Results by Product Category

Total reported operating income was $261 million, a 66% decrease from $771 million in the prior year. Operating income excluding (i) goodwill and other intangible asset impairments related to Too Faced, BECCA and Smashbox of $777 million compared to $38 million related to Smashbox in the prior-year period, (ii) restructuring and other charges and adjustments of $6 million compared with restructuring and other charges and adjustments of $37 million recorded in the prior-year period and (iii) the unfavorable impact of currency translation of $4 million, increased 24%. This improvement largely reflected higher net sales and disciplined expense management throughout the business despite increased strategic investments in advertising and promotional activities.

Skin Care

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Makeup

Fragrance

Hair Care

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The impairment charges for the makeup brands mentioned earlier were entirely reflected in The Americas region, negatively impacting operating income there. Beginning in the fiscal 2020 first quarter, changes were made to reflect certain Leading Beauty Forward enhancements in the capabilities and cost structure of our travel retail business, which are primarily centralized in The Americas region. This resulted in a change to the royalty structure of the travel retail business to reflect the value created in The Americas region. Accordingly, for the second quarter, the fiscal 2019 operating income of The Americas was increased by $210 million, with a corresponding decrease in Europe, the Middle East & Africa, to conform with the current year methodology and presentation.

The Americas

Europe, the Middle East & Africa

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Asia/Pacific

Six-Month Results

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Cash Flows

Outlook for Fiscal 2020 Second Half and Full Year

The Company continues to see strong consumer demand for its high-quality products, and for the fiscal year expects to grow ahead of the industry and to continue building global share. The Company expects global prestige beauty to be adversely impacted over the next few months by the coronavirus. The Company is also mindful of risks related to social, economic and political issues, including geopolitical tensions, regulatory matters, global security issues, currency volatility and economic challenges that could affect consumer spending in certain countries and travel corridors.

The Company’s guidance includes assumptions on the estimated impact and duration of the recent coronavirus outbreak, based on its knowledge at this time, which is still very difficult to predict. After experiencing continued strong momentum into January, the Company has seen a significant decline in air travel and consumer traffic in key shopping and tourist areas. Global travel retail, localities most affected by the virus outbreak and destination markets favored by tourists are expected to experience the greatest negative impact in the coming months followed by a gradual recovery later in the fiscal year. The Company stands ready to facilitate the recovery as soon as the market dynamics support it.

The Company has also reflected the following risks in its outlook:

Second Half Fiscal 2020

Due to the evolving and uncertain nature of the risk related to the coronavirus, the Company is only providing guidance for the second half of the fiscal year at this time instead of the quarterly guidance typically issued.

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Sales Outlook

Earnings per Share Outlook

Full Year Fiscal 2020

Sales Outlook

Earnings per Share Outlook

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Reconciliation between GAAP and non-GAAP

⁽¹⁾ Represents GAAP, except Constant Currency percentages

(F) Represents forecast

EPS amounts may not foot due to rounding  

Conference Call The Estée Lauder Companies will host a conference call at 9:30 a.m. (ET) today, February 6, 2020 to discuss its results. The dial-in number for the call is 888-294-4716 in the U.S. or 706-902-0101 internationally (conference ID number: 4437719). The call will also be webcast live at http://www.elcompanies.com/investors/events-and-presentations.

Cautionary Note Regarding Forward-Looking Statements

Statements in this press release, in particular those in “Outlook for Fiscal 2020 Second Half and Full Year,” as well as remarks by the CEO and other members of management, may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements may address our expectations regarding sales, earnings or other future financial performance and liquidity, other performance measures, product introductions, entry into new geographic regions, information technology initiatives, new methods of sale, our long-term strategy, restructuring and other charges and resulting cost savings, and future operations or operating results. These statements may contain words like “expect,” “will,” “will likely result,” “would,” “believe,” “estimate,” “planned,” “plans,” “intends,” “may,” “should,” “could,” “anticipate,” “estimate,” “project,” “projected,” “forecast,” and “forecasted” or similar expressions.

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Factors that could cause actual results to differ materially from our forward-looking statements include the following:

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The Company assumes no responsibility to update forward-looking statements made herein or otherwise.

The Estée Lauder Companies Inc. is one of the world’s leading manufacturers and marketers of quality skin care, makeup, fragrance and hair care products. The Company’s products are sold in approximately 150 countries and territories under brand names including: Estée Lauder, Aramis, Clinique, Prescriptives, Lab Series, Origins, Tommy Hilfiger, M·A·C, Kiton, La Mer, Bobbi Brown, Donna Karan New York, DKNY, Aveda, Jo Malone London, Bumble and bumble, Michael Kors, Darphin, Tom Ford, Smashbox, Ermenegildo Zegna, AERIN, RODIN olio lusso, Le Labo, Editions de Parfums Frédéric Malle, GLAMGLOW, By Kilian, BECCA, Too Faced and Dr. Jart+.

ELC-F

ELC-E

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Results by Product Category

 

		Six Months Ended December 31
		Net Sales								Percent Change								Operating Income (Loss)								Percent Change
(Unaudited; $ in millions)		2019				2018				Reported Basis				Constant Currency				2019				2018				Reported Basis
Skin Care		$	4,047			$	3,218				26	%			27	%		$	1,404			$	1,031				36	%
Makeup			3,103				2,966				5				5				(507	)			299				(100	+)
Fragrance			1,043				1,009				3				4				163				139				17
Hair Care			298				297				—				1				12				29				(59	)
Other			28				39				(28	)			(28	)			6				7				(14	)
Subtotal			8,519				7,529				13				14				1,078				1,505				(28	)
Returns/charges associated with restructuring and other activities			—				—												(38	)			(82	)
Total		$	8,519			$	7,529				13	%			14	%		$	1,040			$	1,423				(27	)%

 

Results by Geographic Region

 

		Six Months Ended December 31
		Net Sales								Percent Change								Operating Income (Loss)								Percent Change
(Unaudited; $ in millions)		2019				2018				Reported Basis				Constant Currency				2019				2018				Reported Basis
The Americas		$	2,386			$	2,454				(3	)%			(3	)%		$	(354	)		$	383				(100	+)%
Europe, the Middle East & Africa			3,756				3,200				17				19				882				675				31
Asia/Pacific			2,377				1,875				27				28				550				447				23
Subtotal			8,519				7,529				13				14				1,078				1,505				(28	)
Returns/charges associated with restructuring and other activities			—				—												(38	)			(82	)
Total		$	8,519			$	7,529				13	%			14	%		$	1,040			$	1,423				(27	)%

 

This earnings release includes some non-GAAP financial measures relating to charges associated with restructuring and other activities, goodwill and other intangible asset impairments, the changes in the fair value of contingent consideration, other income, the Transition Tax, the remeasurement of U.S. net deferred tax assets as of the TCJA enactment date, and the establishment of a net deferred tax liability related to foreign withholding taxes on certain foreign earnings resulting from the TCJA. The following is a reconciliation between the non-GAAP financial measures and the most directly comparable GAAP measures for certain consolidated statements of earnings accounts before and after these items. The Company uses certain non-GAAP financial measures, among other financial measures, to evaluate its operating performance, which represent the way the Company conducts and views its business. Management believes that excluding certain items that are not comparable from period to period, or do not reflect the Company’s underlying ongoing business, provides transparency for such items and helps investors and others compare and analyze operating performance from period to period. In the future, the Company expects to incur charges or adjustments similar in nature to those presented below; however, the impact to the Company’s results in a given period may be highly variable and difficult to predict. Our non-GAAP financial measures may not be comparable to similarly titled measures used by, or determined in a manner consistent with, other companies. While the Company considers the non-GAAP measures useful in analyzing its results, they are

 

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not intended to replace, or act as a substitute for, any presentation included in the consolidated financial statements prepared in conformity with GAAP.

 

The Company operates on a global basis, with the majority of its net sales generated outside the United States. Accordingly, fluctuations in foreign currency exchange rates can affect the Company’s results of operations. Therefore, the Company presents certain net sales, operating results and diluted earnings per share information excluding the effect of foreign currency rate fluctuations to provide a framework for assessing the performance of its underlying business outside the United States. Constant currency information compares results between periods as if exchange rates had remained constant period-over-period. The Company calculates constant currency information by translating current-period results using prior-year period weighted average foreign currency exchange rates and adjusting for the period-over-period impact of foreign currency cash flow hedging activities.

 

Reconciliation of Certain Consolidated Statements of Earnings Accounts Before and After Returns, Charges and Other Adjustments 

 

		Three Months Ended December 31, 2019																				Three Months Ended December 31, 2018
(Unaudited; $ in millions, except per share data and percentages)		As Reported				Returns/ Charges/ Adjustments				Non-GAAP				Impact of foreign currency translation				Non-GAAP, Constant Currency				As Reported				Returns/ Charges/ Adjustments				Non-GAAP				% Change Non-GAAP				% Change Non-GAAP, Constant Currency
Net Sales		$	4,624			$	—			$	4,624			$	22			$	4,646			$	4,005			$	—			$	4,005				15	%			16	%
Cost of sales			1,041				(6	)			1,035				5				1,040				910				(6	)			904
Gross Profit			3,583				6				3,589				17				3,606				3,095				6				3,101				16	%			16	%
Gross Margin			77.5	%							77.6	%							77.6	%			77.3	%							77.4	%
Operating expenses			3,322				(777	)			2,545				13				2,558				2,324				(69	)			2,255				13	%			13	%
Operating Expense Margin			71.8	%							55.0	%							55.1	%			58.0	%							56.3	%
Operating Income			261				783				1,044				4				1,048				771				75				846				23	%			24	%
Operating Income Margin			5.6	%							22.6	%							22.6	%			19.3	%							21.1	%
Other income			576				(576	)			—				—				—				—				—				—				—				—
Provision for income taxes			250				(10	)			240				2				242				171				3				174				38	%			39	%
Net Earnings Attributable to The Estée Lauder Companies Inc.		$	557			$	217			$	774			$	2			$	776			$	573			$	72			$	645				20	%			20	%
Diluted net earnings attributable to The Estée Lauder Companies Inc. per common share		$	1.52			$	.59			$	2.11			$	.01			$	2.12			$	1.55			$	.19			$	1.74				21	%			21	%

 

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Reconciliation of Certain Consolidated Statements of Earnings Accounts Before and After Returns, Charges and Other Adjustments 

 

		Six Months Ended December 31, 2019																				Six Months Ended December 31, 2018
(Unaudited; $ in millions, except per share data and percentages)		As Reported				Returns/ Charges/ Adjustments				Non-GAAP				Impact of foreign currency translation				Non-GAAP, Constant Currency				As Reported				Returns/ Charges/ Adjustments				Non-GAAP				% Change Non-GAAP				% Change Non-GAAP, Constant Currency
Net Sales		$	8,519			$	—			$	8,519			$	62			$	8,581			$	7,529			$	—			$	7,529				13	%			14	%
Cost of sales			1,949				(8	)			1,941				15				1,956				1,733				(12	)			1,721
Gross Profit			6,570				8				6,578				47				6,625				5,796				12				5,808				13	%			14	%
Gross Margin			77.1	%							77.2	%							77.2	%			77.0	%							77.1	%
Operating expenses			5,530				(800	)			4,730				39				4,769				4,373				(99	)			4,274				11	%			12	%
Operating Expense Margin			64.9	%							55.5	%							55.6	%			58.1	%							56.8	%
Operating Income			1,040				808				1,848				8				1,856				1,423				111				1,534				20	%			21	%
Operating Income Margin			12.2	%							21.7	%							21.6	%			18.9	%							20.4	%
Other income			576				(576	)			—				—				—				—				—				—				—				—
Provision for income taxes			412				(6	)			406				2				408				302				12				314				29	%			30	%
Net Earnings Attributable to The Estée Lauder Companies Inc.		$	1,152			$	238			$	1,390			$	6			$	1,396			$	1,073			$	99			$	1,172				19	%			19	%
Diluted net earnings attributable to The Estée Lauder Companies Inc. per common share		$	3.13			$	.65			$	3.78			$	.02			$	3.80			$	2.88			$	.27			$	3.15				20	%			21	%

 

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CONDENSED CONSOLIDATED BALANCE SHEETS

 

(Unaudited; $ in millions)		December 31 2019				June 30 2019				December 31 2018
ASSETS
Current Assets
Cash and cash equivalents		$	3,596			$	2,987			$	1,876
Short-term investments			—				—				525
Accounts receivable, net			2,225				1,831				2,000
Inventory and promotional merchandise			2,058				2,006				1,651
Prepaid expenses and other current assets			469				388				388
Total Current Assets			8,348				7,212				6,440
Property, Plant and Equipment, net			2,086				2,068				1,859
Operating lease right-of-use assets (A)			2,517				—				—
Other Assets			4,986				3,876				4,377
Total Assets		$	17,937			$	13,156			$	12,676
LIABILITIES AND EQUITY
Current Liabilities
Current debt		$	522			$	516			$	18
Accounts payable			1,137				1,490				995
Operating lease liabilities (A)			369				—				—
Other accrued liabilities			2,925				2,599				2,763
Total Current Liabilities			4,953				4,605				3,776
Noncurrent Liabilities
Long-term debt			4,662				2,896				3,373
Long-term operating lease liabilities (A)			2,318				—				—
Other noncurrent liabilities			1,403				1,244				1,194
Total Noncurrent Liabilities			8,383				4,140				4,567
Total Equity			4,601				4,411				4,333
Total Liabilities and Equity		$	17,937			$	13,156			$	12,676

 

(A) During the first quarter of fiscal 2020, the Company adopted Accounting Standards Codification (“ASC”) Topic 842 – Leases (“ASC 842”) using the modified retrospective transition approach permitted under the new standard for leases that existed at July 1, 2019, and, accordingly, the prior comparative periods were not restated. The adoption of this standard impacted the Company’s consolidated balance sheet due to the recognition of right-of-use assets and associated lease liabilities related to operating leases as compared to the previous accounting. The accounting for finance leases under ASC 842 is consistent with the prior accounting for capital leases. The impact of the adoption of this standard on the Company’s consolidated statements of earnings and consolidated statement of cash flows was not material.

  

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SELECT CASH FLOW DATA

 

		Six Months Ended
		December 31
(Unaudited; $ in millions)		2019				2018
Cash Flows from Operating Activities
Net earnings		$	1,159			$	1,079
Depreciation and amortization			287				269
Deferred income taxes			7				(46	)
Other items			359				175
Changes in operating assets and liabilities:
Increase in accounts receivable, net			(347	)			(343	)
Decrease (increase) in inventory and promotional merchandise			31				(21	)
Increase in other assets, net			(120	)			(53	)
Increase (decrease) in accounts payable and other liabilities			(121	)			213
Net cash flows provided by operating activities		$	1,255			$	1,273
Other Investing and Financing Sources/(Uses):
Capital expenditures		$	(291	)		$	(292	)
Payments for acquired businesses, net of cash acquired			(1,040	)			—
Proceeds (purchase) of investments, net			(5	)			257
Payments to acquire treasury stock			(813	)			(1,126	)
Dividends paid			(330	)			(297	)
Proceeds (repayments) of current debt, net			8				(169	)
Proceeds from issuance of long-term debt, net			1,775				—

 

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