Estee Lauder’s skincare division contributes to around 40% of its revenues and around 47% of our stock price valuation for the company. The global premium cosmetics leader currently enjoys around 7% of the skincare market share. We expect Estee Lauder’s skincare revenues to increase by a CAGR of ~7% in the next five years. 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.
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Reasons Behind The Expected Growth In Estee Lauder’s Skincare 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%.
- 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 skincare brand, Clinique, priced at the lower end of premium beauty care.
- Skin care is the fastest growing segment within the broader beauty care market. Since Estee Lauder’s Skin Care EBITDA margins are 27%, higher than the company’s average EBITDA margin of about 24%, we expect Estee Lauder to focus R&D spending and advertising efforts on its skin care business to gain share and drive profits.
Have more questions about Estee Lauder? See the links below.
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