We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
Bear of the Day: The Estee Lauder Companies Inc. (EL)
Read MoreHide Full Article
Company Overview
New York-based Zacks Rank #5 (Strong Sell) stock The Estee Lauder Companies Inc. ((EL - Free Report) ) is one of the world’s leading manufacturers and marketers of skincare, makeup, fragrance, and hair care products. The company’s products are sold through department stores, mass retailers, company-owned retail stores, hair salons, and travel-related establishments. Though the company is headquartered in the US, its manufacturing and research facilities are spread across Canada, Belgium, Switzerland, Japan, South Africa, and the UK.
Inflation and Currency Headwinds
Because of Estee Lauder’s wide-ranging international presence, the company is exposed to unfavorable currency fluctuations. A strong US dollar will lead the company to increase prices or suffer from contracting profit margins. For now, the dollar is up roughly 4% over the past three weeks (a strong move for the dollar) and is on the brink of breaking out.
Image Source: TradingView
Regardless of the fluctuations in the dollar, Estee Lauder has a much lower profit margin (9.41) versus the cosmetics industry (19.99).
Image Source: Zacks Investment Research
The Death of the Department Store
One headwind that Estee Lauder has little control over is the death of the department store. The COVID-19 pandemic drove consumers away from department stores and to e-commerce platforms such as Amazon ((AMZN - Free Report) ) (a trend already in motion). Consumer preferences are also changing. Consumers are more drawn to specialty stores, boutiques, and direct-to-consumer brands than ever before.
Increased Competition
“Fast-fashion” retailers have gained popularity for their ability to quickly respond to changing fashion trends. While EL earnings dropped 75% last quarter while competitor e.l.f. Beauty ((ELF - Free Report) ) saw EPS launch by 182%, year-over-year. Consumers are clearly searching for inexpensive, high-quality cosmetics brands like ELF versus legacy, more expensive brands like EL. The trend is showing up in EL’s estimates moving forward.
Image Source: Zacks Investment Research
Negative Earnings ESP Score
EL is expected to report earnings on August 18th. Last quarter, EL missed earnings expectations by 4.08%. Investors should expect earnings to miss this quarter again because of its negative Earnings ESP Score. A negative Zacks Earnings ESP (Expected Surprise Prediction) combined with a poor rank of strong sell suggests that the company will likely miss earnings expectations.
Image Source: Zacks Investment Research
Price is the Ultimate Arbiter
Beyond the faltering fundamentals and business headwinds, EL shares exhibit relative weakness versus the general market and its industry group. Over the past year, EL shares are down 35%, while the Soap-Cosmetic Industry is flat.
Image Source: Zacks Investment Research
Takeaway
Currency headwinds, growing competition, and slowing growth point to a bleak outlook for Estee Lauder.
See More Zacks Research for These Tickers
Normally $25 each - click below to receive one report FREE:
Bear of the Day: The Estee Lauder Companies Inc. (EL)
Company Overview
New York-based Zacks Rank #5 (Strong Sell) stock The Estee Lauder Companies Inc. ((EL - Free Report) ) is one of the world’s leading manufacturers and marketers of skincare, makeup, fragrance, and hair care products. The company’s products are sold through department stores, mass retailers, company-owned retail stores, hair salons, and travel-related establishments. Though the company is headquartered in the US, its manufacturing and research facilities are spread across Canada, Belgium, Switzerland, Japan, South Africa, and the UK.
Inflation and Currency Headwinds
Because of Estee Lauder’s wide-ranging international presence, the company is exposed to unfavorable currency fluctuations. A strong US dollar will lead the company to increase prices or suffer from contracting profit margins. For now, the dollar is up roughly 4% over the past three weeks (a strong move for the dollar) and is on the brink of breaking out.
Image Source: TradingView
Regardless of the fluctuations in the dollar, Estee Lauder has a much lower profit margin (9.41) versus the cosmetics industry (19.99).
Image Source: Zacks Investment Research
The Death of the Department Store
One headwind that Estee Lauder has little control over is the death of the department store. The COVID-19 pandemic drove consumers away from department stores and to e-commerce platforms such as Amazon ((AMZN - Free Report) ) (a trend already in motion). Consumer preferences are also changing. Consumers are more drawn to specialty stores, boutiques, and direct-to-consumer brands than ever before.
Increased Competition
“Fast-fashion” retailers have gained popularity for their ability to quickly respond to changing fashion trends. While EL earnings dropped 75% last quarter while competitor e.l.f. Beauty ((ELF - Free Report) ) saw EPS launch by 182%, year-over-year. Consumers are clearly searching for inexpensive, high-quality cosmetics brands like ELF versus legacy, more expensive brands like EL. The trend is showing up in EL’s estimates moving forward.
Image Source: Zacks Investment Research
Negative Earnings ESP Score
EL is expected to report earnings on August 18th. Last quarter, EL missed earnings expectations by 4.08%. Investors should expect earnings to miss this quarter again because of its negative Earnings ESP Score. A negative Zacks Earnings ESP (Expected Surprise Prediction) combined with a poor rank of strong sell suggests that the company will likely miss earnings expectations.
Image Source: Zacks Investment Research
Price is the Ultimate Arbiter
Beyond the faltering fundamentals and business headwinds, EL shares exhibit relative weakness versus the general market and its industry group. Over the past year, EL shares are down 35%, while the Soap-Cosmetic Industry is flat.
Image Source: Zacks Investment Research
Takeaway
Currency headwinds, growing competition, and slowing growth point to a bleak outlook for Estee Lauder.