Soaring Sales In China, High Travel Retail Sales, And A Strong Digital Sales Growth Contributed To A Robust Q4 For Estee Lauder

by Trefis Team
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Estee Lauder
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After delivering one of its best quarters in Q3 FY 2017 (fiscal year ends in June), Estee Lauder delivered an even better fourth quarter, in line with the management’s expectations. The robust fourth quarter was boosted by growth in China sales, travel retail, and the online channels. Some of its older, as well as its more recent acquisitions, helped in this growth. Estee Lauder ended 2017 by outperforming the prestige beauty industry by 2 points with a 7% y-o-y sales growth. This growth was achieved even after facing headwinds like instability in certain geographies and terrorist attacks that resulted in weak demands in many markets. Along with this, Estee Lauder also braved market specific challenges, such as a declining traffic footfall in the U.S. brick-and-mortar establishments and rising competition across the premium beauty industry. The company’s impressive performance that was delivered across all its segments suggests that Estee Lauder’s growth strategies are successfully steering the company as a leading player in the prestige beauty segment. In its makeup and skincare segment, Estee Lauder made acquisitions and investments in companies that appeal to millennials, the most coveted consumer segment for the beauty companies. The fragrance segment has also been boosted with a host of acquisitions made over the last couple of years. Along with this, the company has grown its presence by around 40% in the specialty-multi-retailers channel internationally, a channel which is one of the most preferred channels for millennials to make their purchases.

Estee Lauder’s net sales for Q4 were $2.89 billion, reflecting an 11% y-o-y growth in constant currency terms. Incremental sales from Too Faced and Becca, contributed to around 3.5 points of this growth.The travel retail sales in fiscal 2017 grew by 20% driven by a 9% increase in international passenger traffic and by impressive sales in airports of Hong Kong, Macau, and the UK.

Estee Lauder’s Success In China Was A Primary Growth Driver

Estee Lauder’s Asia Pacific sales topped all other markets in Q4 with an 18% constant currency rise in sales. This main driver for this growth was China. In China, a healthy economy coupled with rising aspiration for prestige beauty helped in Estee Lauder’s sales. All the brands grew by double or triple digits in China in the fourth quarter and the online sales witnessed a more than double growth. Sales in China grew by 40% in Q4 and by 90% for the full fiscal 2017. China’s demand for prestige beauty is not only restricted to its domestic markets but also in international markets when Chinese travelers are traveling across borders. A record 133 million Chinese tourists traveled in 2016 and the growth continues thus driving Estee Lauder’s travel retail sales along with the domestic sales.

 

An Ever Increasing Contribution From Online Sales Drives Estee Lauder’s Growth

The online division has historically grown sales at an average annual rate of about 25% but in fiscal 2017 it has significantly surpassed this growth rate with a 33% growth amounting to $1.3 billion. Some of the most successful brands sold online were Estee Lauder, La Mer, MAC, and Tom Ford. Estee Lauder’s recent acquisition, Too Faced, more than doubled its online sales on a 12-month comparable basis. Currently, online sales contribute 11% of the company’s total sales, a significantly higher contribution when compared to a 4% contribution just five years back. The company outperformed total online retail growth in its top online markets, the U.S. and the U.K. In its third largest market, China, and also in markets such as Russia, Turkey, South Africa, the company almost doubled its online sales. It recently expanded its online presence in the UAE, Saudi Arabia, and India.

Estee Lauder Is Attempting To Revive Sales In The U.S. Brick-And-Mortar Stores

One of the biggest problems for the company right now is the footfall decline in the U.S. brick-and-mortar retail stores. Estee Lauder derives around 17% sales through this channel and hence a revival of this channel is important for the company. The company is striving to gear up its merchandising, services, communication, and sampling, and along with this it is also tying up with U.S. based department stores to grow their online businesses.

 

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Notes:

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