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The Estee Lauder Companies (EL) Looks Poised on Online Sales

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Growing online business and robust Skin Care category are favoring The Estee Lauder Companies Inc. (EL - Free Report) . Also, the company’s cost-saving efforts are encouraging. These upsides were reflected in the company’s third-quarter fiscal 2021 results, with the top and the bottom line increasing year over year.

Impressively, the company projects net sales for fiscal 2021 to increase in the band of 11-12%. Excluding the impact of currency, management expects net sales to increase 9-10% in the quarter. Further, adjusted earnings are anticipated to increase in the range of 45-47% at constant currency (cc) in fiscal 2021. Its fiscal fourth-quarter sales are anticipated to increase 44-50% at cc. This reflects on recovery in several parts of the world and favorable year-over-year comparison.

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. In this regard, 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 boosting online sales.

During the third quarter of fiscal 2021, online sales continued to drive the company’s top-line growth. In its last earnings call, management highlighted that its online channel has almost doubled compared with two years ago. The company is on track to undertake high-touch innovation on digital platforms. Apart from these, management has been on track with expanding brand presence across various third-party sites, rolling out new digital payment technologies and enhancing its loyalty programs as it continues to widen market reach.

 

Other Factors Favoring The Estee Lauder Companies

The company’s Skin Care portfolio has been performing well for a while now. During the fiscal third quarter, brands like Estee Lauder, Clinique and La Mer witnessed significant growth in the Skin Care category. Moreover, the category is benefitting from Origins as well as the acquisition of Dr. Jart (concluded in 2019). During the quarter, Skin Care category’s sales increased 31% year over year. Recently, The Estee Lauder Companies took another step to expand its Skin Care business when it concluded the first phase of raising its ownership stake in DECIEM Beauty Group Inc.

Apart from this, The Estee Lauder Companies is on track with cost-saving measures. Uncertainties related to COVID-19 compelled 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 third quarter, operating expenses, as a percentage of sales, declined significantly to 59.8% from 71.7% reported in the year-ago quarter.

Is All Rosy For The Estee Lauder Companies?

Most brick-and-mortar retail stores that sell The Estee Lauder Companies’ products (both company and customer operated) remained mostly open, especially in China and the United States during fiscal third quarter. However, there were intermittent shutdowns in the rest of the world. Many retail stores were temporarily shut at some point in the quarter across the U.K., Japan, Canada, Italy, Spain, France, Mexico and Brazil due to resurgence of coronavirus infections. Moreover, store traffic was significantly lower compared with pre-pandemic levels globally. Apart from these, international travel has been majorly restricted worldwide due to government regulations and consumer health concerns. Such restrictions have been negatively impacting consumer traffic in most travel retail locations.

Moreover, the company is on track with its two-year Post-COVID Business Acceleration Program that was introduced in August 2020. Through this plan, management expected shutting 10-15% of its freestanding stores worldwide along with various low-performing department store counters. Also, the company mentioned that various retailers decided to undertake planned reduction of their footprint via door closures amid the pandemic.

That being said, we believe that the aforementioned growth endeavors are likely to help this Zacks Rank #3 (Hold) company stay in investors’ good books. Notably, shares of The Estee Lauder Companies have increased 22.5% in the past six months compared with the industry’s 17.4% growth.

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