Estée Lauder (NYSE:EL) is gradually expanding its retail presence in key emerging markets like China and Brazil. It has succeeded in capitalizing on the growing travel retail market over the past few quarters and currently sells its prestige beauty products through more than 1,000 airport outlets. This channel has performed particularly well within Europe, Asia-Pacific, the Middle East and Africa, and helped it grow sales at twice the growth rate of global prestige beauty market.
The company will release its Q1 2013 (July-September 2012) results on November 1. We expect to see further market share expansion and operating margin growth. One of the leading cosmetics and beauty care players globally, it competes with Revlon (NYSE:REV), L’Oreal (PINK:LRLCY) and Avon Products (NYSE:AVP).
Watch for European and Latin America sales
The company has belied current trends and grown its business in the western European markets. France, Germany, Italy and Spain, four countries where its competitors have struggled in the recent past, were instrumental in growth of its sales over the past year. The company credited the skin care and make-up categories for driving the growth. We are looking for sales figures from the region and company’s strategy to combat the threat to its sales because from the weak prevailing economic situation. Also, its sales from Latin America have grown by double digits for three consecutive years now, and wear are looking for its plans on sustaining its growth rate there.
The company has doubled its sales from travel retail over the past three years, and as a result, has grown its sales at a rate which is four times the rate of international air passenger traffic. With all of its brands supporting this growth, and the travel retail market likely to grow to $45 billion by 2015 (Verdict report), we are looking for the company’s plan for increasing its share in the market.
China in focus
China’s emerging middle class has been the single largest driver of luxury sales growth in the last few years. Estee Lauder’s growth in the Chinese prestige beauty market has largely relied on airport retail and online channels. The growth potential has encouraged the company to introduce a new brand, Osiao, targeted specifically at the Chinese market. However, it anticipates some moderation in growth in the market over the next few quarters and seeks to fuel further growth by expanding into smaller Chinese cities and airports. With China likely to add 100 new airports in the next decade including emerging cities like Chongqing and Wuhan, according to the Global Business Travel Association, we will look for details on the company’s strategy for the market.
We have a price estimate of $64 for Estee Lauder which is 5% above its current market price.