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Estee Lauder Benefits From Online Sales Amid Store Closures

Zacks Equity Research

The Estee Lauder Companies Inc. EL is benefiting from robust online sales as well as impressive emerging market presence. Moreover, the company’s cost-saving efforts are yielding positive results amid several coronavirus-led woes like retail store closures.

Factors Aiding Estee Lauder

Estee Lauder has a strong online business and the company expects it to be a major growth engine for the upcoming few years. In this regard, Estee Lauder has been implementing new technology and digital experiences including online booking for each store appointment, omni-channel loyalty programs and high touch mobile services. Additionally, management is on track with expanding brand presence across various third-party sites, rolling out new digital payment technologies and enhancing its loyalty programs as it continues to widen market reach.

Notably, Estee Lauder’s brand teams have been fully committed to enhancing consumer experiences online since coronavirus-induced lockdowns were imposed. To this end, they are focusing on proper product placement and showing cases tools including virtual try-on to ease decision-making. Markedly, the company’s online sales increased sharply since the end of March and continued to climb through April. We note that, products like La Mer, Crème de la Mer Treatment Lotion and Estee Lauder's Advanced Night Repair among others have been witnessing solid demand online amid the coronavirus pandemic.

Apart from these factors, Estee Lauder has a strong presence in emerging markets that insulates it from the macroeconomic headwinds in the matured markets. The company derives significant revenues from emerging markets like Thailand, India, Russia and Brazil, which keeps it encouraged about making distributional, digital and marketing investments in these countries. Markedly, China is a major area of focus for Estee Lauder. Recently, the company piloted emerging business model for online and offline stores in Mainland China region is yielding.

What’s Hurting Estee Lauder’s Performance?

Estee Lauder has been bearing the brunt of retail store closures due to the coronavirus pandemic. In fact, during third-quarter fiscal 2020 the company’s net sales declined 11% year over year (down 9% at constant currency). Moreover, management anticipates majority of its retail stores to remain shut through most of the fiscal fourth quarter. Also, restrictions placed on air travel have been acting as a deterrent for the cosmetic giant’s travel retail sales.

Nevertheless, the company undertook various expense-control measures that included suspending travel, meetings, consulting, non-essential recruits and cutting certain employee costs in the fiscal third quarter. These measures have resulted in nearly $250 million of savings during the quarter. Moreover, Estee Lauder expects these cost-control measures to deliver increased benefits in the fourth quarter.

On Apr 15, the company resorted to other measures like salary cuts for senior executives and other management employees along with furloughing workers, among others. These along with other cost-control measures implemented in the third quarter are expected to reduce operating expenses by $500-$600 million in the fourth quarter.

We believe that, such efficient cost cutting efforts along with aforementioned upsides are likely to aid this Zacks Rank #3 (Hold) company. Estee Lauder’s shares have dipped 4.2% in the past six months compared withthe industry’s decline of 30.6%.

Top 3 Consumer Staple Picks

Helen of Troy HELE which sports a Zacks Rank #1 (Strong Buy), has a long-term earnings growth rate of 8%. You can see the complete list of today’s Zacks #1 Rank stocks here.

Kimberly-Clark Corporation KMB, with a Zacks Rank #2, has a long-term earnings growth rate of 5.1%.

Nu Skin Enterprises NUS with a Zacks Rank #2, has a long-term earnings growth rate of 1.7%.

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From thousands of stocks, 5 Zacks experts each picked their favorite to gain +100% or more in months to come. From those 5, Zacks Director of Research, SherazMian hand-picks one to have the most explosive upside of all.

This young company’s gigantic growth was hidden by low-volume trading, then cut short by the coronavirus. But its digital products stand out in a region where the internet economy has tripled since 2015 and looks to triple again by 2025.

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