievements of our employees around the world in realizing great progress towards our social impact and sustainability commitments and goals.”

COVID-19 Business Update

The COVID-19 pandemic continued to disrupt the Company’s operating environment, impacting retail traffic and consumer preferences in the first quarter of fiscal 2022. The resurgence of COVID-19 cases and the rapid spread of the Delta variant in most parts of the world led to government restrictions to prevent further spread of the virus. These restrictions included the intermittent closure of businesses deemed non-essential, curtailment of travel, social distancing and quarantines.

Retail Impact

While most brick-and-mortar retail stores globally that sell the Company’s products, whether operated by the Company or its customers, were open during much of the first quarter of fiscal 2022, there were intermittent closures throughout the world. More specifically, in Continental Europe, much of Latin America and most of the Asia/Pacific region, many retail stores were temporarily closed for some period during the quarter due to the resurgence of COVID-19 cases. In much of Continental Europe and parts of the Asia/Pacific region, retail locations gradually reopened later in the quarter with capacity and other safety restrictions in place. Globally, in areas where stores were open, consumer traffic has not recovered to the pre-COVID-19 pandemic levels.

While international passenger traffic remained largely curtailed globally, passenger traffic in Europe, the Middle East & Africa and The Americas was somewhat improved, albeit significantly below pre-COVID-19 pandemic levels. The improvement was due, in part, to an increase in summer holiday travel as government restrictions were lifted, most notably in the United Kingdom, the United States, the Caribbean and Mexico. In Asia/Pacific, a surge in COVID-19 cases led to increased travel restrictions during much of the quarter.

Overall, online continued to grow led by areas where COVID-19 restrictions led to greater brick-and-mortar closures. Online sales were nearly double the pre-COVID level of fiscal 2020 first quarter.

Consumer Preferences

The COVID-19 pandemic-related closures of offices, retail stores and other businesses and the significant decline in social gatherings have influenced consumer preferences and practices. While the demand for makeup improved significantly versus the prior year, it continues to be the only category that remains below the pre-COVID-19 pandemic period, given fewer makeup usage occasions and ongoing mask wearing, while skin care, fragrance and hair care have all grown from pre-pandemic levels.

Supply Chain

The COVID-19 pandemic has contributed to global transportation delays due to port congestion, labor and container shortages, and shipment delays. As a result, higher transportation and logistics costs are expected to negatively impact cost of sales and operating expenses in the remainder of fiscal 2022. The Company expects to mitigate most of the impact to its business and costs through strategic price increases, product mix, timing of shipments, use of air freight and less congested ports, and cost savings in other areas.

Fiscal 2022 First Quarter Results

Organic net sales growth represents adjusted net sales excluding non-comparable impacts of acquisitions, divestitures and brand closures (notably DECIEM) as well as the impacts from currency.

Reconciliation between GAAP and Non-GAAP Net Sales Growth (Unaudited)
	Three Months Ended September 30, 2021
As Reported – GAAP(1)	23	%
Organic, Non-GAAP(2)	18	%
Impact of acquisitions, divestitures and brand closures	3
Impact of foreign currency	2
Returns associated with restructuring and other activities	—
As Reported – GAAP(1)	23	%
(1)Includes returns associated with restructuring and other activities
(2)Organic net sales growth represents adjusted net sales excluding non-comparable impacts of acquisitions, divestitures and brand closures (notably DECIEM) as well as the impacts from currency.

Adjusted diluted earnings per common share excludes restructuring and other charges as detailed in the following table.

Reconciliation between GAAP and Non-GAAP – Diluted Earnings Per Share (“EPS”) (Unaudited)
	Three Months Ended
	September 30
	2021			2020			Growth
As Reported EPS – GAAP(1)	$	1.88		$	1.42		32	%
Non-GAAP
Restructuring and other charges	.01			.02
Adjusted EPS – Non-GAAP	$	1.89		$	1.44		31	%
Impact of foreign currency on earnings per share	(.03		)
Adjusted Constant Currency EPS – Non-GAAP	$	1.86		$	1.44		29	%
(1)Includes restructuring and other charges and adjustments

Net sales and operating income in the Company’s product categories and regions outside of the United States benefited from a weaker U.S. dollar in relation to most currencies.

Results by Product Category (Unaudited)
	Three Months Ended September 30
	Net Sales						Percentage Change				Operating Income (Loss)						Percentage Change
($ in millions)	2021			2020			Reported Basis		Constant Currency		2021			2020			Reported Basis
Skin Care	$	2,449		$	2,035		20	%	18	%	$	717		$	721		(1	)%
Makeup	1,174			978			20		18		91			(71		)	100	+
Fragrance	609			406			50		48		131			60			100	+
Hair Care	148			136			9		8		2			3			(33	)
Other	13			7			86		71		—			1			(100	)
Subtotal	4,393			3,562			23		21		941			714			32
Returns/charges associated with
restructuring and other activities	(1		)	—							(6		)	(9		)
Total	$	4,392		$	3,562		23	%	21	%	$	935		$	705		33	%

Organic Net Sales Growth – Reconciliation to GAAP (Unaudited)
	Three Months Ended September 30 2021 vs. 2020
	Organic Net Sales Growth (Non-GAAP)(1)		Impact of Acquisitions, Divestitures and Brand Closures		Impact of Foreign Currency		Net Sales Growth (GAAP)
Skin Care	12	%	6	%	2	%	20	%
Makeup	18		—		2		20
Fragrance	48		—		2		50
Hair Care	8		—		1		9
Other	57		14		15		86
Subtotal	18	%	3	%	2	%	23	%
Returns associated with restructuring and other activities							—	%
Total	18	%	3	%	2	%	23	%
(1)Organic net sales growth represents adjusted net sales excluding non-comparable impacts of acquisitions, divestitures and brand closures (notably DECIEM) as well as the impacts from currency.

Total reported operating income was $935 million, a 33% increase from $705 million in the prior-year period. In constant currency, adjusted operating income increased 29%, primarily reflecting higher net sales and excluding the following items:

• Fiscal 2022 first quarter: $6 million of restructuring and other charges
• Fiscal 2021 first quarter: $9 million of restructuring and other charges and adjustments
• The favorable impact of currency translation of $18 million.

Skin Care

• Skin care net sales grew across every region, primarily led by La Mer and Clinique.
• The non-comparable impacts of net sales related to acquisitions, divestitures and brand closures contributed approximately 6 percentage point to net sales growth.
• Strong double-digit growth from La Mer reflected the brand’s significant strength with Chinese consumers. Net sales growth was driven by increases in hero products, including Crème de la Mer, The Moisturizing Soft Cream, and The Treatment Lotion. The launch of The Hydrating Infused Emulsion and targeted expanded consumer reach, including the launch on a new online platform in Southeast Asia, also contributed to growth.
• Clinique delivered double-digit growth driven by strong demand for its hero products, including Even Better Clinical Radical Dark Spot Corrector + Interrupter, and the launch of the Smart Clinical Repair Wrinkle Correcting Serum.
• Skin care operating income decreased, primarily reflecting product mix, strategic investments in advertising and promotional activities and difficult comparisons to a prior year launch, largely offset by higher net sales from La Mer.

Makeup

• Makeup net sales increased, reflecting a nascent recovery in western markets as usage occasions increased and the category benefited from the easier comparisons to the prior year. The increase was led by strong double-digit sales growth from Estée Lauder and M·A·C as COVID-19 restrictions eased somewhat and social events began to recover in certain locations.
• Growth from Estée Lauder was fueled by the Double Wear and Futurist foundation product lines as well as the successful launches of Double Wear Sheer Long-Wear Foundation and Pure Color Whipped Matte Lip Color.
• M·A·C’s growth reflected successful marketing campaigns to drive the makeup renaissance as COVID-19 restrictions subside, with particular strength in face and eye products.
• Makeup operating income increased, primarily reflecting higher net sales, partially offset by strategic investments to support the makeup recovery.

Fragrance

• Net sales grew in every region and across virtually all brands that sell fragrances, driven by continued resilience in luxury fragrance, easy comparisons versus the prior-year period, and the timing of shipments, including holiday shipments.
• Tom Ford Beauty grew strong double-digits, reflecting strength in Private Blend, including Oud Wood and Lost Cherry, and Signature, including Black Orchid. The launch of Ombre Leather Parfum and accelerated growth in emerging markets also contributed to growth.
• Jo Malone London’s net sales grew double digits primarily driven by strength in colognes, particularly in hero franchises like Wood Sage & Sea Salt and English Pear & Freesia. Bath & Body and Home also delivered strong growth reflecting consumer demand for home fragrance products during the pandemic.
• Designer fragrances growth primarily reflected timing of holiday shipments as well as easy comparisons in travel retail versus the prior year.
• Net sales from Le Labo and Estée Lauder rose strong double digits with growth primarily reflecting the opening of brick-and-mortar, improved traffic to those retail locations and initial shipments of Estée Lauder’s The Luxury Collection.
• Kilian Paris’ net sales nearly doubled, driven by retail reopening and demand for hero products, including Love, Don’t be Shy, and the successful launch of The Liquors franchise.
• Fragrance operating income increased, driven primarily by higher net sales partly offset by strategic investments to support brick-and-mortar reopening.

Hair Care

• Hair care net sales rose, reflecting increases from both Bumble and bumble and Aveda primarily due to the reopening of brick-and-mortar salons and retail.
• Hair care operating results were flat reflecting higher net sales offset by strategic investments to support the recovery as brick-and-mortar reopens.

Results by Geographic Region (Unaudited)
	Three Months Ended September 30
	Net Sales						Percentage Change				Operating Income (Loss)						Percentage Change
($ in millions)	2021			2020			Reported Basis		Constant Currency		2021			2020			Reported Basis
The Americas	$	1,194		$	873		37	%	36	%	$	254		$	65		100	+%
Europe, the Middle East & Africa	1,873			1,540			22		21		465			411			13
Asia/Pacific	1,326			1,149			15		11		222			238			(7	)
Subtotal	4,393			3,562			23		21		941			714			32
Returns/charges associated with restructuring and
other activities	(1		)	—							(6		)	(9		)
Total	$	4,392		$	3,562		23	%	21	%	$	935		$	705		33	%

Organic Net Sales Growth – Reconciliation to GAAP (Unaudited)
	Three Months Ended September 30 2021 vs. 2020
	Organic Net Sales Growth (Non-GAAP)(1)		Impact of Acquisitions, Divestitures and Brand Closures		Impact of Foreign Currency		Net Sales Growth (GAAP)
The Americas	27	%	9	%	1	%	37	%
Europe, the Middle East & Africa	19		2		1		22
Asia/Pacific	10		1		4		15
Subtotal	18	%	3	%	2	%	23	%
Returns associated with restructuring and other activities							—	%
Total	18	%	3	%	2	%	23	%
(1)Organic net sales growth represents adjusted net sales excluding non-comparable impacts of acquisitions, divestitures and brand closures (notably DECIEM) as well as the impacts from currency.

The Americas

• Net sales grew throughout the region as brick-and-mortar largely reopened and traffic began to recover as government restrictions eased in many parts of the region. Growth in the region was led by double-digit increases in the United States and Latin America.
• The non-comparable impacts of net sales related to acquisitions, divestitures and brand closures contributed approximately 9 percentage point to net sales growth.
• Brick-and-mortar sales increased strong double digits, more than offsetting a modest decline in organic online sales. Brick-and-mortar benefited from a year-over-year increase in open retail locations as well as improved traffic in those locations. Logistics constraints also caused some retailers to increase orders, including accelerating holiday purchases.
• In North America, sales grew in every product category. The fragrance category continued to deliver double-digit growth, hair care increased double digits and skin care growth remained strong. Makeup, which was disproportionately impacted by the challenges stemming from the COVID-19 pandemic, returned to growth with a strong double-digit increase.
• In Latin America, sales grew double digits in every market and every category.
• Operating income in The Americas increased, primarily reflecting higher nets sales partially offset by strategic investments to support the reopening of brick-and mortar retail and the makeup recovery.

Europe, the Middle East & Africa

• Net sales grew in virtually every market, led by the United Kingdom, Russia and the Middle East. The growth reflects recovery in brick-and-mortar as vaccination rates rose compared to the prior year when retail traffic was negatively impacted by COVID-19.
• The non-comparable impacts of net sales related to acquisitions, divestitures and brand closures contributed approximately 2 percentage point to net sales growth.
• Sales increased in every category led by fragrance and makeup.
• Global travel retail sales increased double digits reflecting continued growth in Asia/Pacific, despite a surge in COVID-19 cases that led to increased travel restrictions there during much of the first quarter of fiscal 2022, as well as the partial return of summer holiday travel in Europe, the Middle East & Africa and The Americas.
• Organic online sales growth slowed from the fourth quarter of fiscal 2021, but remained positive, as brick-and-mortar recovered.
• Operating income increased, primarily driven by higher net sales partially offset by strategic investments behind key hero franchises and to support the reopening of brick-and-mortar retail.

Asia/Pacific

• Net sales growth primarily reflected increases in Greater China and Korea as COVID-related retail store closures in the rest of the region negatively impacted growth.
• The non-comparable impacts of net sales related to acquisitions, divestitures and brand closures contributed approximately 1 percentage point to net sales growth.
• Fragrance and skin care net sales grew double digits in the region and hair care increased single digit.
• The Company continued to focus its investments on digital marketing, resulting in strong double-digit online sales growth that more than offset the impact to brick-and-mortar from the resurgence of COVID-19 cases during the quarter.
• In mainland China, net sales grew double digits led by skin care and fragrance. Sales also increased double digits in nearly every channel.
• Operating income decreased, reflecting continued strategic investments despite increased headwinds from temporary restrictions due to COVID-19, which more than offset the higher net sales.

Cash Flows

• For the three months ended September 30, 2021, net cash flows provided by (used for) operating activities were $(81) million, compared with $358 million in the prior-year period, as working capital needs returned to a more normalized level for the first quarter, partially offset by higher earnings before taxes, excluding non-cash items.
• Capital Expenditures increased to $205 million compared to $116 million in the prior-year period, primarily driven by increased investment for a new manufacturing facility in Japan.
• The Company ended the quarter with $4 billion in cash and cash equivalents after returning $749 million cash to stockholders through dividends and share repurchases.

Outlook for Fiscal 2022 Second Quarter and Full Year

With multiple engines of growth across regions, brands, product categories and channels, the Company is well-positioned to continue to drive a gradual recovery as macro-conditions and market dynamics support it. The Company expects to invest in areas to support the recovery, including advertising, online, research and development and supply chain, to both drive growth in areas of opportunity and help nurture emerging trends in the rest of the business.

The full year outlook reflects the following assumptions:

• Global volatility and variability is expected to continue, including inflation, supply chain disruption and COVID-19 restrictions. In the context of this uncertain environment, the Company believes it can continue to mitigate emerging headwinds and manage through this environment while driving multiple engines of growth.
• A recovery of the makeup and hair care categories as countries reduce COVID-19 restrictions.
• Growth in developed markets in the west and in brick-and-mortar retail.
• Targeted new distribution throughout the year to retailers that provide broader consumer reach.
• A gradual resumption of international travel beginning later in the fiscal year.
• Benefit from a nearly full year incremental impact of DECIEM in net sales and operating results.
• Higher transportation and logistics costs are expected to negatively impact cost of sales and operating expenses in the remainder of fiscal 2022. The Company expects to mitigate most of the impact to its business and costs through strategic price increases, product mix, timing of shipments, use of air freight and less congested ports, and cost savings in other areas.
• Incremental savings from the Post-COVID Business Acceleration Program and reinvestment in advertising and capabilities.
• Full-year effective tax rate of approximately 23%.

The Company is mindful of ongoing risks related to the COVID-19 pandemic as well as risks related to social, economic and political matters, including restructurings and bankruptcies in the retail industry, geopolitical tensions, regulatory developments, global security issues, currency volatility, general economic challenges, including inflationary pressures and supply chain disruptions, and changes in consumer preferences that affect consumer spending in certain countries, channels and travel corridors. Longer-term, the Company expects to return to its growth targets of 6% to 8% sales growth, 50 basis points of operating margin expansion and double-digit adjusted diluted earnings per share growth in constant currency after a period of normalization as the impacts of COVID-19 subside.

Second Quarter Fiscal 2022

Sales Outlook

• Reported net sales are forecasted to increase between 11% and 13% versus the prior-year period.
• Organic net sales, which excludes the non-comparable impacts from acquisitions, divestitures and brand closures as well as the impact from currency, are forecasted to increase between 8% and 10%.

Earnings per Share Outlook

• Reported diluted net earnings per common share are projected to be between $2.47 and $2.59. Excluding restructuring and other charges and adjustments, diluted net earnings per common share are projected to be between $2.51 and $2.61.
  • The Company expects to take charges associated with previously approved restructuring and other activities. For the Post-COVID Business Acceleration Program, the charges are estimated to be between approximately $10 million to $20 million, equal to $.02 to $.04 per diluted common share.
• Adjusted diluted earnings per common share are expected to be flat to down 4% on a constant currency basis. The prior year effective tax rate included the one-time benefit associated with the retroactive application of changes in global intangible low-taxed income (“GILTI”) U.S. tax regulations.
  • Currency exchange rates are volatile and difficult to predict. Using September 30, 2021 spot rates for the second quarter of fiscal 2022, the currency impact on diluted earnings per share is expected to be negligible.
• The increase in ownership of DECIEM is also expected to be negligible to diluted earnings per common share.

Full Year Fiscal 2

Contacts

Investors: Rainey Mancini
[email protected]

Media: Jill Marvin

[email protected]

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