UPDATE 3-Estée Lauder says affluent spend 'freely;' U.S., China strong

Tue Feb 5, 2013 2:38pm EST

* Estée Lauder still sees FY sales up 6-7 pct

* Sees FY EPS $2.51-$2.59 vs prior forecast $2.47-$2.56

* Shares up 6 percent in afternoon trading

By Phil Wahba

Feb 5 (Reuters) - Estée Lauder Cos Inc on Tuesday raised its full-year profit forecast, pointing to a surge in luxury sales and strong demand in the United States and China that is counteracting weaker markets like southern Europe and South Korea.

Sales in the quarter ended on Dec. 31 rose 7.1 percent to $2.93 billion, with gains in every region, including Europe, where sales in France and Switzerland returned to growth.

That appeared to reassure investors after Estée Lauder in November scaled back its full-year sales forecast because of a weak European market and as revenue grew a modest 2.9 percent in the first quarter.

The gains were most pronounced in its high-end products.

"The affluent consumer is spending freely," Estée Lauder Chief Executive Fabrizio Freda told analysts on a conference call. For instance, sales in its luxury brands like Jo Malone, Tom Ford and La Mer were up at least 20 percent.

The company's shares rose 5.8 percent to $64.60 in afternoon trading.

In Asia - still the company's smallest regional market but the cornerstone of its international expansion - sales were up 11 percent, with China and Hong Kong leading the way. In China, where it has more quickly expanded than other Western brands, sales rose 28 percent at its stores.

"We believe Estée Lauder continues gaining share of a still growing, but slowing prestige beauty category," Stifel Nicolaus & Co analyst Mark Astrachan wrote in a research note.

Growth should continue in the United States, where sales to department stores such as Saks Inc and Neiman Marcus were strong, as well as in several key emerging markets and on the company's e-commerce sites, Freda said in a statement.

Business was almost as good at department stores like Kohl's Corp that cater to middle-income consumers, as shoppers move up from "mass" brands to middle brands, known as "prestige" in industry parlance.

"It is solid because we are moving consumers from mass to prestige," Freda told Reuters.

The company, known for its namesake brand as well as lines including Clinique and MAC, still anticipates sales growth this year of 6 percent to 7 percent in local currency terms, although it expects third-quarter sales to increase 3 percent to 4 percent.

Skin care showed the largest gains as the company got a boost from the launch of products such as a La Mer moisturizer. Fragrances, often a laggard for the company, benefited from new products from designer Tom Ford.

Estée Lauder reported fiscal second-quarter net income of $447.5 million, or $1.13 a share, up from $396.7 million, or $1.00 a share, a year earlier.

The company now expects a profit of $2.51 to $2.59 per share for the year, up from an earlier range of $2.47 to $2.56.

Smaller rival Revlon Inc said its quarterly sales rose 14 percent in the United States, driven by increased demand for its Revlon and SinfulColors color cosmetics and ColorSilk hair color, and offsetting weakness in Europe.

Shares of Revlon rose more than 15 percent.

A couple walks along the rough surf during sunset at Oahu's North Shore, December 26, 2013. REUTERS/Kevin Lamarque

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