Estée Lauder is a global leader in prestige cosmetics and fragrances. Its leadership was proven once again when the company reported its third fiscal quarter results. Sales jumped 8% in constant currency, far greater than the industry average of about 1½ %. This strong growth reflects consumer acceptance of the company’s innovative products, reinvestment in the company’s leading brands, and acquisition of brands that appeal to the millennial customer.
The Estée Lauder Company is well diversified, innovative in its thinking, and passionate about its luxury customer. William Lauder, Executive Chairman, at a recent Luxury Seminar held by the Wharton School’s Baker Retailing Center, made this clear. Mr. Lauder pointed out that many of the 30 brands owned by the company are aspirational in nature. Such aspirational brands appeal to the millennial customer.
Much has changed in the last three years at Estée Lauder. About 70% of the products being sold today are new or updated. Distribution has also changed a great deal over the years. Mr. Lauder shared that in the mid 1980’s there were about 150 department stores companies in the United States; today, there are only 13 department store nameplates. This consolidation has created challenges. For example, in the past Estée Lauder was able to promote more frequently though different department stores in the same city. Having said this, Mr. Lauder stressed that the concentration of department stores did not take away from the company’s ability to reach their customer effectively and grow successfully.
Recently, Fabrizio Freda, the President and CEO, announced the revitalization of two of the company’s iconic brands – Estée Lauder and Clinique. The revitalization strategy includes introducing new make-up formulations for Clinique and new skin creams for Estée Lauder. A new spokesperson will become the face of the Estée Lauder brand. The intent is to make the brands more attractive to the millennial customer.
The company’s acquisition strategy is also focused on millennials. The recent acquisition of Smashbox, a typical niche brand targeting the millennial costumer, demonstrates the firm’s never ending search for new companies that will change as the customer changes. Smashbox is an exciting addition to the brand portfolio since it has inspired the whole Lauder family to think young and act even younger.
The company’s third fiscal quarter report was outstanding, and we look for the final quarter to exceed expectations as well. One reason we believe this will happen is that a promotional event usually held in the third quarter was cancelled thereby reducing expenses by an estimated $30 Million. It is likely that some of the funds from this promotion will be allocated to strengthen the Estée Lauder brand resulting in another strong sales result for the fourth quarter. Mr. Freda suggests that sales in constant currency will increase 6% to 7% for the full year, above last year’s rate of 5.4%. This strong sales momentum will drive earnings growth of 8% to 10%, in constant currency, and boost EPS for the fiscal year to a range of $2.92 to $2.97.
In 2014 Estée Lauder’s sales were also above expectations placing the company’s growth rate near the top of the industry according to an annual raking by Beauty Inc. magazine. While Estée Lauder’s overall ranking was #4 in both 2014 and 2013, the growth rate highlights unusual strength which I attribute to new product development, marketing, and acquisitions targeting primarily millennials. It is also clear from its robust growth rate that the company is gaining market share. In just one year Avon Products dropped from #6 to #7 because of the severe sales losses’ while Chanel moved up to #8 from #10 last year.
Beauty Inc Magazine Ranking of Largest Global Beauty Companies.
............Company.............2014 Beauty Sales......% Inc vs 2013
- L’Oreal $29.9 Billion +1.8%
- Unilever 21.7 Billion +1.5
- Procter & Gamble 19.8 Billion -3.4
- Estée Lauder 10.9 Billion +5.4
- Shiseido Co. 7.4 Billion +1.9
- Beiersdorf 6.6 Billion +2.3
- Avon Products 6.3 Billion -12.0
- Chanel 6.2 Billion +6.0
- Johnson & Johnson 6.0 Billion -0.1
- KAO Corp. 5.6 Billion +3.4
Beauty Inc. used an average exchange rate for the year: 1 Euro= $1.3291; 1 Yen = $0.0095; 1 British Pound = $1.6486. This is likely to change drastically for fiscal 2015.
