Weekly Beauty And Personal Care Notes: L’Oréal, Estée Lauder, Avon

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This week the beauty and personal care segment witnessed job cuts by two of its players. L’Oreal’s (OTC:LRLCY)  The Body Shop, in a strategic move, has decided to cut jobs and shift the U.S. headquarters from Wake Forest to New York, while Avon Products (NYSE:AVP) is cutting hundreds of jobs in its distribution center at Pointe-Claire, Canada, in a cost reduction initiative. Estee Lauder (NYSE:EL) completed the acquisition of the luxury perfume brand, Editions de Parfums Frédéric Malle

Below, we give a quick rundown on the most notable events in the last week related to these companies.

See Our Complete Analysis for These Companies Here

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L’Oreal

L’Oreal’s The Body Shop is moving its U.S. headquarters from Wake Forest to New York. The company is cutting 145 jobs in Wake Forest, North Carolina, and is relocating its headquarters and customer service center. According to a company statement the center will close in early July with a few positions being moved to New York and New Jersey. According to a company statement, it’s a part of their “growth strategy”, wherein the company plans on opening a U.S. headquarters in New York City with additional offices in New Jersey and a distribution center in the Northeast. According to Paul Kimberley, The Body Shop President of the Americas Region, the New York City Headquarters will put The Body Shop at the center of the U.S. beauty industry, which will help employees remain abreast with the contemporary trends in the beauty industry. [1]

L’Oreal Professional Products division has entered into an alliance with StyleSeat– an U.S. based online beauty booking service, to make its products available online. Until recently, L’Oreal Professional products (including brands such as Redken, Kérastase, Pureology, L’Oréal Professionnel) were only available for sale in beauty salons and spas. With this partnership, customers can visit the StyleSeat page and add the products they want, or search the L’Oreal Professional brand they’re interested in, and then choose those items from one of the participating salons listed. We believe this alliance will make L’Oreal’s Professional range of products more easily available to consumers and in turn will help in L’Oreal’s additional sales through the expanded reach. [2]

L’Oreal’s Chairman and CEO, Jean-Paul Agon addressed the faculty and students at Indian Institute of Management, Ahmedabad, one of the top management institutions in India. He spoke about how L’Oreal is playing a crucial role in developing India’s beauty market by expanding their business in the country. Initiatives such as “Make in India” with 90% local product manufacturing, two Research & Innovation centers in Mumbai and Bangalore, and two manufacturing facilities, are some of the avenues that helped L’Oreal achieve its growth in India. He also added that India’s talent can propel the country’s growth, adding that 200 international managers of Indian origin work with L’Oreal globally. The strength of the Indian managers, according to Jean-Paul included: being adaptable, entrepreneurial, cultural and sensitive. [3]

Our price estimate of $37 for L’Oréal is around 9% above the current market price. Our full FY14 revenue estimate stands at approximately $32 billion, compared to a consensus estimate of $28 billion. L’Oréal’s stock price experienced a rise of  3% over the week through Thursday.

Estee Lauder

On January 9, Estee Lauder, the global premium cosmetics giant, announced completing the acquisition of Editions de Parfums Frédéric Malle,the luxury fragrance brand established by the iconic perfumer Frédéric Malle. The terms of the deal were undisclosed. Editions de Parfums Frédéric Malle was established in Paris in 2000 and offers a collection of ultra luxury perfumes created by some of the world renowned craftsmen, and curated by iconic perfumer Frédéric Malle. The current Frédéric Malle collection comprises of 21 fragrances created by 12 master perfumers from around the world. They are sold through exclusive stand-alone stores in Paris and New York, as well as through Barneys New York in the U.S. and Liberty in London. (See Press Release).

Estee Lauder announced a string of acquisitions  in the  span of two months between October and December, 2014. The company’s last takeover prior to these acquisitions was in May 2010, when it acquired Smashbox Beauty Cosmetics. You can read one of our previous articles to learn about the Reasons Behind Estee Lauder’s Sudden Acquisition Spree.

We have a price estimate of $85 for Estée Lauder, about 15% higher than its current market price. Our full CY14 (ending December 2014) revenue estimate stands at approximately $10.8 billion, compared to a consensus FY15 (ending June 2015) estimate of $10.9 billion. We expect non-GAAP earnings per share of $2.69 this fiscal year, compared to consensus estimates of $2.85. Estée Lauder’s stock price experienced a 3% decline over the week through Thursday.

Avon Products

Avon Products’ Russian sales received a significant boost in the second half of 2014, on the back of the depreciating ruble and the economic weakness in Russia. According to Avon country chief Elena Starkova, the sales grew by both volume and value. Due to the weakening Russian economy, many people are seeking additional jobs by selling door-to-door products, and Avon’s business model of direct selling has helped them and has in turn increased Avon’s labor pool in Russia by over 10% (as per December 2014 data). Around 4.3 million Russians are employed by Avon’s direct selling model now. The ruble depreciated by around 43% against the U.S. dollar in 2014, mainly due to two reasons:

  1. the decline in the price of oil, Russia’s biggest export product;
  2. the U.S. and European sanctions over President Vladimir Putin’s incursion into Ukraine.

According to latest government data, Russian economy contracted for the first time in five years in November 2014, while real incomes dropped 4.7%, ushering in a recession. Avon’s sales in Russia were also boosted when it introduced the “anti-crisis” consumer basket, after anticipating the economic slowdown. The package includes the bare minimum products required by women for personal care, at the lowest possible prices, such as shampoo for 59 rubles (89 cents) and skin cream for 79 rubles. [4]

Currently Avon Canada is cutting hundreds of jobs at its distribution center in Pointe-Claire. Though Avon refused to divulge a specific figure, the company did admit to having slashed a majority of jobs at the distribution center. The company is outsourcing the jobs to Chicago based Genco, a supply chain management company. In view with its recent poor performance, Avon has decided to take this step in order to remain competitive and reduce operating costs. Genco is a third party logistics provider, capable of supporting Avon’s bi-weekly selling cycle demands by expanding or contracting the supply in accordance with Avon’s varying needs. Last year, Avon mentioned that it was striving to contract its spending by $400 million by 2016. The latest cuts should contribute to around $50 million to $55 million in annual savings. [5] Read one of our previous articles to know more about Avon’s Performance in 2014.

We have a price estimate of $11 for Avon Products, which is at a considerable premium to the current market price. Our full FY14 revenue estimate stands at approximately $9.5 billion. Avon’s stock price experienced a significant decline of 18% over the week through Thursday. On January 9, Avon’s stock price hit a 52-week low of $8.27. The slump was Avon’s lowest in nearly two decades.

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Notes:
  1. L’Oreal-owned The Body Shop cutting 145 jobs in Wake Forest, moving HQ, Triangle Business Journal, January 2015 []
  2. You Can Finally Buy Authentic L’Oréal Professional Hair Products Online!, Allure, January 2015 []
  3. Indian talent adaptable, entrepreneurial and sensitive: L’oreal CEO, The Hindu Business Line, January 2015 []
  4. Avon Swells Sells In Russia Thanks To Ruble Drop, Business of Fashion, January 2015 []
  5. Avon cuts hundreds of jobs on Montreal’s West Island, CBC News, January 2015 []