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Estee Lauder's Buyouts & Robust Online Business Bode Well

Zacks Equity Research
Investors need to pay close attention to Coty (COTY) stock based on the movements in the options market lately.

The Estee Lauder Companies Inc. EL has a strong foothold in the beauty space, courtesy of its robust growth endeavors such as focus on buyouts, travel retail network, effective launches and robust online sales. These factors also helped Estee Lauder to deliver sturdy second-quarter fiscal 2019 results, wherein both the top and bottom line improved year over year and surpassed the Zacks Consensus Estimate. Additionally, management raised its sales and earnings view for fiscal 2019. Let’s take a look at these factors

Acquisitions: A Key Catalyst

Estee Lauder has made several strategic acquisitions to strengthen its portfolio. Evidently, the acquisitions of BECCA and Too Faced (during first-quarter fiscal 2017) have bolstered its fastest growing prestige portfolio. Notably, sales of BECCA increased significantly in the fiscal second quarter owing to a robust holiday season.

Furthermore, the investment in DECIEM — a fast-growing multi-brand company — is likely to aid beauty sales. Apart from these, the buyout of sophisticated Paris-based brand, By Kilian, and the takeover of key prestige skin care brands — RODIN olio lusso and GLAMGLOW — have proved conducive to the company. Such acquisitions aided the company to enhance its portfolio apart from helping it attain the respective loyal customer base.

Robust Online Business

Estee Lauder, which shares space with Coty COTY, Helen of Troy Limited HELE and Nu Skin Enterprises NUS, has a solid online business. The company expects this business to be a major growth driver for the company in the upcoming years. Additionally, Estee Lauder 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 have been driving online sales, thereby providing a boost to the top line.

During the second quarter of fiscal 2019, Estee Lauder’s e-commerce sales rose in double digits across all channels — brand.com, retail.com and third-party websites. Estee Lauder also focuses on widening its global online presence by adding new sites and expanding retailer distributions.

Travel Retail Business on Track

Estee Lauder has been intensely focusing on enhancing its travel retail business, which is a major sales driver for the company. Travel retail sales remained sturdy in the second quarter of fiscal 2019, with 13 brands depicting solid growth. Markedly, Estee Lauder’s travel retail sales have been gaining from rise in traffic, effective launches, impressive marketing strategies and unique product range. The company also expects the travel retail business to benefit from rising passenger traffic, favorable fundamentals and higher conversions. Well, the company is committed toward undertaking more efforts to enhance conversions through strategic initiatives.

Wrapping Up

We note that a tough macroeconomic scenario due to various store closures, tariff impacts and currency woes are weighing on Estee Lauder’s performance. Nevertheless, the company is likely to overcome such hurdles on the back of the aforementioned well-chalked initiatives. Moreover, management expects continued growth opportunities in the global prestige beauty industry.

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