Estee Lauder Braved Economic Slowdown And Currency Headwinds To Present A Robust Q1 Fiscal 2016

Estee Lauder(NYSE:EL)  started fiscal 2016 on a strong note (fiscal year ends in June). The company delivered 8% adjusted constant currency growth in net sales, to $2.83 billion, and its net earnings increased 36% to $309.3 million. The company’s diluted net earnings per common share increased 39% year-on-year to $.82. One of the primary reasons for the good results was the global prestige beauty industry which is demonstrating steady growth even in the face of economic slowdowns in several geographies. Makeup is the fastest growing segment in the prestige beauty industry and Estee Lauder is the leading company in the world for prestige makeup. Some of the brands that performed impressively in this quarter were Jo Malone London, Tom Ford, and La Mer in the luxury category, and M-A-C and Smashbox in the makeup category. It is noteworthy to mention that Estee Lauder has braved the softer retail scenario in China and Hong Kong, the MERS problem in Korea, and the slowdown in Brazil, along with currency headwinds, to achieve impressive results. ^{[1] [2]} L’Oreal, which had released its Q3 2015 results on October 29th, has been adversely impacted by most of these factors. Had it not been for currency tailwinds, L’Oreal would have performed much worse in the mentioned quarter.

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Estee Lauder’s Stellar Performance In Most Geographies Despite Economic And Natural Turmoils

Estee Lauder delivered strongly in Europe, Middle East, and Africa (EMEA) due to the weak Euro which attracted travelers and hence boosted its travel retail business. The company gained market shares in the UK, France, Germany, and Italy and experienced double-digit growth in most EMEA emerging markets. Estee Lauder added 9 new freestanding store locations for M-A-C and three for Bobbi Brown.

The company performed strongly in North America where make-up demonstrated the greatest growth (high single digits year-on-year growth). The Clinique and Estee Lauder flagship brands, which were lagging behind in performance earlier, has shown improvements with Clinique’s selective expansion and Estee Lauder’s revival. The Estee Lauder brand plans to launch the Estee Edit collection for makeup and skincare in March 2016, across 250 Sephora stores and online.

In China, most of the brands displayed double-digit growth primarily bolstered by the huge makeup demand. The company is expanding its presence in the makeup segment. Sales of the M-A-C brand in retail outlets grew by 25% on a year-on-year basis. Though China’s domestic consumption on makeup has declined, the Chinese travelers have increased their spending on makeup in countries like Japan and Europe. ^{[1] [2]}

Fresh Product Launches And New Initiatives Boosting Sales

The company launched Darphin and GLAMGLOW and opened around one hundred new counters for its other brands. Estee Lauder’s notable performers in Asia Pacific were Australia and Korea. The brand’s net sales grew by mid-single digits in Korea despite the MERS attack problem. Estee Lauder has recently bought a stake in Have & Be Co. Ltd., the South Korean company which owns skin care brands such as Dr. Jart+ and Do The Right Thing. The deal is expected to be completed by the end of 2015. (Read Press Release.) The company aims to build a strong presence in the local beauty market through these alliances. It also wants to introduce the Korean innovative beauty products into its portfolio of offerings to complement novelty with its own brand appeal. The company plans to bolster its long-term growth strategy in Asia through this move. ^{[1] [2]}

The company’s largest brands, Estee Lauder and Clinique, are both launching a host of products and making steady progress in their path for revival. Estee Lauder grew in several geographies and also gained market shares in EMEA. Estee Lauder introduced the New dimension serum during the past quarter and Pure Color Envy Liquid Lip Potion in the makeup category. Both these brands received a successful reception. Clinique’s Face Forward campaign had increased its appeal to the younger customers. Clinique also launched a digital lifestyle magazine called The Wink which includes upcoming beauty trends, global influencers, and articles on wellness, travel, and beauty. The platform is expected to strengthen Clinique’s relationship with its users and attract newer users to the brand. ^{[1] [2]}

Besides this, there were new launches by brands like La Mer, M-A-C, and Smashbox. Recently, Estee Lauder has also launched a host of new products through its travel retail outlets in order to give a fresh  sales boost through this distribution channel.

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1. The Estée Lauder Companies Delivers Strong Sales and Earnings Growth in Fiscal 2016 First Quarter, Estee Lauder Press Release, November 2, 2015 [↩] [↩] [↩] [↩]
2. Estee Lauder Q1 FY2016 earnings Transcript, Seeking Alpha, November 2, 2015 [↩] [↩] [↩] [↩]