By Phil Wahba
May 2 (Reuters) - Estée Lauder Cos Inc reported higher-than-expected quarterly profit on Thursday and raised its earnings forecast, boosted by its campaign to cut costs.
The company, which makes luxury skin care, makeup, fragrance and hair care products, also expects to outperform its rivals in the high-end beauty markets, where industry growth has slowed.
Lauder executives said they benefited from soaring sales in its travel outlets such as airports, in China, where retail sales rose 25 percent, and by a jump in high end spending in the United States.
“The strongest advances came from our top tier luxury brand as affluent consumers continue to demonstrate their purchasing power,” Chief Executive Fabrizio Freda said of the Americas.
The company’s shares were up 3.7 percent at $71.35 in afternoon trading, hitting a new all-time high.
BMO analyst Connie Maneaty said in a note that Lauder’s results continue to be impressive, especially gross margin expansion, which was well above expectations.
Lauder in December ended a three-year program aimed at reducing its costs, included dropping unprofitable operations, outsourcing some functions and reorganizing some units.
Lauder, known for its namesake brand, as well as lines such as La Mer and Bobbi Brown, reported net income of $178.8 million, or 45 cents a share, for the fiscal third quarter, ended March 31, up from $130.4 million, or 33 cents a share, a year earlier. That was 11 cents per share better than expected.
Lauder expects a profit, before one-time charges, of $2.56 per share to $2.61 per share for the year ending in June, up from an earlier forecast of $2.51 to $2.59.
Third-quarter sales grew 1.9 percent to $2.3 billion, in line with Wall Street estimates, with makeup, primarily Lauder’s MAC brand, showing the largest gains.
Sales rose in all regions and categories, including high-end fragrances such as Jo Malone and Tom Ford.
Lauder’s success in China came in part by having products specifically for that market and early moves to have a presence in second tier cities there, Freda told Reuters.
Estee Lauder said it now expects sales growth this year of 6 percent, excluding the impact of currency fluctuations, the low end of its previous forecast of 6 percent to 7 percent.
Freda told analysts that was because Lauder expects the high end beauty products market to grow 3 percent this year, rather than the 5 percent it was estimating earlier.
Smaller rival Elizabeth Arden Inc also reported sales gains in the quarter, with revenue jumping 10.5 percent. The increase came from its celebrity and designer fragrances such as a new launch with pop star Nicki Minaj and its push into international markets.
The better than expected sales stood in contrast to Arden’s disappointing performance in the earlier quarter, when the company slashed its forecasts and its shares rose 9.1 percent to $42.87.
Arden, also known for products such as its Prevage anti-aging creams, stood by its previous forecast for a full-year adjusted profit of $2.30 per share to $2.50 per share and a sales rise of 9 percent to 11 percent.
Arden reported a quarterly net loss of $1.3 million, or 4 cents per share, compared with a profit of $2.2 million, or 7 cents per share, a year earlier. Excluding items such as expenses related to efforts to enhance its namesake brand, Arden had a profit of 2 cents per share, in line with analysts’ average forecast.
SunTrust Robinson Humphrey said in a research note it could take several more quarters for the makeover of the Elizabeth Arden brand to have a big impact on sales.