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The Estee Lauder Companies (EL) Strikes a Deal With TOM FORD
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The Estee Lauder Companies Inc. (EL - Free Report) is spurring its momentum in the rising luxury beauty category and is on track to become a leader in global prestige beauty. The company entered into an agreement to buy the TOM FORD brand — a global leader in luxury. Once the deal concludes, The Estee Lauder Companies will become the sole owner of the TOM FORD brand and its intellectual property. Management envisions closing the buyout during the first half of 2023.
Per the deal, the total enterprise is valued at $2.8 billion. The Estee Lauder Companies will pay roughly $2.3 billion, net of a $250 million payment to ELC at closing from Marcolin S.p.A. (“Marcolin”). The transaction is likely to be funded via a combination of cash and debt, among others.
The acquisition will accelerate the evolution of the TOM FORD brand as one of the leading global luxury brands. The deal will help ELC secure the long-term cash flow from the ownership of the high-growth TOM FORD BEAUTY brand, new licensing revenue streams and eliminating royalty payments. The acquisition will also generate synergies like creative oversight, enhanced speed and agility and scope for deeper online penetration.
The Estee Lauder Companies anticipates the buyout to be dilutive to fiscal 2023 adjusted earnings per share (EPS) by negative 5-15 cents, mainly due to one-time costs associated with the buyout. The transaction will likely be almost neutral to adjusted EPS during fiscal 2024.
Image Source: Zacks Investment Research
We note that TOM FORD BEAUTY reported almost 25% year-over-year net sales growth in ELC’s fiscal 2022. Management expects the brand to achieve annual net sales of one billion dollars in the next few years. In addition, Ermenegildo Zegna Group and Marcolin S.p.A. signed long-term license agreements for TOM FORD fashion and TOM FORD eyewear, respectively, as part of the deal.
What Else Should You Know?
COVID-19 continued affecting The Estee Lauder Companies’ operating environment in the first quarter of fiscal 2023, including curbs in China that dented travel retail and retail traffic. Results were affected by increased inflation and concerns surrounding the recession, which led certain retailers to tighten their inventory. The company reported first-quarter fiscal 2023 results, with the top and bottom lines declining year over year. Margins also remained soft in the quarter.
The Zacks Rank #5 (Strong Sell) company expects the rest of fiscal 2023 to remain pressurized by temporary hurdles stemming from pandemic-led curbs in China, foreign currency headwinds, heightened inflation, supply-chain bottlenecks and the risk of sluggishness in certain markets globally. Incidentally, management expects net sales to decline in the band of 17-19% year over year in the second quarter of fiscal 2023.Organic net sales are anticipated to decline in the range of 9-11% in the fiscal second quarter. The quarterly adjusted EPS is anticipated to be $1.19-$1.29, indicating a 57-60% decline from the year-ago period’s levels. The adjusted EPS is likely to decline 50-54% at constant currency.
EL’s shares have lost 17.9% in the past three months compared with the industry’s 23.7% decline.
e.l.f. Beauty, a cosmetic company, currently sports a Zacks Rank #1 (Strong Buy). ELF has a trailing four-quarter earnings surprise of 92.8%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for e.l.f. Beauty’s current financial year sales and EPS suggests growth of 24.5% and almost 31%, respectively, from the year-ago period’s reported figures.
Inter Parfums is engaged in the manufacturing, distribution and marketing of a wide range of fragrances and related products. IPAR currently carries a Zacks Rank #2 (Buy).
The Zacks Consensus Estimate for Inter Parfums’ current financial year sales and EPS suggests growth of 16.6% and 22.6%, respectively, from the year-ago period’s reported figures. IPAR has a trailing four-quarter earnings surprise of 27.8%, on average.
TreeHouse Foods, which manufactures and distributes private-label foods and beverages, carries a Zacks Rank #2 at present. TreeHouse Foods has a trailing four-quarter earnings surprise of 56.3%, on average.
The Zacks Consensus Estimate for THS’ current financial-year sales and EPS suggests decline of 19.2% and 12.6%, respectively, from the year-ago reported numbers.
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The Estee Lauder Companies (EL) Strikes a Deal With TOM FORD
The Estee Lauder Companies Inc. (EL - Free Report) is spurring its momentum in the rising luxury beauty category and is on track to become a leader in global prestige beauty. The company entered into an agreement to buy the TOM FORD brand — a global leader in luxury. Once the deal concludes, The Estee Lauder Companies will become the sole owner of the TOM FORD brand and its intellectual property. Management envisions closing the buyout during the first half of 2023.
Per the deal, the total enterprise is valued at $2.8 billion. The Estee Lauder Companies will pay roughly $2.3 billion, net of a $250 million payment to ELC at closing from Marcolin S.p.A. (“Marcolin”). The transaction is likely to be funded via a combination of cash and debt, among others.
The acquisition will accelerate the evolution of the TOM FORD brand as one of the leading global luxury brands. The deal will help ELC secure the long-term cash flow from the ownership of the high-growth TOM FORD BEAUTY brand, new licensing revenue streams and eliminating royalty payments. The acquisition will also generate synergies like creative oversight, enhanced speed and agility and scope for deeper online penetration.
The Estee Lauder Companies anticipates the buyout to be dilutive to fiscal 2023 adjusted earnings per share (EPS) by negative 5-15 cents, mainly due to one-time costs associated with the buyout. The transaction will likely be almost neutral to adjusted EPS during fiscal 2024.
Image Source: Zacks Investment Research
We note that TOM FORD BEAUTY reported almost 25% year-over-year net sales growth in ELC’s fiscal 2022. Management expects the brand to achieve annual net sales of one billion dollars in the next few years. In addition, Ermenegildo Zegna Group and Marcolin S.p.A. signed long-term license agreements for TOM FORD fashion and TOM FORD eyewear, respectively, as part of the deal.
What Else Should You Know?
COVID-19 continued affecting The Estee Lauder Companies’ operating environment in the first quarter of fiscal 2023, including curbs in China that dented travel retail and retail traffic. Results were affected by increased inflation and concerns surrounding the recession, which led certain retailers to tighten their inventory. The company reported first-quarter fiscal 2023 results, with the top and bottom lines declining year over year. Margins also remained soft in the quarter.
The Zacks Rank #5 (Strong Sell) company expects the rest of fiscal 2023 to remain pressurized by temporary hurdles stemming from pandemic-led curbs in China, foreign currency headwinds, heightened inflation, supply-chain bottlenecks and the risk of sluggishness in certain markets globally. Incidentally, management expects net sales to decline in the band of 17-19% year over year in the second quarter of fiscal 2023.Organic net sales are anticipated to decline in the range of 9-11% in the fiscal second quarter. The quarterly adjusted EPS is anticipated to be $1.19-$1.29, indicating a 57-60% decline from the year-ago period’s levels. The adjusted EPS is likely to decline 50-54% at constant currency.
EL’s shares have lost 17.9% in the past three months compared with the industry’s 23.7% decline.
Stocks to Consider
Some better-ranked stocks are e.l.f. Beauty (ELF - Free Report) , Inter Parfums, Inc. (IPAR - Free Report) and TreeHouse Foods (THS - Free Report) .
e.l.f. Beauty, a cosmetic company, currently sports a Zacks Rank #1 (Strong Buy). ELF has a trailing four-quarter earnings surprise of 92.8%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for e.l.f. Beauty’s current financial year sales and EPS suggests growth of 24.5% and almost 31%, respectively, from the year-ago period’s reported figures.
Inter Parfums is engaged in the manufacturing, distribution and marketing of a wide range of fragrances and related products. IPAR currently carries a Zacks Rank #2 (Buy).
The Zacks Consensus Estimate for Inter Parfums’ current financial year sales and EPS suggests growth of 16.6% and 22.6%, respectively, from the year-ago period’s reported figures. IPAR has a trailing four-quarter earnings surprise of 27.8%, on average.
TreeHouse Foods, which manufactures and distributes private-label foods and beverages, carries a Zacks Rank #2 at present. TreeHouse Foods has a trailing four-quarter earnings surprise of 56.3%, on average.
The Zacks Consensus Estimate for THS’ current financial-year sales and EPS suggests decline of 19.2% and 12.6%, respectively, from the year-ago reported numbers.