What To Expect From Estee Lauder’s Q2

by Trefis Team
Estee Lauder
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Estee Lauder (NYSE:EL) is scheduled to release its Q2 fiscal 2019 results on February 5. It has had a robust 2018, primarily driven by strong performance in its Skin Care and Makeup segments and the same growth momentum continued in its Q1 2019 earnings. During Q1, the company reported a 8% jump in sales to $3.52 billion from $3.27 billion in the same period last year, and diluted net earnings per common share increased 17% to $1.34. This growth was driven by strong performance in the skin care segment globally, growth from online and travel retail segments, and emerging markets particularly Asia / Pacific region (esp. China). The performance this quarter reflected robust global demand across their portfolio, with virtually all their brands posting sales growth. Each of its biggest brands, including MAC, La Mer, Tom Ford, and Origins, grew globally, with exceptional growth in Estée Lauder.

Driven by this strong Q1 performance and exciting upcoming launches and programs, Estee Lauder has forecast growth in its Q2 2019 sales to increase between the band of 8% – 9% (Excluding a 2% impact from currency translation and a 2% impact from the adoption of ASC 606) and net earnings per share between $1.47 and $1.50. The continued emphasis on a “digital-first” approach and on fast-growing markets and channels is also expected to contribute to the company’s growth. Please refer to our dashboard analysis on What To Expect From Estee Lauder’s Q2 Earnings.

Listed below are key drivers that we believe will continue to steer Estee Lauder’s growth this Q2 and for full year 2019:

Skin care and Make up segments will continue to drive sales – These segments will likely continue to post strong performance in the coming quarters. The skin care segment posted 17% growth in sales in the Q1. Going forward, its skin care segment’s exceptional performance will be driven by strong innovations, increasing demand from younger consumers, and gains from its hero products: Estée Lauder, La Mer, Origins, and Clinique brands. Driven by continued success of the recent launches — Advanced Night Repair Eye Concentrate Matrix — the Estee Lauder brand is likely to witness strong growth from China and travel retail. Apart from skin care, Estee Lauder’s recent acquisition of high-end fragrance and lifestyle brands will aid its growth.

The makeup segment will witness increased sales as a result of the acquisitions of Too Faced and BECCA from the previous fiscal year. Its 2% growth in Q1 was driven by strong performance from brands such as Estée Lauder and Tom Ford, Too Faced, BECCA, and La Mer.

Growth in online & travel retail –  Growth in the travel retail business is a major driving factor for Estee Lauder. During Q1 2019, travel retail sales continued to accelerate backed by broad-based growth across countries and brands. Currently, the channel continues to benefit from a unique product range, impressive marketing strategies, higher conversions through better customer insights, and 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 Q2 and further in 2019.

Asia-Pacific region to continue to boost the sales – In the previous quarter, sales from the Asia-Pacific region led to a 24% rise in its top-line growth. Europe, Middle-East and Africa also saw sales rise by 14%. We anticipate rising disposable incomes in the Asia-Pacific markets (especially China) to continue to boost the company’s sales and contribute to its top-line. Management thus anticipates continued strength from sales of luxury products, prompting it to continue to invest in these regions.

EL’s growth drivers and aggressive growth strategies for coping with changing consumer preferences will continue to help it in maintaining its dominance in the beauty market. The company has successfully expanded its online business footprint in about 40 countries. It plans to continue boosting sales in this channel by adding new sites and expanding retailer distributions. The investment in DECIEM, a fast-growing multi-brand company, is further likely to aid EL’s beauty sales.

In all, we expect Estee Lauder to continue its growth momentum in the coming earnings and in the remainder of FY 2019.


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