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The Estee Lauder Companies' (EL) Skin Care Sales Aids Growth

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The Estee Lauder Companies Inc. (EL - Free Report) is benefiting from strength in the Skin Care business. The beauty company’s impressive online operations along with a solid presence in emerging markets are worth noting.

Let’s delve deeper.

Zacks Investment Research
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Skin Care Business Fuels Growth

The Estee Lauder Companies’ Skin Care portfolio has been performing well. During the third quarter of fiscal 2022, the Skin Care category’s sales were up 6% year over year (up 7% at constant currency or cc) to $2,395 million. During the quarter, Skin care net sales rose in The Americas and EMEA regions, fueled by solid double-digit La Mer sales growth. In May 2021, The Estee Lauder Companies took a step to expand its Skin Care business when it concluded the first phase of raising its ownership stake in DECIEM Beauty Group Inc. (DECIEM). Consequently, The Estee Lauder Companies now has nearly 76% ownership in DECIEM compared with 29% earlier. The addition of DECIEM complimented the company’s reported sales growth in the fiscal third quarter.

What Else is Working Well?

The Estee Lauder Companies has a strong online business and expects it to be a major growth engine. 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 the company’s online sales. Management has been focusing on proper product placement and showing cases tools, including virtual try-on, to ease decision-making. The company’s online business remained solid, driven by growth in areas where pandemic-induced restrictions were in place. The company has been expanding its omnichannel capabilities to aid flexible and convenient shopping options for consumers.

The Zacks Rank #3 (Hold) company has a strong presence in emerging markets, insulating it from the macroeconomic headwinds in the matured markets. The company derives significant revenues from emerging markets like Thailand, India, Russia and Brazil, which encourages it to make distributional, digital and marketing investments in these countries. The Estee Lauder Companies is making investments to cater to demand from consumers in China and Asia. To this end, it bought Korea-based skincare brand Dr. Jart in 2019. In its fiscal third-quarter earnings call, management highlighted it is optimistic about opening its innovation center in Shanghai by the end of 2022. The investment in China will highly increase its ability to serve the Chinese and Asian consumers with locally relevant innovation. In addition, the center will support the company’s East to West innovation mindset. Management is also building a state of art production unit near Tokyo.

Lowered View

Although the company’s fiscal 2022 guidance reflects year over year growth, it has recently been downgraded from the previous forecast. Management revised its fiscal 2022 outlook downward as impressive year-to-date performance is likely to be countered with added headwinds that are affecting the fiscal fourth-quarter view. These headwinds include pandemic-induced restrictions in China, which are impacting the travel retail business. Also, the invasion of Ukraine is a major hurdle.

For fiscal 2022, the company now projects reported net sales to increase in the band of 7-9% year over year. Earlier, the metric was expected to increase 13-16% year over year. Organic net sales are now anticipated to increase in the range of 5-7% year over year. The metric was earlier expected to grow in the band of 10-13% year over year. The company expects adjusted earnings per share (EPS) between $7.05 and $7.15 for fiscal 2022, compared with the previous range of $7.43-$7.58. Adjusted earnings are now anticipated to increase 8-10% at cc in fiscal 2022. Earlier, the metric was projected to increase 14-17% at cc.

That being said, The Estee Lauder Companies’ aforementioned upsides are likely to keep its growth story alive. EL’s stock has lost 1.6% in the past three months, outperforming the industry’s 2.1% decline.

3 Solid Staple Stocks

Some better-ranked stocks are Pilgrim’s Pride (PPC - Free Report) , Sysco Corporation (SYY - Free Report) and Medifast (MED - Free Report) .

Pilgrim’s Pride, which produces, processes, markets and distributes fresh, frozen and value-added chicken and pork products, sports a Zacks Rank #1 (Strong Buy). PPC has a trailing four-quarter earnings surprise of 31.4%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Pilgrim’s Pride’s current financial year EPS suggests growth of almost 43% from the year-ago reported number.

Sysco, which engages in the marketing and distributing of various food and related products, carries a Zacks Rank #2 (Buy). SYY has a trailing four-quarter earnings surprise of 9.1%, on average.

The Zacks Consensus Estimate for Sysco’s current financial year sales and EPS suggests growth of 32.6% and 124.3%, respectively, from the year-ago reported number.

Medifast, which manufactures and distributes weight loss, weight management, healthy living products and other consumable health and nutritional products, currently carries a Zacks Rank #2. MED has a trailing four-quarter earnings surprise of 12.9%, on average.

The Zacks Consensus Estimate for Medifast’s current financial year sales and EPS suggests growth of almost 19% and 13.4%, respectively, from the year-ago reported figure.