Estee Lauder (EL) Crosses Industry Mark: What's Fueling It?
Zacks Investment Research | Sep 11, 2017 11:24PM ET
The Estée Lauder Companies Inc. (NYSE:EL) has been depicting strong growth momentum backed by a diverse portfolio, well-planned acquisitions and notable progress in e-commerce. Evidently, shares of the company have surged 27.4% in the past six months, outperforming the industry’s growth of 10.1%.
The company reached a 52-week high of $109.83 during the trading session on Sep 11, eventually closing at $108.74. In fact, shares of the company have gone up almost 11.1% since it posted upbeat fourth-quarter fiscal 2017 results.
Let’s delve into the aspects that have been aiding the company’s impressive performance.
Acquisitions Boost Performance
Acquisitions have been one of the primary growth drivers for this leading beauty company. The buyouts of BECCA and Too Faced (during first-quarter fiscal 2017) has strengthened Estée Lauder’s fastest growing prestige beauty brands portfolio. The acquisitions have contributed about 3.5 percentage points of the reported sales growth during the fourth quarter and approximately half the reported sales growth in the third quarter of fiscal 2017. During June, the company invested in DECIEM, a fast-growing multi-brand company, which is expected to benefit the company’s top line in the upcoming periods. Few other notable acquisitions of the company include By Kilian, GLAMGLOW, RODIN olio lusso and Le Labo. These acquisitions have significantly enhanced the company’s portfolio and widened customer base.
Online Business Surge
A large number of consumers now prefer to shop online. This trend is well reflected in Estée Lauder’s e-commerce platform that witnessed an astounding 33% growth to reach $1.3 billion during fiscal 2017. In order to maintain this growth, the company plans to implement new technology and digital experiences to better serve consumers.
Presence in Emerging Markets
Estée Lauder also has a strong presence in emerging markets which insulates it from the macroeconomic headwinds in matured markets. The Middle East, North Africa, sub-Saharan Africa and Asia Pacific markets offer extensive untapped potential for the company. Estée Lauder has bright prospects in China, as management believes that the region is under penetrated. The company is expanding footprint in smaller cities in China where skin care category has bright growth prospects.
Leading Beauty Forward Initiative
Under the Leading Beauty Forward initiative, the company continues to reallocate resources and reduce costs in order to drive beauty business. The company plans to optimize some of its corporate functions including supply chain and regional marketing structures and exit underperforming businesses. The company expects to complete these initiatives through fiscal 2021. After its full implementation, the company expects Leading Beauty Forward to yield annual net benefits, primarily in selling, general and administrative expenses, between $200 million and $300 million, before taxes.
Bottom Line
Estée Lauder’s dismal business trend in Hong Kong owing to political issues has also been posing concerns for the company for a while now. Decline in retail traffic in the U.S. brick-and-mortar stores have also posed challenges in generating revenue for some of its leading beauty brands such as MAC.
Nevertheless, Estée Lauder is strongly positioned in the beauty arena given its robust brand portfolio and productive growth strategies. Such dedicated efforts have aided this Zacks Rank #1 (Strong Buy) company to surpass the Zacks Consensus Estimate for 12 straight quarters. The stock currently has a long term growth rate of 12.2% and carries a Zacks Investment Research
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