What To Expect From Estee Lauder’s Q2 2018 Earnings

by Trefis Team
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Estee Lauder (NYSE:EL) is scheduled to release its second quarter fiscal 2018 results on February 2.  The company is coming off a solid performance in the last quarter where its sales rose 14% to $3.27 billion. Its stock price also jumped by about 10% after last quarter’s earnings announcement. Several factors have contributed to the company’s growth including the recent strategic acquisitions of Too Faced and BECCA. In the upcoming earnings, we anticipate Estee Lauder to continue to post good growth driven by a strong foothold in the beauty space and ongoing growth in online and travel retail network.

The successful start to fiscal 2018 enabled the company to revise upwards its guidance for sales and EPS. Management forecasts net sales growth of 13-15% in Q2 fiscal 2018. Please refer to our dashboard analysis on Estee Lauder.

Listed below are key drivers that we believe will continue to steer Estee Lauder’s growth this quarter and beyond in 2018:

Strategic acquisitions and growth in online & travel retail – Estee Lauder has made acquisitions of companies that are focused on millennials – one of the most coveted consumer segment for beauty companies. Some of the recent purchases by the company include Too Faced and BECCA Cosmetics and Deciem in the makeup segments.

Separately, given Estee Lauder’s positioning that focuses on travel retail, it is expected to benefit from ongoing strong passenger traffic growth in the emerging markets. Driven by rising income levels and increasing disposable income in these markets, passengers in these markets are increasingly turning in to buyers. This trend is likely to keep the company’s travel retail sales soaring for the remainder of fiscal 2018. In addition, given the company’s strong online business and growing popularity of online purchases, mobile sales are likely to continue to contribute to Estee Lauder’s growth in the coming quarter.

China will continue to boost the sales – Growth prospects in China continue to appear bright for Estee Lauder. Its sales soared almost 50%  year-over-year in Q1 2018 from this region with growth in all brands including MAC, Tom Ford, and Lab Series. The company’s operations in China have been benefiting from rising demand from millennials. Management thus anticipates continued strength from sales of luxury products in China, prompting it to continue to invest in the region.

Makeup and skin care segments will be major sales drivers – These segments will likely continue to post strong performance in the coming earnings in line with the last quarter where their sales advanced by 16% and 18% y-o-y, respectively. The star performers for this segment, along with Becca and Too Faced, included Tom Ford and Estee Lauder. The company’s acquisitions in the beautifying mask and oil-based treatment categories has also been helpful in satisfying the changing demands beyond the traditional formulations like moisturizers and serums and will further fuel sales growth. The main drivers in this segment were some of its existing products along with new launches from brands like Estee Lauder, La Mer, and Glamglow.

 

In all, we expect Estee Lauder to continue its growth momentum in the coming earnings and rest of FY 2018. For the full year, the company forecasts its sales to grow by around 8-9% y-o-y and its EPS to grow by 12-14% y-o-y.

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