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The Estee Lauder Companies (EL) Looks Radiant: Here's Why

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The Estee Lauder Companies Inc. (EL - Free Report) looks well positioned, courtesy of its growing online operations and robust Skin Care business. Also, the company’s solid emerging market presence is yielding. Further, its cost-saving initiatives look impressive. Notably, shares of this Zacks Rank #2 (Buy) company have surged 91.9% in the past year compared with the industry’s rally of 80.1%. Moreover, the stock has comfortably outperformed the Zacks Consumer Staples sector, which witnessed growth of 26% during the same period.

Strength in Skin Care Business

The Estee Lauder Companies' 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 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 witnessed robust growth in travel retail channels. The Skin Care category is also benefitting from the acquisition of Dr. Jart. During the quarter, Skin Care category sales increased 28% year over year to $2,819 million.

 

Impressive Online Business

The Estee Lauder Companies has a strong online business and management expects it to be a major growth engine in the upcoming years. Incidentally, the company is implementing new technology and digital experiences that include 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 driving online sale.

Moreover, The Estee Lauder Companies’ brand teams have been fully committed to enhance consumers’ online experiences since coronavirus-induced restrictions 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 fiscal second quarter, 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.

Cost-Saving Efforts Bode Well

The Estee Lauder Companies 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 second-quarter fiscal 2021, operating expenses as a percentage of sales, contracted 160 basis points to 55.8% aided by cost-containment measures. The company’s operating income margin came in at 21.9%, up from 5.6% reported in the year-ago quarter.

Solid Presence in Emerging Markets

The Estee Lauder Companies 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% in the fiscal second quarter.

China is a major area of focus for The Estee Lauder Companies. 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. The company is making investments to cater to demand from consumers in China and Asia. Apart from these, its travel retail grew single-digit organically driven by strong performance in Asia region. We believe that solid emerging market presence along with the aforementioned upsides is likely to help The Estee Lauder Companies stay in investors’ good books.

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