The Estee Lauder Companies Inc. EL has a strong online business, which is proving to be a major growth engine. The beauty company’s impressive Skin Care portfolio and solid presence in emerging markets are worth noting.
Yet, The Estee Lauder Companies is not immune to inflationary pressures and supply chain disruptions. Let’s delve deeper.
Factors Working Well for The Estee Lauder Companies
The Zacks Rank #3 (Hold) company 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 its digital-first mindset have been aiding the company’s online sale. For fiscal 2022, the online channel grew mid-single-digits organically, fueled by double-digit growth across Asia-Pacific. DECIEM’s high online penetration boosted sales growth across the channel.
The Estee Lauder Companies boasts a solid Skin Care portfolio, which has been aiding growth. In May 2021, The Estee Lauder Companies took a step to expand its Skin Care business when it concluded the first phase of raising its ownership stake in DECIEM Beauty Group Inc. (DECIEM). In the fourth quarter of fiscal 2022, its skin care category was most impacted by the resurgence of COVID-19 in Asia-Pacific during the back half of fiscal 2022. Keeping this in mind, it delivered solid results as an impressive performance from La Mer , Clinique and Bobbi Brown mitigated pressures from other brands in the division.
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The company has a strong presence in emerging markets, which insulates it from the macroeconomic headwinds in the matured markets. It 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 lastearnings call management highlighted that its Shanghai innovation lab is set to open in fiscal 2023. The investment in China will increase its ability to serve Chinese and Asian consumers with locally relevant innovation. In addition, the center will support the company’s East to West innovation mindset. Also, the company will start limited production in its new production facility near Tokyo during fiscal 2023.
Is All Rosy for The Company?
In the fourth quarter of fiscal 2022 results, the company’s gross margin contracted 370 basis points year over year, mainly due to factors affecting the supply chain. Global transportation delays, port congestion, labor and container shortages and increased costs for ocean and air transport put increased pressure on the cost of goods.
As The Estee Lauder Companies enters fiscal 2023, it witnesses record inflation, supply chain disruptions, unfavorable currency rates and the risk of a slowdown in several markets worldwide. Management expects first-quarter fiscal 2023 sales to be adversely impacted by continued COVID restrictions in China and Hainan.
For the fiscal first quarter, the company expects net sales to decline 10-8% year over year. The guidance includes adverse impacts from termination of certain license agreements, the adverse impact associated with Russia and Ukraine and unfavorable currency translations. Quarterly adjusted earnings per share (EPS) earnings are anticipated to decline 34-28% at cc.
That being said, The Estee Lauder Companies’ aforementioned upsides are likely to offer respite. Shares of EL have gained 2.9% in the past three months compared with the industry‘s 2.3% growth.
Stocks to Consider
Some better-ranked stocks are Inter Parfums IPAR, elf beauty ELF and Nomad Foods NOMD.
Inter Parfums is engaged in the manufacturing, distribution and marketing of a wide range of fragrances and related products. IPAR currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Inter Parfums’ current financial year sales and EPS suggests growth of 15% and 18.6%, respectively, from the year-ago period’s reported figures. IPAR has a trailing four-quarter earnings surprise of 31.1%, on average.
elf Beauty, a cosmetic company, currently has a Zacks Rank #2 (Buy). ELF has a trailing four-quarter earnings surprise of almost 77%, on average.
The Zacks Consensus Estimate for elf Beauty’s current financial year sales and EPS suggests growth of 16.8% and almost 6%, respectively, from the year-ago period’s reported figures.
Nomad Foods, which manufactures and distributes frozen foods, currently has a Zacks Rank of 2. NOMD has a trailing four-quarter earnings surprise of 11.2%, on average.
The Zacks Consensus Estimate for Nomad Foods’ current financial year sales suggests a decline of 2.9% from the year-ago period’s corresponding reported figures.
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