How Do We Expect Estee Lauder’s Makeup Segment To Trend And Why?

Estee Lauder’s makeup division contributes to around 40% to both its revenues as well as our stock price valuation for the company. The global premium cosmetics leader currently enjoys around 12% of the world’s makeup market share. We expect Estee Lauder’s makeup revenues to increase by a CAGR of ~5% till the end of our forecast period. Below, we outline some of the reasons for this.

Note: Retailers Average Gross Profit is the gross income earned by the distributor or retailer on account of selling. This income is used for paying expenses on rents, staff, and other logistics and admin costs, leaving the seller with a net income (profit). Estee Lauder’s Revenues are calculated after subtracting the retailer’s profit margin from its total market share. We expect the retailer’s gross profit margin to remain at around 42% over the five year period.

Reasons Behind The Expected Growth In Estee Lauder’s Makeup Market Size

• The U.S. prestige beauty industry reached $16 billion in 2015, growing 7% in dollar sales, compared to 2014, according to the global information company, The NPD Group. At 13%, the makeup segment experienced the healthiest growth, while fragrance grew 4% and skincare increased by 3%. Along with the growth of the makeup segment, we can expect Estee Lauder’s growth in this segment to also grow.
• Expansion in emerging markets: All global beauty care players such as L’Oreal, Revlon, Avon, and Estee Lauder are expanding into the emerging markets of Asia-Pacific and Latin America due to rising income levels and standards of living. The premium segment of beauty is expected to draw market share from lower-priced mass products. Between FY2010 and FY2015, Estee Lauder’s revenues in the Americas, EMEA, and Asia Pacific grew by a CAGR of 6%, 8%, and 8% respectively, showing the company’s growing strength in the emerging markets.
• As consumers move up from the mass segment to the premium segment, Estee Lauder stands to gain share through its makeup brands such as NYX that are priced at the lower end of premium beauty care.
• Estee Lauder has been regularly launching new and improved products to maintain and expand its market share. The 6% increase in makeup net sales in fiscal 2015 reflected higher net sales from existing makeup artist brands and the launch of new products. Sales from the makeup artist brands benefited from new product offerings, as well as expanded distribution in line with its retail store strategy.

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Have more questions about Estee Lauder? See the links below.

• What Is Estee Lauder’s Revenue And EBITDA Breakdown?
• What Is Estee Lauder’s Fundamental Value On The Basis Of Its Forecasted 2015 Results?
• How Has Estee Lauder’s Revenue And EBITDA Composition Changed Over 2012-2016E?
• What Is Estee Lauder’s Fundamental Value Based On 2016 Estimated Numbers?
• What Drove Estee Lauder’s Revenue And EBITDA Growth Over The Last Five Years?
• Where Can Estee Lauder’s Growth Come From In The Next 5 Years?
• Estee Lauder Q3 FY16 Pre-Earnings Report
• How Did The Top Two Beauty Companies Perform In The Hair Care Segment Over The Last Five Years?
• How Does Estee Lauder’s Financial State Currently Look?
• Who Relies More On Debt: L’Oreal Or Estee Lauder?
• What Are Some Of The Trends Expected To Drive The Future Of The Beauty Market?
• Estee Lauder Braved Numerous Challenges To Deliver Growth Above That Of The Prestige Beauty Market

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