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Estee Lauder (EL) Looks Solid on Online Business & Savings

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Zacks Equity Research
·4 min read
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The Estee Lauder Companies Inc. EL is benefiting from strength in its e-commerce business. Moreover, the company’s robust presence in emerging markets and effective cost-saving efforts bode well. Apart from these, robust performance in the Skin Care category is driving growth.

Let’s delve deeper

Online Business: A Key Driver

Estee Lauder has a strong e-commerce business, which is expected to be a major growth engine in the upcoming years. Management is 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 are boosting online sale.

Moreover, Estee Lauder’s brand teams are fully committed toward enhancing consumers’ online experiences since the coronavirus outbreak. In this regard, they are focusing on proper product placement and showing cases tools that include virtual try-on to ease decision making. During first-quarter fiscal 2021, the company hosted more than one million virtual try-on sessions worldwide. In North America, the Estee Lauder brand rolled out AI-driven product recommendations on the basis of real-time consumers' behaviors and past preferences.

 

What Else is Working Well for Estee Lauder?

Estee Lauder has strong presence in emerging markets that insulates it from the macroeconomic headwinds in the matured markets. The company generates significant revenues from emerging markets that keeps it encouraged about making distributional, digital and marketing investments in these countries. Markedly, China is a major area of focus for Estee Lauder. In fact, the company’s recently-piloted emerging business model for online and offline stores in Mainland China region bodes well. Also, the company is focused on making incremental advertising investment on social and digital platform to expand its reach.

Estee Lauder, which shares space with Coty COTY, is also on track with cost-saving measures. In fact, uncertainties related to COVID-19 led management to implement stringent cost-curtailment practices. These include cutting down on costs related to advertising and promotion activities, travel, meetings, consulting and certain employee expenses. Markedly, cost-saving actions boosted the company’s operating margin during fiscal first quarter.

Apart from these, Estee Lauder’s Skin Care portfolio is performing extremely well. During fiscal first quarter, brands such as Estee Lauder and La Mer witnessed significant growth. Also, the Skin Care category is benefitting from the acquisition of Dr. Jart. During the quarter, Skin Care category sales were up 10% year over year to $2,035 million.

Wrapping Up

In the wake of the coronavirus outbreak, the company initiated a two-year Post-COVID Business Acceleration Program in August. Through this plan, management expects to shut 10-15% of its freestanding stores worldwide along with various low-performing department store counters. Apart from this, various retailers have decided to undertake planned reduction of their footprint via door closures amid the pandemic.

All said, the aforementioned upsides are likely to help this Zacks Rank #2 (Buy) company stay in investors’ good books. Notably, Estee Lauder’s shares have surged 37.4% in the past six months compared with the industry’s growth of 32.1%.

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