Thursday, August 14, 2008

Estee Lauder Guidance Needs Constant Currency

Estee Lauder (EL) reported year end numbers and investors should be happy. Diluted net earnings per common share for the year rose 11% to $2.40 compared with $2.16 reported in the prior year.

But check out the full 2009 guidance. In Q1 they expect the following: (1) Net sales are expected to grow between 9% and 11% in constant currency and (2) Foreign currency translation benefit is expected to be approximately 1% versus the prior-year period.

But for the year: (1) Net sales are forecasted to grow between 6% and 8% in constant currency. (2) Foreign currency translation is expected to have a minimal negative impact versus the prior-year period.

The whole concept of constant currency is financially absurd. Here is a company that trumpets growing international sales that more than offset sluggish domestic US markets. Yet when its time to translate currencies they want to rely on the constant currency concept. The US dollar exchange rate vs other major currencies is constantly making front page news. You cannot rely on guidance that fundamentally relies on constant currency.