The Estee Lauder Companies Inc. (EL) Online Sales Aid Growth
Strength in the e-commerce business has been working well for The Estee Lauder Companies Inc. EL. The leading skincare, makeup, fragrance and hair care product provider’s presence in emerging markets is impressive.
That being said, The Estee Lauder Companies has been grappling with COVID-19-related issues and increased inflation. Let’s discuss this further.
E-Commerce 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, omni-channel loyalty programs and high-touch mobile services. These initiatives and the company’s digital-first mindset have been boosting online sales. The company has been expanding its omnichannel capabilities to aid flexible and convenient shopping options for consumers.
Several other companies in the cosmetics space, like Coty Inc. COTY, Nu Skin Enterprises, Inc. NUS and e.l.f. Beauty, Inc. ELF are benefiting from its growing online business.
COTY has been benefiting from its focus on six strategic pillars, which include strengthening its e-commerce. Coty is on track to accelerate Digital momentum in key areas like social commerce, e-retail and new partnerships. In the second-quarter fiscal 2023, Coty’s overall e-commerce sales grew modestly year on year, even amid lock-down led weakness in important Chinese e-commerce platforms and fragrance supply constraints.
Nu Skin is optimistic about its Nu Vision 2025 strategy, which is based on key strategic imperatives, including the expansion of the digital platform. Talking about advancing its digital-first ecosystem, NUS is optimistic about its Vera and Stella applications. Nu Skin is on track with the global deployment of its new e-commerce platform to provide a more dynamic and seamless digital experience on its website and apps.
e.l.f. Beauty has been witnessing solid momentum in its digital business. During the third quarter of fiscal 2023, ELF’s online business was up more than 75% year over year. e.l.f. Beauty is undertaking significant investments in its digital business, which is yielding well.
Solid Presence in Emerging Markets
The Estee Lauder Companies 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, encouraging it to make distributional, digital and marketing investments in these countries. The Estee Lauder Companies is investing in catering to consumer demand in China and Asia. To this end, it bought Korea-based skincare brand Dr. Jart in 2019.
In its second-quarter fiscal 2023 earnings call, management highlighted that several developed and emerging markets globally outpaced its expectations to counter COVID-related issues across China. The company posted strong double-digit organic sales growth across several emerging markets like India, Brazil, Turkey and Malaysia.
The company is on track to expand its consumer reach in productive distribution across high-growth channels while strategically expanding brands into new countries. In this regard, management significantly strengthened its capabilities in manufacturing, distribution and innovation. The company opened the China innovation labs, its first plant in the Asia Pacific and a new DC in China. The company also announced its partnership with brands like Tom Ford and Balmain Beauty.
Hurdles on Way
The Estee Lauder Companies reported second-quarter fiscal 2023 results, with the top and the bottom line declining year over year. COVID-19 continued affecting the company’s operating environment throughout the first half of fiscal 2023, which included curbs in China that weighed on travel retail in Hainan and retail traffic in mainland China. Results were affected by increased inflation, concerns surrounding the recession and unfavorable currency rates.
Management anticipates the rest of fiscal 2023 to be dynamic, including uncertain consumer recovery in travel retail, evolving COVID-19 situation, inflation, supply chain-related issues and slowdown risk across some markets worldwide. For fiscal 2023, management projects net sales to decrease in the band of 5-7% year over year. Adjusted earnings per share (EPS) are expected in the band of $4.87-$5.02, suggesting a 31-33% decline from the year-ago period. The bottom line is expected to decline 27-29% at constant currency.
That being said, The Estee Lauder Companies’ abovementioned upsides are likely to offer respite.
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