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The Estee Lauder (EL) to Raise Stake in DECIEM to Aid Growth

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The Estee Lauder Companies Inc. (EL - Free Report) is on track with expanding its brand presence to boost growth. Progressing along these lines, the company signed an agreement to increase its stake in DECIEM Beauty Group Inc. (“DECIEM”) from nearly 29% to roughly 76%. The deal is likely to be concluded during the quarter ending Jun 30, 2021. Further, The Estee Lauder agreed to buy rest of the stake in DECIEM after three years. We note that the company had made an initial investment in DECIEM during June 2017.

The Estee Lauder will pay nearly $1 billion when the envisioned deal is closed. Once the transaction is complete management expects to have a non-cash gain on its initial investment. Apart from this gain, DECIEM’s net sales and earnings are anticipated to have negligible effect on The Estee Lauder’s results for fiscal 2021.

We note that DECIEM — a Canada-based company — is the force behind fast-growing skin care brands like The Ordinary and NIOD. Well, DECIEM’s hero products, innovations along with digital-and consumer-first high-touch approach have been yielding. DECIEM’s functional beauty brand and products are mainly sold via DECIEM-owned and online retailer websites as well as specialty-multi stores and its freestanding stores across the United States, the U.K. and Canada. All said, we believe that the recently-announced agreement is likely to add another leaf to The Estee Lauder’s growth story.

 

What Else is Driving Growth?

The Estee Lauder’s Skin Care portfolio has been performing well for a while now. During the second quarter of fiscal 2021, brands like Estee Lauder, Clinique and La Mer witnessed significant growth. Notably, Estee Lauder brand 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.

The Estee Lauder, which shares space with Nu Skin Enterprises, Inc. (NUS - Free Report) , 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. In fact, The Estee Lauder’s brand teams have been fully committed to enhancing consumers’ experiences online since the coronavirus outbreak.

Additionally, 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.

Notably, shares of this Zacks Rank #1 (Strong Buy) company have surged 52.5% in the past year compared with the industry’s rally of 30.4%.

Some Solid Cosmetic Picks

Inter Parfums, Inc. (IPAR - Free Report) , with a Zacks Rank #1, has a trailing four-quarter earnings surprise of 18.7%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.

Helen of Troy Limited (HELE - Free Report) , with a Zacks Rank #2 (Buy), has a long-term earnings growth rate of 9.7%.

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