Estee Lauder’s Q4 FY 2017 Earnings Preview

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Estee Lauder is set to release its Q4 FY 2017 (fiscal year ends in June) on August 18th. The company delivered one of its best quarters in Q3 FY 2017 and the management expects that the Q4 performance will be even stronger. A strong organic growth, primarily driven by the China market and the travel retail segment, the success of its acquired brands, Too Faced and Becca, as well as the efficient cost management, are some of the reasons behind Estee Lauder’s robust performance in recent times. The company’s third quarter performance exceeded expectations with a 9% y-o-y increase in sales and a 28% growth in its diluted earnings per share (EPS). The company braved macroeconomic headwinds and a traffic decline in the North American brick-and-mortar stores to deliver a robust Q3 and the same is expected out of Q4 as well.

Estee Lauder Is Cleverly Fighting The Traffic Footfalls In North American Brick-And-Mortar Stores

Estee Lauder’s growth was achieved despite several problems such as the economic slowdown and currency fluctuations. However, the bigger problem for the beauty company has been the persistent decline of footfall in its North American brick-and-mortar stores, which happens to be its largest domestic channel. Along with upping its digital sales to counter this, the company is collaborating with players that can help lure the digital savvy millennials to the stores. For example, a few months back, it announced a partnership with YouCam Makeup that will 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 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. At some stores, there will be beauty advisors to show customers 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.

Some Of The Other Growth Drivers

  • The steady growth of the premium beauty market (which is growing at a much faster rate than the overall beauty market) is acting as a catalyst for the company’s growth.
  • The strategic positioning of its different brands to the appropriate distribution channel to target different customers has yielded huge success for brands like Tom Ford, La Mer, and Jo Malone, each of which generated double-digit sales growth in constant currency in Q3 FY 2017 .
  • Estee Lauder’s recent acquisitions, Too Faced and Becca, completed a full quarter’s contribution and their growth surpassed the management’s expectations in Q3 FY 2017. The company has started introducing these brands to newer markets. The brands have significantly increased Estee Lauder’s penetration in the makeup and specialty retail segments.
  • Travel retail has been a very important channel for Estee Lauder’s sales growth. The channel was extremely successful in Q3 with Asia Pacific leading the way.

Recent Developments

  • Investment In Deciem

In June, the company announced its decision to invest in Deciem, a skincare company which like Estee Lauder’s latest acquisitions, focuses mostly on millennial beauty users and diverse skin tones. After making a series of investments in the makeup segment, it was time for Estee Lauder to also boost its skincare segment’s appeal. Deciem’s unique products are massively popular and further expanding its global presence can help Estee Lauder capitalize on this popularity and seize a bigger chunk of the global skincare market.

  • Discontinuation Of Estee Edit

In June, Estee Lauder decided to discontinue its Estee Edit brand after only one year of launching it. According to the company, the Estee Edit collection for Sephora was created to attract millennial customers. However, the core Estee Lauder brand also continued in the same endeavor along with Estee Edit. Since the latter has already been successful in luring a satisfactory portion of the millennials to the company’s products, the company has decided that a separate brand is no longer required in North America. Also, Estee Lauder has been on a shopping spree for millennial focused brands. Last year, it acquired Too Faced and Becca. This year, it recently invested in skincare brand, Deciem. Maybe the company realized that brands with an existing hold over millennials are a better choice to capture this segment of beauty users than developing a new brand from scratch. Beauty experts expected the Estee Edit brand to generate around $60 million in revenues in the first year itself. There might be a possibility that the brand’s performance fell significantly short of the expectation.

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Notes:

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2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Estee Lauder

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