01—Abstract
Summary
Summary of the 10-K filed August 27, 2021. Cited figures are marked; the original filing is the authoritative source.
The Estée Lauder Companies Inc. reported fiscal 2021 (year ended June 30, 2021) net sales of $16.22 billiona, up from $14.29 billion in fiscal 2020, with reported net sales growth of 13% (11% in constant currency).
Skin care was the primary driver, with net sales of $9.48 billionb, up 28% as reported, while makeup declined 12% to $4.20 billion. Asia/Pacific net sales rose 29% to $5.49 billion, and Europe, the Middle East & Africa rose 11% to $6.95 billion, while The Americas was essentially flat at $3.80 billion. Operating income rose to $2.62 billion from $606 million, with operating margin of 16.1% versus 4.2% in the prior year.
The improvement was driven largely by the absence of prior-year impairments, which totaled $1.43 billionc in fiscal 2020 versus $188 million in fiscal 2021. Net earnings attributable to the company were $2.87 billion, or $7.79 diluted EPS, compared with $684 million, or $1.86, a year earlier. Fiscal 2021 results included an $847 million gain on the previously held DECIEM equity interest, which the company increased to approximately 76% fully diluted ownership in May 2021 for $1.09 billion in cash.
The company ended the year with cash and cash equivalents of $4.96 billiond and total debt of $5.57 billion. Cash flow from operations was $3.63 billion, and total debt as a percent of total capitalization fell to 48% from 61%.
The company announced the two-year Post-COVID Business Acceleration Program, with expected restructuring charges of $400 million to $500 million and annual benefits of $300 million to $400 million once fully implemented. The Lauder family controls approximately 85% of voting power.
02—Key points
Key Highlights
- Net sales rose 13% (11% in constant currency) to $16.22 billion, led by skin care at $9.48 billion, up 28%.
- Operating income increased to $2.62 billion from $606 million; operating margin rose to 16.1% from 4.2%, reflecting lower goodwill and intangible impairments ($188 million vs. $1.43 billion).
- Diluted EPS was $7.79 versus $1.86, including an $847 million pre-tax gain on the previously held DECIEM equity interest.
- Asia/Pacific net sales grew 29% to $5.49 billion, while makeup net sales fell 12% to $4.20 billion.
- Total debt as a percent of total capitalization decreased to 48% from 61%; cash and cash equivalents were $4.96 billion at June 30, 2021.
- The Post-COVID Business Acceleration Program is expected to produce $400–$500 million in restructuring and other charges and $300–$400 million in annual benefits once fully implemented.
- The Board declared a quarterly dividend of $.53 per share on August 18, 2021.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2021, Estée Lauder Companies kept $0.18.
- Revenue$16.21B100.0%
- Cost of revenue−$3.83B23.6%
- Gross profit$12.38B76.4%
- Operating costs−$9.76B60.2%
- Operating income$2.62B16.1%
- Interest, other & tax$252.0M1.6%
- Net income$2.87B17.7%
Where FY2021 revenue went
$16.21B- SG&A: $9.37B, 58% of revenue
- Cost of revenue: $3.83B, 24% of revenue
- Operating income: $2.62B, 16% of revenue
- Other operating costs: $392.0M, 2.4% of revenue
Kept 16% as operating income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2021filed August 27, 2021Financial Statements
FY2021 against FY2020
| Line item | FY2021FY2020 | Change |
|---|---|---|
| Revenue | $16.21B$14.29B | +13.4% |
| Cost of Revenue | $3.83B$3.55B | +7.9% |
| Gross Profit | $12.38B$10.74B | +15.3% |
| SG&A Expenses | $9.37B$8.64B | +8.5% |
| Operating Expenses | $9.76B$10.14B | −3.7% |
| Operating Income | $2.62B$606.00M | +332.0% |
| Interest Expense | $173.00M$161.00M | +7.5% |
| Net Income | $2.87B$684.00M | +319.6% |
| EPS (Basic) | $7.91$1.90 | +316.3% |
| EPS (Diluted) | $7.79$1.86 | +318.8% |
| Shares Outstanding (Basic) | 362.90M360.60M | +0.6% |
| Shares Outstanding (Diluted) | 368.20M366.90M | +0.4% |
05—Questions
Frequently Asked Questions
What drove the large improvement in operating income?
Operating income rose to $2.62 billion from $606 million. The main driver was the favorable year-over-year comparison of goodwill, other intangible and long-lived asset impairments, which totaled $188 million in fiscal 2021 versus $1.43 billion in fiscal 2020. Operating expenses also fell as a percentage of net sales, from 70.9% to 60.2%, and gross margin rose to 76.4% from 75.2%.
How did the DECIEM transaction affect reported results?
In May 2021 the company increased its fully diluted interest in DECIEM from approximately 29% to approximately 76% for $1.09 billion in cash. Remeasuring the previously held equity interest produced an $847 million gain, recorded in Other income, net. That gain contributed to the sharp increase in earnings before income taxes to $3.33 billion. DECIEM's results were excluded from internal control assessment as permitted, and its net sales represented approximately 0.4% of total net sales.
Which product categories and regions drove growth, and which declined?
Skin care net sales rose 28% to $9.48 billion, led by Estée Lauder, La Mer, Clinique and Dr. Jart+. Fragrance rose 23% to $1.93 billion and hair care rose 11% to $571 million. Makeup declined 12% to $4.20 billion, primarily reflecting weaker demand for M·A·C and Clinique. By region, Asia/Pacific rose 29% and Europe, the Middle East & Africa rose 11%, while The Americas was essentially flat.
What is the company's liquidity and balance sheet position?
At June 30, 2021, cash and cash equivalents were $4.96 billion and total debt was $5.57 billion. The company repaid $750 million under its revolving credit facility and $450 million of 1.70% senior notes, and issued $600 million of 1.950% senior notes due 2031. Cash provided by operating activities was $3.63 billion. Standard & Poor's rated long-term debt A+ and Moody's rated it A1, both with stable outlooks.
What is the company's ownership structure and dividend policy?
The Lauder family beneficially owns shares with approximately 85% of the outstanding voting power, which gives it significant control over matters requiring stockholder approval. The company is a controlled company under NYSE rules. Cash dividends declared per common share were $2.07 in fiscal 2021, compared with $1.39 in fiscal 2020, and the Board declared a $.53 quarterly dividend on August 18, 2021.
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