The Estee Lauder Companies Inc. EL is clearly worth a shot, given its spectacular past record and robust strategies. These have helped this Zacks Rank #2 (Buy) stock increase almost 10% in the past year, outpacing the industry’s growth of 7.5%.
Let’s delve deeper into the factors that are most likely to help this cosmetics giant maintain its sheen.
Online Strength a Major Driver
Estee Lauder expects the strong online business to be a major growth engine for the next few years. The company is focused on implementing new technology and digital expertise, including online booking for each store appointment, omni-channel loyalty programs and high-touch mobile services. These initiatives and its digital-first mindset have been boosting the company’s online sales. During the third quarter of fiscal 2019, the company’s e-commerce sales continued to boom, with half of the sales coming from mobile phones. Thanks to technological advancement and the growing popularity of social media, mobile sales have been growing considerably. Estee Lauder focuses on widening its global online presence by adding new sites and expanding retailer distributions. To this end, the company launched Tom Ford on Tmall in China, which is likely to draw millennials.
Robust Travel Retail to Boost Sales
Estee Lauder has been strongly focused on enhancing its travel retail business, which is a major sales driver. Travel retail sales remained sturdy in the third quarter of fiscal 2019, with the top five brands delivering double-digit net sales growth. Skin care and makeup along with strength in the two largest geographic regions fueled travel-retail growth in particular. Estee Lauder’s travel retail sales have been benefiting from rise in traffic, effective launches, impressive marketing strategies and unique product range. Further, the company expects the travel retail business to gain on favorable fundamentals and higher conversions.
Focus on Buyouts
Estee Lauder, which shares space with Coty COTY, has made several acquisitions to enhance its portfolio. The acquisitions of BECCA and Too Faced have strengthened its fastest growing prestige portfolio. The investment in DECIEM — a fast-growing multi-brand company — is also likely to drive beauty sales. The company’s previous moves in this regard include the buyouts of the sophisticated Paris-based brand, By Kilian, and the key prestige skin care brands — RODIN olio lusso and GLAMGLOW. Such acquisitions help the company expand its portfolio, other than helping it attain the respective loyal customer base.
Q3 Retains Stellar Record, Outlook Raised
The third quarter of fiscal 2019 marked Estee Lauder’s 19th consecutive period of earnings beat and ninth straight time of positive sales surprise. During the quarter, both metrics advanced year over year. While earnings gained from robust sales and efficient cost management (backed by the Leading Beauty Forward initiative), revenues were fueled by strength across most geographic regions (especially the Asia Pacific), brands (particularly Estee Lauder, La Mer and Tom Ford Beauty) and product categories (with skincare standing out). The company expects solid demand for its premium products and also anticipates to grow considerably ahead of the industry in fiscal 2019.
Well, the global prestige beauty industry is expected to grow 7% in fiscal 2019, with favorable demographic trends making it an attractive space. Also, the company is on track with the implementation of the Leading Beauty Forward initiative directed toward efficient management of costs and operations. All said, management raised its fiscal 2019 outlook. The company now expects net sales growth of 7%, adjusted net sales growth of 10-11% and adjusted earnings per share of $5.15-$5.19 for fiscal 2019.
Without a doubt, Estee Lauder is set to add glamor to investors’ portfolio.
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