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The Estee Lauder Companies (EL) Emerging Market Presence Strong
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The Estee Lauder Companies Inc. (EL - Free Report) has a strong presence in emerging markets, which insulates it from the macroeconomic headwinds in the matured markets. The beauty company boasts a strong online business. Management is on track with the profit recovery plan to rebuild its profit margins for the future. However, the company is not immune to incremental external headwinds.
Let’s delve deeper.
Solid Emerging Market Presence
The Estee Lauder Companies generates major revenues from emerging markets, which encourages it to make distributional, digital and marketing investments in these countries. The company is witnessing continued momentum in several emerging markets globally, with solid organic sales and prestige beauty share gains.
In its first-quarter fiscal 2024 earnings call, management highlighted that it saw high mid-single-digit growth across emerging markets year-to-date. In EMEA's emerging market, the company witnessed stellar gains in India. In Latin America, the prestige beauty market delivered solid results. Also, Mexico and Brazil were up double digits organically. Management’s localized go-to-market initiatives across emerging markets have been gaining traction. EL’s efforts to expand its consumer reach across high-growth channels while strategically expanding brands into new countries bodes well.
Image Source: Zacks Investment Research
Efforts to Rebuild Profitability on Track
The Zacks Rank #3 (Hold) company is on track with the profit recovery plan to rebuild its profit margins for fiscal years 2025 and 2026. This plan will target key areas of the company’s business to enhance gross margin and reduce some operating expenses. The company is focused on optimizing the mix by elevating luxury across brands fueled by consumer preferences. Management will seek opportunities to maximize value via favorable price realization and innovation. The company will leverage its strategic investments, such as a new manufacturing facility in Japan, innovation labs in Shanghai and online capabilities. Management expects to realize an incremental operating profit of $800 million to $1 billion through fiscal years 2025 and 2026.
Online Business: Key Driver
The Estee Lauder Companies is benefiting from a strong online business. The company has been implementing new technology and digital experiences, including online booking for each store appointment, omnichannel loyalty programs and high-touch mobile services. These initiatives and the company’s digital-first mindset have been boosting online sales. The company is expanding its omnichannel capabilities to aid flexible and convenient shopping options for consumers.
Hurdles on the Way
The Estee Lauder Companies is witnessing a slower growth rate in the Asia travel retail and overall prestige beauty in mainland China, which is also evident in the presale period of the 11.11 Shopping Festival. The potential risks of more business disruptions across Israel and other regions of the Middle East are other factors dampening the company’s outlook. EL is also exposed to the dangers of unfavorable currency headwinds.
Well, slower-than-anticipated net sales and margin recovery stemming from incremental external headwinds prompted management to lower fiscal 2024 guidance. For the fiscal 2024, management projects net sales in the range of a 2% decline and a 1% increase. The company had earlier expected net sales to increase 3-5%. Adjusted earnings per share (EPS) are expected to decline 25-33% at constant currency or cc, against growth of 4-12% projected earlier.
That being said, the upsides mentioned above are likely to offer some respite.
EL’s stock has dropped 2.7% in the past three months against the industry’s 9.2% growth.
The Zacks Consensus Estimate for e.l.f. Beauty’s current financial year sales and earnings suggest growth of 57.9% and 62.7%, respectively, from the year-ago reported numbers.
Sysco Corporation (SYY - Free Report) , a food and related product company, currently has a Zacks Rank #2. SYY delivered a positive earnings surprise in the last two quarters.
The Zacks Consensus Estimate for Sysco’s current fiscal year sales and earnings suggests growth of 4.1% and almost 8%, respectively, from the corresponding year-ago reported figure.
Nomad Foods (NOMD - Free Report) , carrying a Zacks Rank #2, manufactures and distributes frozen foods. NOMD has a trailing four-quarter earnings surprise of 7.7%, on average.
The Zacks Consensus Estimate for Nomad Foods’ current financial year sales suggests growth of 6.6% from the prior-year reported number. However, earnings estimates suggest a year-over-year decline of 2.3%.
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The Estee Lauder Companies (EL) Emerging Market Presence Strong
The Estee Lauder Companies Inc. (EL - Free Report) has a strong presence in emerging markets, which insulates it from the macroeconomic headwinds in the matured markets. The beauty company boasts a strong online business. Management is on track with the profit recovery plan to rebuild its profit margins for the future. However, the company is not immune to incremental external headwinds.
Let’s delve deeper.
Solid Emerging Market Presence
The Estee Lauder Companies generates major revenues from emerging markets, which encourages it to make distributional, digital and marketing investments in these countries. The company is witnessing continued momentum in several emerging markets globally, with solid organic sales and prestige beauty share gains.
In its first-quarter fiscal 2024 earnings call, management highlighted that it saw high mid-single-digit growth across emerging markets year-to-date. In EMEA's emerging market, the company witnessed stellar gains in India. In Latin America, the prestige beauty market delivered solid results. Also, Mexico and Brazil were up double digits organically. Management’s localized go-to-market initiatives across emerging markets have been gaining traction. EL’s efforts to expand its consumer reach across high-growth channels while strategically expanding brands into new countries bodes well.
Image Source: Zacks Investment Research
Efforts to Rebuild Profitability on Track
The Zacks Rank #3 (Hold) company is on track with the profit recovery plan to rebuild its profit margins for fiscal years 2025 and 2026. This plan will target key areas of the company’s business to enhance gross margin and reduce some operating expenses. The company is focused on optimizing the mix by elevating luxury across brands fueled by consumer preferences. Management will seek opportunities to maximize value via favorable price realization and innovation. The company will leverage its strategic investments, such as a new manufacturing facility in Japan, innovation labs in Shanghai and online capabilities. Management expects to realize an incremental operating profit of $800 million to $1 billion through fiscal years 2025 and 2026.
Online Business: Key Driver
The Estee Lauder Companies is benefiting from a strong online business. The company has been implementing new technology and digital experiences, including online booking for each store appointment, omnichannel loyalty programs and high-touch mobile services. These initiatives and the company’s digital-first mindset have been boosting online sales. The company is expanding its omnichannel capabilities to aid flexible and convenient shopping options for consumers.
Hurdles on the Way
The Estee Lauder Companies is witnessing a slower growth rate in the Asia travel retail and overall prestige beauty in mainland China, which is also evident in the presale period of the 11.11 Shopping Festival. The potential risks of more business disruptions across Israel and other regions of the Middle East are other factors dampening the company’s outlook. EL is also exposed to the dangers of unfavorable currency headwinds.
Well, slower-than-anticipated net sales and margin recovery stemming from incremental external headwinds prompted management to lower fiscal 2024 guidance. For the fiscal 2024, management projects net sales in the range of a 2% decline and a 1% increase. The company had earlier expected net sales to increase 3-5%. Adjusted earnings per share (EPS) are expected to decline 25-33% at constant currency or cc, against growth of 4-12% projected earlier.
That being said, the upsides mentioned above are likely to offer some respite.
EL’s stock has dropped 2.7% in the past three months against the industry’s 9.2% growth.
Solid Staple Picks
e.l.f. Beauty (ELF - Free Report) carries a Zacks Rank #2 (Buy). ELF has a trailing four-quarter earnings surprise of 90.1%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for e.l.f. Beauty’s current financial year sales and earnings suggest growth of 57.9% and 62.7%, respectively, from the year-ago reported numbers.
Sysco Corporation (SYY - Free Report) , a food and related product company, currently has a Zacks Rank #2. SYY delivered a positive earnings surprise in the last two quarters.
The Zacks Consensus Estimate for Sysco’s current fiscal year sales and earnings suggests growth of 4.1% and almost 8%, respectively, from the corresponding year-ago reported figure.
Nomad Foods (NOMD - Free Report) , carrying a Zacks Rank #2, manufactures and distributes frozen foods. NOMD has a trailing four-quarter earnings surprise of 7.7%, on average.
The Zacks Consensus Estimate for Nomad Foods’ current financial year sales suggests growth of 6.6% from the prior-year reported number. However, earnings estimates suggest a year-over-year decline of 2.3%.