Estee Lauder Earnings Preview: Organic Growth, Price Revisions, And Expanded Customer Reach Through New Acquisitions Are Expected To Drive Growth

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Estee Lauder is set to release its Q3 FY 2017 results on May 3rd (fiscal year ends in June). The company showed a significant improvement in its performance in the second quarter with a 5% constant currency y-o-y growth in both its net sales and adjusted diluted earnings per share. We can expect the improvement to continue in the Q3 FY2017 as well. All the three segments of the company, namely, makeup, skincare, and fragrance, seem to be growing well. After several quarters of slow performance the skincare division has started showing signs of growth. Its acquisitions in the fragrance segment seem to have been successful with its luxury fragrance cluster having grown by over 30% during the last quarter. For the full fiscal 2017, the management expects a 6% to 7% y-o-y top line growth in terms of constant currency. It has also predicted a stronger growth in sales and profitability towards the second half of FY 2017 driven by the upward price revision of some of its brands that took place in January, its own organic growth, and the expanded customer reach on account of its string of acquisitions last year. The biggest growth segments might be luxury brands, the online, travel retail, and specialty-multi channels.

Acquisitions Might Expand Estee Lauder’s Target Customer Reach Across Geographies

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Estee Lauder agreed to buy Becca Cosmetics for $200 million and Too Faced for $1.45 billion in 2016. Both these prestige make up brands are growing rapidly and are a big hit among millennial beauty users, the most lucrative target user groups for beauty companies today. The multi channel reach of these brands also ensures an expanded network for Estee Lauder’s products. The company has currently embarked on increasing the global reach of these popular brands. The company’s makeup segment is currently the fastest growing (~9% y-o-y annual growth rate) and is also its largest segment. Hence, growing its customer reach through popular brands and multi channel reach seems like a great way to boost the segment even further.

Estee Lauder’s Recent Partnership With YouCam Makeup Can Help Revive Customer Footfalls In Stores

Estee Lauder recently entered into a partnership with YouCam Makeup, a virtual makeover mobile application. The partnership could help it in luring more millennials to its stores. The beauty company is cleverly combining digital with a real-time experience to create a loyal customer base for itself. According to research, a majority of millennials still prefer shopping for makeup at brick-and-mortar stores, even though e-commerce purchases are at an all-time high. Estee Lauder’s collaboration with YouCam Makeup can help in creating an omni-channel experience for Estee Lauder’s customers that will enhance their browsing experience on mobile devices while still attracting them to brick-and-mortar stores.

Estee Lauder’s recently launched Pure Color Love Lipstick partnership with YouCam Makeup will allow users to try out all of their 30 lipstick shades through the app, before deciding to buy one. YouCam Makeup has so far been downloaded around 400 million times worldwide. The presence of beauty advisers in some stores will help customers in understanding how they can use the YouCam app and try on lipsticks, while the integration of YouCam’s virtual in-store magic mirrors will encourage customers to further engage with the products and try on more options. If the partnership is successful in achieving its target, then the company might bring similar experiences to other brands as well, while more beauty players could follow suit in order to drive store traffic.

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