Estée Lauder raises full-year forecast on strength in skincare, China

(Reuters) - Estée Lauder Cos Inc raised its annual profit forecast after posting quarterly results that topped estimates on Tuesday driven by strong growth in China and higher demand for luxury skincare, sending shares up 15.3 percent to a seven-month high.

FILE PHOTO: Lipstick is displayed in the M.A.C flagship store in Paris, February 28, 2013. REUTERS/Philippe Wojazer

Sales in the Asia-Pacific region grew 17 percent, crossing $1 billion for the first time, as the company benefited from its efforts to expand its business in international markets.

Chief Executive Fabrizio Freda said in a post-earnings call that demand for its luxury beauty products from the Chinese consumer has remained strong despite potential risks to the economy, including higher tariffs.

“So far, we have not seen an impact and remain optimistic about the long-term health and resilience of prestige beauty in China,” said Freda about the region where the company recorded double-digit growth in sales.

In China, the company has collaborated with local celebrities such as Yang Mi and Fei Fei Sun and has been selling on Alibaba’s online marketplace Tmall, while also using the country’s social media channels to lure the Chinese consumer.

“EL’s China market share gains continued, with particular strength in e-commerce, which now accounts for more than one-third of sales in China,” Morgan Stanley Equity Analyst Dara Mohsenian said.

Sales in the company’s skincare business - its biggest - grew 16 percent in the quarter to $1.73 billion.

Overall, net sales rose 7 percent to $4.01 billion, also topping analysts’ average expectation of $3.92 billion, according to IBES data from Refinitiv.

DA Davidson Analyst Linda Bolton Weiser said, “It is especially impressive that they did 11 percent organic sales growth even though US and UK were weak.”

Net income attributable to the company rose four fold to $573 million in the second quarter ended Dec. 31, 2018, from a year earlier, when the company incurred a tax-related charge.

On an adjusted basis, the company earned $1.74 per share, beating estimates of $1.55 per share, according to Refinitiv data.

For 2019, the company now expects adjusted profit for fiscal 2019 to be between $4.92 and $5 per share, from a prior forecast of $4.73 and $4.82.

Excluding items, it expects annual sales to grow between 8 percent and 9 percent, as opposed to the previously issued range of 7 percent to 8 percent.

Shares of the New York city-based company up 13.10 percent at $154 in morning trade.

Reporting by Jaslein Mahil in Bengaluru; Editing by Shinjini Ganguli and Sweta Singh