01—Abstract
Summary
Summary of the 10-K filed August 19, 2009. Cited figures are marked; the original filing is the authoritative source.
The Estée Lauder Companies Inc. reported fiscal 2009 (year ended June 30, 2009) net sales of $7.32 billiona, down from $7.91 billion in fiscal 2008, with net earnings falling to $218.4 million ($1.10 diluted EPS) from $473.8 million ($2.40 diluted EPS).
Operating income declined to $418.4 millionb from $810.7 million, and the filing attributes the decline to customer destocking, a soft department store environment in the Americas, weak travel retail and Europe, and currency effects. Total charges associated with restructuring activities were $91.7 million in operating income, and the company launched a cost savings program targeting $350 million to $450 million in pre-tax charges and $450 million to $550 million in savings. By product category, skin care ($2.89 billion), makeup ($2.83 billion) and fragrance ($1.15 billion, down 20%) all declined, while Asia/Pacific net sales grew 9% to $1.30 billion.
Cash flow from operations was $696.0 million, cash and equivalents rose to $864.5 millionc, and total debt was $1.42 billion after the issuance of $300.0 million of 7.75% Senior Notes due 2013. The company's Lauder family controls approximately 87.6% of voting power, a concentration of control that investors should weigh alongside the company's reduced share repurchases and fiscal 2009 earnings decline.
The company's long-term strategy runs through fiscal 2013, with a stated vision to be the global leader in prestige beauty. Management expects continued challenges in North American department stores and in the global retail environment, and it notes ongoing risks from customer concentration (Macy's Inc. accounted for 12%d of net sales) and the Blydenburgh landfill environmental matter.
02—Key points
Key Highlights
- Net sales fell 7% to $7.32 billion, with declines in every major product category and Europe, the Middle East & Africa down 13% and the Americas down 8%.
- Operating income dropped 48% to $418.4 million, and operating margin fell to 5.7% from 10.3%, including $91.7 million of restructuring-related charges.
- Net earnings declined 54% to $218.4 million, and diluted EPS fell to $1.10 from $2.40.
- Asia/Pacific was the only region with growth, with net sales up 9% to $1.30 billion.
- Fragrance was the weakest category, with net sales down 20% to $1.15 billion and an operating loss of $60.8 million.
- The company issued $300.0 million of 7.75% Senior Notes due 2013 and ended the year with $864.5 million in cash and $1.42 billion in total debt.
- The Lauder family holds about 87.6% of voting power, and the company launched a restructuring program targeting approximately 2,000 workforce reductions and $450 million to $550 million in savings.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2009, Estée Lauder Companies kept $0.03.
- Revenue$7.32B100.0%
- Cost of revenue−$1.88B25.7%
- Gross profit$5.44B74.3%
- Operating costs−$5.02B68.6%
- Operating income$418.4M5.7%
- Interest, other & tax−$200.0M2.7%
- Net income$218.4M3.0%
Where FY2009 revenue went
$7.32B- SG&A: $4.88B, 67% of revenue
- Cost of revenue: $1.88B, 26% of revenue
- Net income: $218.4M, 3.0% of revenue
- R&D: $81.6M, 1.1% of revenue
- Other operating costs: $58.3M, 0.8% of revenue
- Interest, other & tax: $200.0M, 2.7% of revenue
Kept 3.0% as net incomeNet income $218.4M · 3.0%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2009filed August 19, 2009Financial Statements
| Revenue | $7.32B |
| Cost of Revenue | $1.88B |
| Gross Profit | $5.44B |
| R&D Expenses | $81.60M |
| SG&A Expenses | $4.88B |
| Operating Expenses | $5.02B |
| Operating Income | $418.40M |
| Net Income | $218.40M |
| EPS (Basic) | $1.11 |
| EPS (Diluted) | $1.10 |
| Shares Outstanding (Basic) | 196.30M |
| Shares Outstanding (Diluted) | 197.70M |
05—Questions
Frequently Asked Questions
How did The Estée Lauder Companies perform financially in fiscal 2009?
Net sales declined 7% to $7,323.8 million from $7,910.8 million. Operating income fell 48% to $418.4 million, and net earnings dropped 54% to $218.4 million, or $1.10 per diluted share, compared with $2.40 in fiscal 2008. The filing attributes the decline mainly to customer destocking, weak department store traffic, and a sharp slowdown in travel retail.
Which regions and product categories drove the results?
All three regions except Asia/Pacific declined. The Americas fell 8% to $3,421.2 million and Europe, the Middle East & Africa fell 13% to $2,611.3 million, while Asia/Pacific rose 9% to $1,299.4 million. By category, skin care was $2,886.0 million, makeup $2,830.9 million, and fragrance $1,150.9 million, down 20%, with fragrance posting an operating loss.
What restructuring actions did the company take?
In February 2009 the company launched a cost savings program expected to cost between $350 million and $450 million before taxes over fiscal 2009 and the following years, and to reduce the workforce by about 2,000 employees. Restructuring charges of $70.3 million were recorded in the income statement, and total restructuring-related charges in operating income were $91.7 million. The company expects savings of $450 million to $550 million, beginning with about $175 million to $200 million in fiscal 2010.
How is the company financed and how much debt does it carry?
Total debt was $1,421.4 million at June 30, 2009, including long-term debt of $1,387.6 million. In November 2008 the company issued $300.0 million of 7.75% Senior Notes due 2013 and used the proceeds to repay commercial paper. It had no commercial paper outstanding at year-end and an undrawn $750.0 million senior unsecured revolving credit facility expiring April 26, 2012. Cash and cash equivalents were $864.5 million.
What control and ownership considerations should investors note?
The company has been controlled by the Lauder family since its founding, and Lauder family members held approximately 87.6% of the outstanding voting power as of August 14, 2009. Class B common stock carries ten votes per share, and the company paid an annual dividend of $0.55 per share in fiscal 2009. Stockholders therefore have limited influence over corporate decisions relative to the family's voting control.
06—Continue