The Estee Lauder Companies Inc. ( EL Quick Quote EL - Free Report) has a strong online business, which is proving to be a major growth engine. The beauty company’s solid presence across emerging markets is impressive. However, rising inflationary pressures and supply chain disruptions are hurdles. Let’s delve deeper. What’s Favoring The Estee Lauder Companies?
The Estee Lauder Companies is benefiting from a solid online business. In this regard, the company is 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. The company has been expanding its omnichannel capabilities to aid flexible and convenient shopping options for consumers. In its first-quarter fiscal 2023 earnings call, management highlighted that its freestanding store across the U.S. saw impressive performance fueled by enhanced omnichannel capabilities and more demand for high-touch services
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The Estee Lauder Companies has a strong presence in emerging markets which insulates it from the macroeconomic headwinds in the matured markets. The company derives significant revenues from emerging markets, encouraging it to make distributional, digital and marketing investments in these countries. The Estee Lauder Companies is investing in catering to consumer demand in China and Asia. To this end, it bought Korea-based skincare brand Dr. Jart in 2019.
In its first-quarter fiscal 2023 earnings call, the company highlighted that it witnessed double-digit organic sales growth in several emerging markets globally. It saw impressive performance across Brazil, India, the Middle East and Thailand, among others. The company is on track to expand its consumer reach in productive distribution across high-growth channels while strategically expanding brands into new countries.
Hurdles on the Way
COVID-19 continued affecting The Estee Lauder Companies’ operating environment in the first quarter of fiscal 2023, including curbs in China that dented travel retail and retail traffic. Results were affected by increased inflation and concerns surrounding the recession, which led certain retailers to tighten their inventory. The company’s quarterly net sales and earnings declined year over year. Margins also remained soft in the quarter.
Management expects the rest of fiscal 2023 to remain pressurized by temporary hurdles stemming from pandemic-led curbs in China, foreign currency headwinds, heightened inflation, supply-chain bottlenecks and the risk of sluggishness in certain markets globally. Incidentally, management expects net sales to decline in the band of 17-19% year over year in the second quarter of fiscal 2023. Organic net sales are anticipated to decline in the range of 9-11% in the fiscal second quarter. The quarterly adjusted earnings per share (EPS) is anticipated to be $1.19-$1.29, indicating a 57-60% decline from the year-ago period’s levels. The adjusted EPS is likely to decline 50-54% at constant currency. That being said, upsides mentioned above are likely to keep it afloat amid such hurdles. Shares of the Zacks Rank #3 (Hold) company have gained 21.6% in the past three months compared with the industry’s 17.2% growth. 3 Solid Food Picks
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