Estee Lauder (NYSE:EL) is due to announce its Q2 results next Friday. It had a stellar run in 2011 when it grew almost 3x faster than the global prestige beauty market with a double digit growth rate in sales and impressive margin growth. As a result, Estee Lauder’s stock swelled by more than 40% in 2011. Riding on excellent momentum, we expect to see further market share expansion and operating margin growth this quarter, leaving behind its competitors Revlon (NYSE:REV) and L’Oreal (PINK:LRLCY). The company also went for a 2:1 common stock split last week and paid 40% higher dividend last year.
Strong Prestige Beauty Sales
Globally, the prestige beauty segment remained very strong with sales growth exceeding 8% in 2011, outpacing the mass segment sales. Last quarter, Estée Lauder achieved 18% sales growth and grew its market share in its most valuable Skin Care business by 1.3% – the division that contributes over 53% of Estée Lauder’s stock price.
With strong international growth, it passed its operating margin target of 12%-13% by fiscal 2013 two years in advance and has set a new operating margin target of 15%. With excellent growth momentum, we expect to see double digit revenue growth and improved margins in Q2 as well. The company expects an overall operating margin improvement of 80-100 basis points this year, compared to last year.
The 2:1 Stock Split