Estee Lauder’s Share Price Soars To Record High After A Smashing Q1 Fiscal 2018 Performance

by Trefis Team
-8.52%
Downside
140
Market
128
Trefis
EL
Estee Lauder
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Estee Lauder‘s (NYSE: EL) stock price jumped upwards by over 10% to reach a record high of around $124 post its hugely successful Q1 fiscal 2018 results. The main drivers of its performance were its expansion in China and the subsequent success, its growth in the online and travel retail segments, and its millennial friendly brands, most notably, the Becca and Too Faced brands that it acquired last year. Its net sales grew by 13% in constant currency terms to reach $3.27 billion. Becca and Too Faced contributed to around 4% of this growth and the remaining 9% growth came from its organic sales. The company’s solid performance in Europe, Middle East, and Africa was evident from the fact that the sales in these regions grew by 18% on a constant currency basis. The main driver for this growth was the soaring sales in the travel retail segment which, in turn, was boosted by the surge in travel in these places. Travel retail sales and local demand was also strong in the Asia market. The successful start to the fiscal year has boosted the company’s confidence and as a result, it has revised its sales and EPS guidance upwards. In constant currency terms, its full fiscal 2018 sales are expected to grow by 8% to 9% y-o-y and its EPS by 12% to 14% y-o-y. We have a $96 price estimate for Estee Lauder which is around 20% lower than its current market price.

Skincare Was A Surprise Winner!

Estee Lauder’s makeup segment, as expected, continued with its strong performance in line with the previous quarters. The star performers for this segment, along with Becca and Too Faced, included Tom Ford and Estee Lauder. However, the remarkable thing was that the company’s skincare segment that seemed to be struggling to attain a strong growth momentum, showed considerable recovery in the quarter. The main drivers for this were some of its existing products along with new launches from brands like Estee Lauder, La Mer, and Glamglow. It is noteworthy to mention that the skincare segment has been witnessing an industry-wide recovery, so that must have also helped the company.

Travel Retail, Online, And Multi Retail Sales Are Expected To Keep Growing

The strong passenger traffic growth and the increased conversion of the passengers into buyers, especially in the emerging markets, is expected to keep the company’s travel retail sales soaring for the rest of the fiscal year. It plans on boosting investments in China and other developing countries where its products are a success.

Estee Lauder’s strong online sales were mainly driven by the third-party and retailer sites. Each of its metrics, traffic, conversions, and orders, witnessed a healthy growth. China’s Tmall witnessed a surge in sales especially since the launch of its makeup brand MAC in May. MAC has further launched an online platform in South East Asia called Lazada, which is owned by the Alibaba Group. With a Tmall-like model, this store might be a further catalyst for the company’s growth in the region. The company’s effort to expand its online footprints continued with the launch of 100 new websites in the quarter. Around 70% of its online sales were contributed by mobile and hence this medium is a prime focus in Estee Lauder’s digital initiatives.

Estee Lauder is also growing its position by pushing more of its brands through the specialty-multi retail channels across the world. This channel is specifically attractive to the younger beauty users, a coveted segment for most beauty companies these days. For example, even in the U.S. where the footfall decline in the brick-and-mortar stores is a concern for the company, its sales through pure play cosmetic companies such as Ulta Beauty and Sephora continued to grow.

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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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