Will Estee Lauder Maintain Momentum On Solid Travel Retail?

The Estee Lauder Companies Inc. (NYSE:EL) is gaining momentum from robust online sales, a strong travel retail network and an impressive emerging market presence. These factors combined with efficient operational strategies have led to remarkable top and bottom-line trends for Estee Lauder, despite soft U.S. retail traffic.

Consequently, the cosmetics biggie has been in investors’ good books, with its shares surging 42.3% so far this year, outpacing the industry’s growth of 39.3%. Let’s take a closer look.

Factors Shaping Estee Lauder’s Trajectory

Estee Lauder has a strong online business, which is expected to be a major growth engine for the upcoming years. The company is implementing new technology and digital experiences, including online booking for each store appointment, omnichannel loyalty programs and high-touch mobile services. Further, it has expanded brand presence across various third-party sites as the company continues to widen market reach.

In the fourth quarter and fiscal 2019, the company’s e-commerce sales witnessed double-digit growth across all markets, where it has established e-commerce operations. Markedly, Estee Lauder’s online business is primarily fueled by strong performance in the United States, China and the U.K. regions.

Apart from this, Estee Lauder has been strongly focused on enhancing its travel retail business, which is a major sales driver. To this end, it has been undertaking various endeavors like better customer insights, enhanced merchandising and improved digital marketing. Notably, travel retail sales were sturdy in fiscal 2019, with broad-based growth in most brands, regions and categories. Travel retail has been particularly growing strongly in Asia. Further, the company expects this business to gain from rising passenger traffic, favorable fundamentals and higher conversions.

Also, Estee Lauder is benefiting from a strong presence in emerging markets. The company derives significant revenues from emerging markets like China, India, Turkey, Russia and Brazil, which encourages it to make distributional, digital and marketing investments in these countries. Markedly, China was a major area of focus for Estee Lauder. In fiscal 2019, the region witnessed double-digit gains across most brands. Management focuses on enhancing market share in the region and also strives to expand in other emerging regions.

Wrapping Up

Persistent softness in the brick-and-mortar retail space in the United States and the U.K. (especially in makeup) is a concern for Estee Lauder. Additionally, sales in Latin America have been weak, courtesy of declines in Mexico, Chile and Venezuela. Although these factors and tariff impacts in China pose threats, we expect Estee Lauder’s aforementioned drivers to help it maintain its momentum.

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