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Estee Lauder (EL) Slips to Sell: What's Wrong with the Stock?

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Cosmetics giant, Estee Lauder Companies Inc. (EL - Free Report) has recently slipped into the red and seems to be in troubled waters at the moment. The shares of the company plunged 11.2% on a year-to-date basis, underperforming the Zacks categorized Consumer Staples industry, which has showcased a gain of 1.3%. Lackluster retail growth in Hong Kong and China, lower tourist rates in New York and Florida, declining footfall at the company’s mid-tier department stores and high promotional environment in the cosmetic sector are the main reasons behind the decline.

Let’s find out what’s going on with this Zacks Rank #4 (Sell) consumer staples stock?

What’s Wrong with Estee Lauder?

Though Estee Lauder is strategically focusing on expanding in Asia and expects long-term growth, soft macroeconomic conditions in Greater China and Korea are slowing the company’s growth in the region. Further, the company is witnessing stock market volatility in China. Moreover, continued political unrest in Hong Kong has caused a sharp drop in Chinese tourists traveling to other countries. Though it is attempting to strengthen its business with local consumers in Hong Kong, there is no possibility of a significant pickup in consumption in the near term.

Further, the company has been facing lower sales in America. Declining footfall in the mid-tier department stores is primarily responsible for the soft top-line results. Additionally, fewer number of tourists visiting the country is leading to slow growth in the travel retail sector. Tourist-driven freestanding stores are reporting lower sales in the past few quarters. Moreover, the M.A.C. brand, which constitutes a significant portion of total sales has been underperforming in the past few quarters due to increased competitive pressure and ongoing challenges faced by the company in North America.

ESTEE LAUDER Price, Consensus and EPS Surprise

ESTEE LAUDER Price, Consensus and EPS Surprise | ESTEE LAUDER Quote

The above headwinds resulted in lower than expected sales during the first quarter of fiscal 2017 reported on Nov 2, 2016. Sales inched up by mere 1% from the year-ago quarter. Further, the company experienced lower margins during the quarter mainly due to unfavorable currency and product mix.

The company was cautious while providing guidance for second quarter. The company mentioned that it anticipates the ongoing challenges to persist even during the second quarter, although it expects innovation and strategic initiatives to boost sales going forward. Most of the estimates for the second quarter were revised downward in the past sixty days.

Stocks to Consider

Some better-ranked stocks in the broader consumer staples sector include Inter Parfums Inc. (IPAR - Free Report) , US Foods Holdings (USFD - Free Report) and Sysco Corporation (SYY - Free Report) , all carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Inter Parfums Inc. has an expected earnings growth of 15%. Mondelez has an expected earnings growth rate of 13.1%, while Sysco Corporation has a long-term growth rate of 8.8%.

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