01—Abstract
Summary
Summary of the 10-K filed August 21, 2008. Cited figures are marked; the original filing is the authoritative source.
The Estée Lauder Companies Inc. filed its annual report on Form 10-K for the fiscal year ended June 30, 2008.
Net sales rose 12%, or $873.3 million, to $7,910.8 milliona, with growth in all product categories and geographic regions; excluding foreign currency translation, net sales increased 8%. Operating income increased 8%, or $60.8 million, to $810.7 million, though operating margin declined to 10.3% of net sales from 10.7%. Net earnings increased 5%, or $24.6 million, to $473.8 million, and diluted net earnings per share improved 11% from $2.16 to $2.40.
Growth was led by Europe, the Middle East & Africa, where net sales increased 21% to $3,006.7 millionb and operating income rose 35% to $433.1 million. The Americas, the largest region at $3,711.5 million in net sales, grew only 4%, and its operating income declined 32% to $228.3 million amid difficulties in the U.S. department store channel. Asia/Pacific net sales increased 21% to $1,192.6 million.
Management cited economic uncertainty in the United States and continued softness in department stores, and expects continued challenges in the U.S. fragrance category. Balance sheet and cash flow data show total assets of $5,011.2 millionc, total debt of $1,196.9 million, and stockholders' equity of $1,653.2 million at June 30, 2008.
Cash provided by operating activities was $690.1 milliond, and cash used for investing activities was $478.5 million, including the Ojon acquisition. The Lauder family controls approximately 87.8% of the voting power, and Macy's, Inc. accounted for 12% of fiscal 2008 consolidated net sales.
02—Key points
Key Highlights
- Net sales rose 12% to $7,910.8 million, with growth in all product categories and geographic regions; excluding currency translation, net sales increased 8%.
- Operating income increased 8% to $810.7 million, but operating margin fell to 10.3% from 10.7% as operating expenses rose to 64.5% of net sales.
- Net earnings increased 5% to $473.8 million; diluted EPS rose 11% to $2.40 from $2.16.
- Europe, the Middle East & Africa net sales rose 21% to $3,006.7 million and operating income rose 35% to $433.1 million, led by travel retail and the United Kingdom.
- The Americas operating income declined 32% to $228.3 million on a difficult U.S. department store environment, despite net sales growth of 4% to $3,711.5 million.
- Cash flow from operations was $690.1 million; total debt was $1,196.9 million, and total debt as a percent of total capitalization was 42% at June 30, 2008.
- Macy's, Inc. accounted for 12% of fiscal 2008 consolidated net sales, and the Lauder family held approximately 87.8% of the voting power.
03—Questions
Frequently Asked Questions
How did The Estée Lauder Companies perform in fiscal 2008?
Net sales grew 12% to $7,910.8 million and net earnings rose 5% to $473.8 million, with diluted EPS of $2.40 compared with $2.16 in fiscal 2007. Operating income increased 8% to $810.7 million, though operating margin declined slightly to 10.3%.
Which regions drove growth, and which lagged?
Europe, the Middle East & Africa led growth, with net sales up 21% and operating income up 35%. Asia/Pacific net sales rose 21%. The Americas grew only 4% in net sales, and its operating income fell 32% to $228.3 million due to challenges in the U.S. department store channel.
What risks and challenges did management highlight?
Management pointed to economic uncertainty in the United States, softness in the department store channel, retailer consolidation, and a highly competitive fragrance category, where it anticipated continued challenges in the U.S. Customer concentration is also significant, as Macy's, Inc. accounted for 12% of fiscal 2008 net sales.
How is the company financed and how much debt does it carry?
Total debt was $1,196.9 million at June 30, 2008, including $1,078.2 million of long-term debt. The company has a $750.0 million undrawn revolving credit facility expiring April 2012 and a $750.0 million commercial paper program, with $83.9 million of commercial paper outstanding. Management believes available resources are adequate for planned operations.
Who controls the company and what did it return to shareholders?
The Lauder family beneficially owned shares carrying approximately 87.8% of the outstanding voting power as of August 15, 2008. The Board declared an annual dividend of $.55 per share in fiscal 2008, up from $.50, and the company repurchased about 3.0 million shares for $129.1 million during the year.
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