The Estee Lauder Companies Inc. (EL - Free Report) is gaining momentum from robust online sales, a solid travel retail network and an impressive emerging market presence. These factors combined with efficient operational strategies have driven the top and the bottom line amid several macroeconomic headwinds.
Notably, this trend continued in first-quarter fiscal 2020, with the top and the bottom line surpassing estimates and rising year on year. In fact, the company’s stellar past performance has been boosting investors’ optimism in the stock. Shares of this Zacks Rank #3 (Hold) company have rallied 19.5% in the past six months compared with the industry’s growth of 14.2%.
Let’s take a closer look.
What’s Driving Estee Lauder’s Performance?
Estee Lauder has a strong online business, which is expected to continue as a major growth driver. In the first quarter of fiscal 2020, online business witnessed double-digit growth across all distribution channels. Moreover, the company is continuously implementing new technology and digital experiences — online booking for each store appointment, omni-channel loyalty programs and high touch mobile services — to boost online sales. Further, it has expanded brand presence across various third-party sites to widen market reach.
Apart from this, Estee Lauder’s travel retail sales have been benefitting, courtesy of rise in traffic, wide assortments, effective launches and impressive marketing strategies. Notably, the company continued to see sturdy travel retail sales in the first quarter with broad-based growth in most brands, regions and categories. In order to enhance travel retail sales, the company is undertaking endeavors like better customer insights, enhanced merchandising and improved digital marketing
Will Macroeconomic Headwinds be Countered?
We note that Estee Lauder is witnessing a difficult macro environment in the United States and the U.K. In this regard, the company is witnessing persistent softness in the brick-and-mortar retail space especially for color cosmetics in the United States and makeup in the U.K.
Apart from this, management is cautious about tariff impacts in China, costs related to Brexit and slow moderation of net sales growth in China in travel retail network. Moreover, challenges in Hong Kong's retail environment caused sales to decline 20% in the first quarter, which is likely to decline further in fiscal 2020.
Nonetheless, we believe that the company’s strong presence in emerging markets like Mexico, Southeast Asia, Russia and Brazil will insulate it from the macroeconomic headwinds in the matured markets to some extent. This, along with the other aforementioned drivers are most likely to help Estee Lauder sustain its strong momentum.
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