Though Q1 FY2017 Was Dampened By Macroeconomic Setbacks, Estee Lauder Has Its Eyes Set On Slow But Steady Growth

by Trefis Team
Estee Lauder
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Estee Lauder’s Q1 FY2017 (fiscal year ends in June) results were released on November 2nd. The company’s net sales and EPS both grew by around 2% and 5% year-on-year, respectively (on a constant currency basis).The strongest performing brands for the quarter were some of its small and midsized luxury brands. It is noteworthy to mention here that Estee Lauder follows a trend of acquiring small and innovative brands and then expanding their reach and customer base. Recently, it acquired Becca Cosmetics which is known for its makeup products including foundations, primers, and highlighters. Estee Lauder witnessed significant success in the European markets, digital channels, specialty multi, and the travel retail channels. The growth was partly dampened by the bleak economic conditions in certain geographies. The other reasons for the company’s slow growth were the persistent setbacks in the U.S. mid-tier department stores due to lower traffic, economic slowdown in the Middle Eastern region, difficult comparison in France and Germany, and a persistent negative trend in Hong Kong. However, these challenges were already taken into account by the management and plans are afoot to slowly grow sales in order to fulfill the full fiscal year’s growth expectations. The company’s growth plans include taking advantage of its stronger products, regions and channels to boost further growth. It also has a robust growth plan for the upcoming holiday season along with a fresh set of products in the pipeline.

Guidance For FY2017 

For the full fiscal 2017, Estee Lauder’s management expects net sales to grow by 6% to 7% year-on-year on a constant currency basis, while foreign currency translation is expected to dampen sales by less than 1% year-on-year. The net diluted earnings per share are expected to lie between $3.20 and $3.30.

Makeup And Fragrance Growth Is Expected To Rise

The company expects its already successful makeup and fragrance segments to grow even further organically. The strong innovative pipeline, greater digital presence, followed by the ongoing success of brands such as Smashbox and Tom Ford are some of the possible growth drivers. Estee Lauder’s recent acquisition in the makeup segment, Becca Cosmetics, has unique advantages of being known for highlighters, primers, etc instead of the traditional lipsticks and eyeliners. Also Becca caters to diverse skin tones and is popular among the millennials with its strong YouTube presence. All these are expected to work in favor of Estee Lauder’s makeup segment in the future.
In the fragrance segment, its recent acquisitions such as Le Labo are growing well and the company is building a stronger presence for these newly acquired brands. Jo Malone is also building up its presence with new store formats in travel retail. It is currently the third largest women’s prestige fragrance brand in the United States despite having a limited presence in the country. It is also the second largest prestige fragrance brand in the UK, its home market and is growing by double digits there.

Digital Focus

The company’s sales through e-commerce and m-commerce continue to be strong, with the latter contributing to over 40% of online sales in the quarter. The sales from mobile devices rose by 23% y-o-y in Q1 FY2017. Estee Lauder has launched almost 100 new sites over the recent past especially for its international buyers.

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1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email
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