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Growing online business and robust presence in emerging markets are favoring The Estee Lauder Companies Inc. EL. Also, strength in the Skin Care category is encouraging. Owing to these upsides, shares of this Zacks Rank #2 (Buy) company have surged 94.9% in the past year compared with the industry’s 90.2% growth. Also, the stock has comfortably outpaced the Zacks Consumer Staples sector’s increase of 29.7%.
Online Business: A Key Driver
The Estee Lauder Companies has a strong online business and management expects it to be a major growth engine in the upcoming years. Incidentally, the company is implementing new technology and digital experiences that include 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 driving online sale.
Moreover, The Estee Lauder Companies’ brand teams have been fully committed to enhance consumers’ online experiences since coronavirus-induced restrictions were imposed. In this regard, they have been focusing on proper product placement and showing cases tools including virtual try-on to ease decision-making. During the second quarter of fiscal 2021, the company added digital try on to more sites globally and the number of sessions almost doubled from the preceding quarter’s levels. In North America, conversion of live chat session was approximately four times higher than average conversion in the market.
What Else is Working in Favor of The Estee Lauder Companies?
The Estee Lauder Companies’ Skin Care portfolio has been performing well for a while now. During the fiscal second quarter, brands like Estee Lauder Clinique and La Mer witnessed significant growth. Notably, the Estee Lauder brand delivered solid double-digit growth on improvement in travel retail and Mainland China. Further, the La Mer brand increased in double digits across every region and saw robust growth in the travel retail channel. The Skin Care category is also benefiting from the acquisition of Dr. Jart (concluded in December 2019). Skin Care category sales surged 28% year over year in the fiscal second quarter.
The Estee Lauder Companies is on track to expand brand presence for boosting growth. Progressing along these lines, the company recently signed an agreement to increase its stake in DECIEM Beauty Group Inc. (“DECIEM”) from nearly 29% to 76%. We note that DECIEM is the force behind fast-growing skincare brands like The Ordinary and NIOD. Well, DECIEM’s hero products, innovations and digital-and consumer-first high-touch approach have been instrumental to growth.
Additionally, The Estee Lauder Companies has strong presence in emerging markets. This insulates it from macroeconomic headwinds in 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. In the Asia-Pacific region, sales increased 35% for the fiscal second quarter.
During second-quarter of fiscal 2021, most brick-and-mortar retail stores worldwide that sell The Estee Lauder Companies' products (both company and customer operated) remained open. However, store traffic was significantly lower compared with the year-ago quarter’s levels amid pandemic-led social distancing. Also, some retail stores were temporarily shut due to the resurgence of coronavirus infections.
That said, The Estee Lauder Companies is on track with cost-saving measures. In fact, uncertainties related to COVID-19 led management to implement stringent cost-curtailment practices. These include costs related to advertising and promotion activities, travel, meetings, consulting as well as certain employee expenses. We believe that focus on cost saving along with the aforementioned growth endeavors is likely to help the company stay in investors’ good books.
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