Boosted By China, Online, And Travel Retail Sales, Estee Lauder Is Expected To Continue With Its Robust Performance In Q1 Fiscal 2018

by Trefis Team
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Estee Lauder
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Estee Lauder (NYSE: EL) is slated to release its first quarter fiscal 2018 results on November 1st. The company rounded out fiscal 2017 by outperforming the prestige beauty industry by 2 points with a 7% y-o-y sales growth. The second half of the fiscal year went exceptionally well for Estee Lauder with the company delivering one of its best quarters of all times in Q3 and even surpassing that performance further in Q4. Some of the main drivers for this growth were its soaring sales in China, its online sales growth, and its travel retail segment’s success. However, the company’s growth story was not devoid of headwinds, such as instability and weak demand in certain markets, a declining traffic footfall in the U.S. brick-and-mortar establishments, and rising competition across the premium beauty industry. Its strategic acquisitions and investments, focus on millennial beauty users-the most important population segment in today’s beauty industry, and its expanding presence in the multi-retailer channels globally, are some of the secrets behind its success story. We expect Estee Lauder’s growth momentum to continue in Q1 FY 2018, as well. We have a $95 price estimate for Estee Lauder’s stock, which is around 14% lower than the current market price.

How China Is Boosting Estee Lauder’s Growth?

China has a huge demand for prestige beauty and that is not even restricted to the domestic market. Chinese travelers tend to buy cosmetics during their travel abroad hence boosting the travel retail segment sales, as well. 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 in China. As a result of such an impressive demand, Estee Lauder’s Asia Pacific sales were the highest among its various markets in Q4 fiscal 2017 reflecting an 18% constant currency rise in sales. All its brands grew by double or triple digits in China in the fourth quarter and the online sales in China witnessed a more than double growth. Sales in China grew by 40% in Q4 and by 90% for the full fiscal 2017.

Estee Lauder’s Online Presence Is Growing And How!

Historically, Estee Lauder’s online division has demonstrated around 25% y-o-y annual growth, however, in fiscal 2017, the figure rose to 33% amounting to $1.3 billion, contributing ~11% of its total sales. Currently, the online segment hires around 700 people and is present in approximately 39 countries. The direct-to-customer and retail websites contribute around 60% and 40% of Estee Lauder’s total online business. Some of its star brands in the online domain are La Mer, MAC, and Tom Ford. It has so far launched 45 direct-to-consumer websites on its own platforms and on third parties, such as Tmall. Other than that, it engages beauty experts with a comprehensive knowledge on beauty products, as well as, artificial intelligence and related technologies to provide some of the best beauty advice through the online channels. Mobile technology accounts for half of its online sales and around two-third of the online traffic comes through mobiles. Also, technologies such as virtual makeup try-on applications are helping it in luring millennial users to the brick-and-mortar-stores.

 

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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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