Rising sales at U.S. department stores helped The Estee Lauder Cos.' 1st-quarter net income rise an unexpected 36 percent.
Improving U.S. results plus continued international strength and cost-cutting helped push results above expectations. The company raised its fiscal-year guidance, and shares rose 12 percent.
CEO Fabrizio Freda said in an interview with The Associated Press that luxury customers are spending more but shoppers who buy lower-priced beauty products are still holding back.
"The luxury consumer, the prestige consumer, is coming back to a normal spending pattern," Freda said. "The less affluent consumer is not yet completely back."
Freda credited the better U.S. results partly to Estee Lauder's strategy to shift promotional dollars to TV, print and online advertising for its Estee Lauder and Clinique brands and away from free gifts and samples.
That helped boost sales at department stores in the U.S., he said, particularly at Macy's and Nordstrom.
Improvement at department stores is a good sign for the upcoming holidays, Freda said.
"Looking ahead, we are anticipating a solid holiday season," Freda said. "The U.S. department store business is healthier than last year."
Net income rose to $191.1 million, or 95 cents per share, from $140.7 million, or 71 cents per share last year. Net income totaled 97 cents excluding restructuring charges. That beat analyst expectations of 77 cents per share, according to a poll by Thomson Reuters.
Revenue rose 14 percent to $2.09 billion from $1.83 billion. Analysts expected $2.02 billion. Revenue for skin care, makeup and perfume all rose, and revenue rose across regions.
The strong revenue "indicates the company had a stronger growth trajectory than we anticipated," said Stifel Nicholas analyst Mark Astrachan. He upgraded the company to "Hold" from "Sell." "While we anticipate sales growth will decelerate over the balance of the fiscal year, we believe it will remain strongly positive and ahead of other household and personal product peers."
Revenue from its travel stores, mainly in airports, and emerging markets was particularly strong, the company said.
Skin-care revenue rose 17 percent to $857.7 million, helped by sales of its Advanced Night Repair Eye Synchronized Complex and its Hydrationist Maximum Moisture cream.
Makeup revenue rose 11 percent to $794.2 million as revenue from the Americas and Europe improved.
Revenue from the Americas, Europe, the Middle East & Africa and Asia Pacific all rose in the double digits.
In the U.S., sales of the company's Estee Lauder brand, makeup artist brands such as Bobbi Brown and designer fragrances drove results.
Estee Lauder's acquisition of the Smashbox makeup brand also helped revenue.
Estee Lauder, whose other brands include Clinique and MAC, expects second-quarter adjusted net income between $1.32 and $1.45 per share on a revenue gain of 8 percent to 10 percent. Analysts expect $1.37 per share.
For the year, the company now expects adjusted net income of $2.90 and $3.10, up from prior guidance of $2.80 to $3.05 per share. Analysts expect $3.07 per share.
Estee Lauder fared better than other beauty product makers reporting earnings this week. On Thursday, Avon Products Inc. said its net income rose 7 percent in its third quarter, but earnings missed expectations as the company spent more on advertising and revenue from China sank. And Revlon said its net income dropped 46 percent as U.S. sales remained weak.
Shares rose $7.81, or 12.1 percent, to $72.22 during afternoon trading, after earlier reaching a 52-week high of $74.31. The stock had traded between $40.13 and $71.29 during the past 52 weeks.