The world’s leading prestige beauty products company, Estée Lauder (NYSE:EL), will release its Q2 2013 (October-December 2012) earnings report on February 5. The company is gradually expanding its retail presence in key emerging markets of Asia and has also been successful in capitalizing on the growing travel retail market over the past few quarters. It currently sells its prestige beauty products through more than 1,000 airport outlets. It has also also experimenting with online retail and has had some success with this channel, particularly in China.  It launched the Osiao brand in China last year under which is sells market-specific products.  We expect the two-pronged strategy to pay off rich dividends and help accelerate sales growth.
Strong Prestige Beauty Sales Worldwide To Drive Growth
The company recorded sales growth of 3% in the quarter ending September 30. The Americas account for about half of its total sales and with the prestige beauty segment growing at 7% in 2012 in the U.S. and as the largest contributor to sales in the region, we are looking for sales growth to pick up during the quarter. 
We will also see if the strong growth in the U.K. prestige beauty market is able to offset any potential decline in sales from the Europe, Middle East and Asia (EMEA) region. The EMEA region was mainly responsible for the slowdown in revenue growth in Q3.
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Focus On Turning Around Slowdown In Fragrances Sales Growth
Despite having two of its fragrances (Beautiful and Pleasure) in top 10 fragrances in the United States, Estée Laduer registered a decline in fragrance sales in the July-September period. According to Euromonitor International, Estée Lauder’s share of the global prestige fragrance market fell to 8.3% in 2011 from 9.8% in 2006 in face of stiff competition.  During the same time period, L’Oréal increased its market share to 14%.
With designer/prestige fragrances accounting for about two-thirds of global fragrance sales, the improving economic situation should spur discretionary spending to pre-recession levels. We expect the company to regain its pre-recession market share by the end of 2014. We will look for any indications of recovery in the fragrance business and the impact of the tie-up with Zegna on the quarterly earnings.
We have a price estimate of $66 for Estee Lauder which is 5% above its current market price.Notes:
- Estée Lauder is the best digital brand in China, Digital Market Asia, January 2013 [↩]
- ‘Osiao’: Estée Lauder’s First Chinese Beauty Brand, TIME, September 2012 [↩]
- The NPD Group Presents 2012 Overview of U.S. and Global Beauty Sales, NPD Group, January 2013 [↩]
- Estée Lauder sees luxury, men key to re-igniting fragrance sales, Reuters, December 2012 [↩]