How Will Estee Lauder Perform In Q3 2018?

by Trefis Team
Estee Lauder
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Estee Lauder (NYSE:EL) is scheduled to release its third quarter fiscal 2018 results on May 2.  The company is coming off a solid performance in the last quarter where its sales rose 17% to $3.74 billion driven by strong performance in the skin care segment, growth from online and travel retail segments, and emerging markets, particularly China. Adjusted for one-time charges including impact from U.S. Tax Cuts and Jobs Act (TCJA) the company reported earnings of $0.33 per share. 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 12-13% in Q3 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:

Makeup and skin care segments will continue to drive sales – 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 20% y-o-y, respectively. The star performers for the Makeup segment, along with Becca and Too Faced, included Tom Ford and Estee Lauder. The main driver for the skin care segment were some of its existing products along with new launches from brands like Estee Lauder, La Mer, and Glamglow.

Growth in online & travel retail –  Estee Lauder is expected to further 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 into 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.

Asia-Pacific region to continue to boost the sales – In the previous Quarter, sales from the Asia-Pacific region led top line growth by rising 33% to 874 million. Europe, Middle-East and Africa also saw sales rise by 20% to $1.56 billion. We anticipate rising disposable incomes in the emerging markets of Asia-Pacific (especially China) to continue to boost sales growth from the Asia-Pacific region as it constitutes a growing share of Estee Lauder’s top line. Management thus anticipates continued strength from sales of luxury products  prompting it to continue to invest in these regions.

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 12.5-13.5 % y-o-y and its diluted EPS are projected to be between $2.79 and $2.88.


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