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4 Factors That Make The Estee Lauder (EL) a Promising Pick

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The Estee Lauder Companies Inc. (EL - Free Report) looks well positioned, courtesy of its impressive e-commerce business and cost-saving efforts among others. Notably, shares of this Zacks Rank #1 (Strong Buy) company have surged 43.6% in the past year compared with the industry’s rally of 26%. Moreover, shares have comfortably outperformed the Zacks Consumer Staples sector, which witnessed growth of 1.3% during the same period.

Online Business: A Key Driver

The Estee Lauder has a strong online business and management expects it to be a major growth engine in the upcoming years. Incidentally, the company has been implementing new technology and digital experiences including online booking for each store appointment, omni-channel loyalty programs and high touch mobile services. These initiatives and the company’s digital-first mindset have been aiding its online sale.

Moreover, The Estee Lauder’s brand teams have been fully committed to enhancing consumer experiences online since coronavirus-induced lockdowns were imposed. In this regard, they have been focusing on proper product placement and showing cases tools including virtual try-on to ease decision-making. During the second quarter of fiscal 2021, the company added digital try on to more sites globally and the number of sessions almost doubled from the preceding quarter’s levels. In North America, conversion of live chat session was approximately four times higher than average conversion in the market.


Solid Presence in Emerging Markets

The Estee Lauder, which shares space with Nu Skin Enterprises, Inc. (NUS - Free Report) , has strong presence in emerging markets that insulates it from the macroeconomic headwinds in the matured markets. The company derives significant revenues from emerging markets like Thailand, India, Russia and Brazil, which keeps it encouraged about making distributional, digital and marketing investments in these countries. Notably, in the Asia-Pacific region, sales increased 35% year over year in the fiscal second quarter.

China is a major area of focus for The Estee Lauder. In fact, the company’s sales increased double-digit in Mainland China during the quarter. Also, digital sales increased significantly thanks to an impressive 11.11 Global Shopping Festival. Moreover, the company is making investments to cater to demand from consumers in China and Asia. Apart from these, the company’s travel retail grew single-digit organically driven by strong performance in Asia region.

Skin Care Business Holds Promise

The Estee Lauder’s Skin Care portfolio has been performing well for a while now. During the fiscal second quarter, brands like Estee Lauder, Clinique and La Mer witnessed significant growth. Notably, Estee Lauder delivered solid double-digit growth on the back of growth in travel retail and Mainland China. La Mer also increased double-digits across every region. Also, La Mer saw robust growth in travel retail channels. The Skin Care category is also benefitting from the acquisition of Dr. Jart. During the fiscal second quarter, Skin Care category sales have surged 28% year over year.

Cost-Saving Efforts Bodes Well

The Estee Lauder is on track with cost-saving measures. In fact, uncertainties related to COVID-19 led management to implement stringent cost-curtailment practices. These include costs related to advertising and promotion activities, travel, meetings, consulting and certain employee expenses. During fiscal second quarter, operating expenses, as a percentage of sales, contracted 160 basis points to 55.8% aided by cost-containment measures. Consequently, the company’s operating income margin came in at 21.9% up from 5.6% reported in the year-ago quarter.

All said, we believe that focus toward such growth endeavors are likely to help The Estee Lauder stay in investors’ good books.

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