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

This week beauty giants L’Oreal (OTC:LRLCY) and Estee Lauder (NYSE:EL) received the titles of being among the most popular cosmetics brands in two separate studies. In contrast, Avon Products (NYSE:AVP) witnessed brand value erosion in a study by Brand Finance, on account of its consistent poor performance and due to the loss of appeal of its direct selling business model.

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

L’Oreal

Brand Finance, a strategy consulting firm, in its recent annual study, named L’Oreal Paris, a brand from the  L’Oreal (OTC:LRLCY) house, as the most influential and valuable cosmetics brand. The study called ‘Brands Cosmetics 50’ rated L’Oreal to hold the top position with a brand value worth $11.2 billion, reflecting a 15% growth over 2014. According to Brand Finance’s Chief Financial Officer, L’Oreal Paris has been successful in its mass marketing strategy while simultaneously maintaining its aura of exclusivity. The brand L’Oreal Paris received an AAA+ rating and was among the top 12 brands across all industries. The total brand value of World’s top 50 cosmetics brands grew by 13% year on year to $123 billion in 2015. ^[1]

On a separate note, L’Oreal entered into a skin tissue research agreement with the bio-printing technology firm, Organovo. The research will involve L’Oreal’s skin cell technology along with Organovo’s proprietary NovoGen Bioprinting Platform. The agreement will provide L’Oreal with exclusive rights to use the skin tissue models for the development, manufacturing, testing, evaluation and sale of non-prescription cosmetic, beauty, dermatology and skin care products and nutraceutical supplements. The Agreement would comprise  three steps, including a development phase, a validation phase, and a commercial supply phase. L’Oreal has the option to move forward with each step, subject to fulfillment of certain specified performance criteria. ^[2]

L’Oreal USA, the American subsidiary of the French beauty giant, is currently reviewing its existing media business. L’Oreal USA, owner of brands such as Maybelline, Redken and Lancôme, witnessed a decline in its media spending by 6.5% year on year to reach $870 million in 2014. The review will be undertaken by Nadine McHugh, L’Oreal USA’s SVP of media, strategic investments and creative solutions. ^[3]

Our price estimate of $37 for L’Oréal is almost in line with the current market price. L’Oréal’s stock price experienced negligible changes over the past week.

Estee Lauder

New York based leather goods company, Coach (NYSE:COH), has decided to replace Estee Lauder (NYSE:EL) with Paris-based Intraparfums, the creator of luxury perfumes such as Jimmy Choo, Dunhill, and Oscar de la Renta, for its fragrance business. The company plans to grow the scale of its currently small fragrance segment and hence decided on this move. Coach has entered into an 11 year exclusive license agreement with Intraparfums and has decided against renewing its partnership deal with Estee Lauder.

According to Coach’s management, Intraparfums successful history of growing the value of luxury fragrance brands was the reason behind their choice.  The agreement will allow Intraparfums to create, manufacture and distribute new perfumes and fragrance-related products. The products will be made available in Coach’s outlets, as well as specialty stores and duty free shops, across the globe. ^[4]

Estee Lauder has teamed up with renowned fashion designer, Andre Courreges to launch a limited-edition cosmetics line called the Courreges Estee Lauder Collection. The collection, characterized by pop colors, includes high-impact super gloss, ’60s-era eyelashes, shimmering eyeshadow, metallic eye pencil, luminous face powder, and lip and cheek ball (priced between $22 and $32). ^[5]

Merrill Lynch recently released a report based on its survey of the cosmetics purchasing habits of 1000 women aged between 18 and 29. Estee Lauder is among the top three companies preferred by these women. Despite Estee Lauder’s premium range of products and hence, higher pricing, 15 brands from its portfolio were termed as the most popular. Clinique was rated as one of the top brands, and despite the premium price points, it is the quality of the products that worked in favor of the company. ^[6]

We have a price estimate of $82 for Estée Lauder, which is marginally lower than the current market price. Our full CY15 (ending December 2015) revenue estimate stands at approximately $11 billion, which is almost in line with the consensus FY15 estimate. (Fiscal years end with June). We expect non-GAAP earnings per share of $3.15 this fiscal year, compared to consensus estimates of $2.78. Estée Lauder’s stock price experienced a 1.9% growth over the week through Thursday.

Avon Products

In Brand Finance’s Brand Cosmetics 50 report, Avon Products (NYSE:AVP) witnessed a 39% brand value erosion to reach $3.9 billion. Brand Finance slated the reasons for Avon’s poor performance to the changing constructs of social and economical framework that did not support Avon’s formerly popular direct selling marketing model. This was a significant brand value decline for Avon, as the brand secured the second most popular position in 2014. ^[1]

We have a price estimate of $10 for Avon Products, which is at a considerable premium to the current market price. Our full 2015 revenue estimate stands at approximately $8.6 billion compared to a consensus estimate between $7.1 billion to $8.0 billion. Avon’s stock price experienced a 2.3% growth over the week through Thursday.

Revlon

Revlon (NYSE:REV) is promoting its “Love is On” campaign with pop-up shops across select cities in the U.S. Starting from 3rd April, the campaigns are aimed at providing personalized makeovers, manicures, consultations, sample bar to test new products. The campaigns will showcase Revlon’s newly launched products and services. (Read Press Release).

We have a price estimate of $32 for Revlon, which is at a considerable discount to the current market price. Our full 2015 revenue estimate stands at approximately $1.94 billion compared to a consensus estimate of $1.85 billion. We expect non-GAAP earnings per share of $1.93 this fiscal year, compared to consensus estimates of $1.80. Revlon’s stock price experienced a 2.1% growth over the week through Thursday.

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More Trefis Research

1. L’Oreal Paris Named The Most Powerful And Valuable Cosmetics Brand, Cosmetics Design, April 9, 2015 [↩] [↩]
2. Organovo (ONVO) Enters Research Collaboration Agreement with L’Oreal USA, Street Insider, April 7, 2015 [↩]
3. L’Oreal Is Reviewing Its Media Business, ADWeek, April 2, 2015 [↩]
4. Coach to replace Estée Lauder with Interparfums in new perfume deal, Fortune, April 9, 2015 [↩]
5. Estee Lauder unleashes the pop power of a beauty collection inspired by Andre Courreges, Houston Chronicle, April 9, 2015 [↩]
6. 3 Companies That Will Never Lack Customers or Demand, 247 Wall St, April 9, 2015 [↩]