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The Estee Lauder Companies (EL) Gains on Skin Care, Online Strength

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The Estee Lauder Companies Inc. (EL - Free Report) appears well placed, courtesy of strength in its Skin Care business and online operations. The company is on track with effective cost-saving efforts. However, some pandemic-led intermittent shutdowns are roadblocks for the company.

Let’s delve deeper.

What’s Working Well?

The Estee Lauder Companies has a strong online business and expects the same to be a major growth engine for the upcoming years. 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 fiscal 2021, sales of the company’s products via all online channels rallied 34%, contributing 28% to overall sales.

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The Estee Lauder Companies’ Skin Care portfolio has been performing well for a while now. During fourth-quarter fiscal 2021, the Skin Care category’s sales were up 47% year over year. The company expects to keep witnessing solid growth in the Skin Care category during fiscal 2022. Management, in its last earnings call, stated that it is optimistic about three recently-launched Skin Care innovations —  Estee Lauder new Advanced Night Repair Eye Matrix, La Mer The Hydrating Infused Emulsion and Clinique Smart Clinical Repair Wrinkle Correcting Serum. In May 2021, 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. ("DECIEM").

Apart from these, uncertainties related to COVID-19 led management to implement stringent cost-curtailment practices. The Estee Lauder Companies, which shares space with Coty Inc. (COTY - Free Report) , has been benefiting from cost-saving initiatives like the Leading Beauty Forward as well as the post-COVID business acceleration program. During the fiscal fourth quarter, the company’s gross profit came in at $2,950 million, up 77%. Gross margin increased to 74.9% from 68.4% reported in the year-ago quarter.

Roadblocks on the Way

While most brick-and-mortar retail stores that sell The Estee Lauder Companies’ products (company and customer operated) remained operational — especially in China and the United States — during much of the fiscal fourth quarter, 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., Continental Europe, Canada, most of Latin America and the Asia/Pacific region (except China) due to the resurgence of COVID-19 infections.

In places where stores were open, traffic was lower than pre-pandemic levels. Additionally, 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. The company continues to see soft demand for makeup products compared with pre-pandemic levels, thanks to lesser makeup usage occasions and mask-wearing mandates.

That being said, we believe that focus toward the aforementioned growth endeavors are likely to help The Estee Lauder Companies stay afloat amid the hurdles. Shares of this Zacks Rank #3 (Hold) company have increased 19.7% so far this year compared with the industry’s growth of 12.1%.

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