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Category: Estee Lauder (EL)
Date: 3 November 2020 Stock price of Estee Lauder: $223.85 We take a look at the 1st quarter 2021 earnings report from Estee Lauder one of the world’s leading manufacturers and marketers of quality skin care, makeup, fragrance and hair care products. For the 1st quarter 2021 the group reported revenues of $3.56 billion and net income of $525 million.
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Fabrizio Freda, President and Chief Executive Officer said - We are pleased with the stronger than expected start to our fiscal year amid this difficult moment as the global community continues to confront COVID-19. We delivered significant sequential improvement in net sales growth in every product category driven by progress around the world "
More About Estee Lauder (EL)
The Estée Lauder Companies Inc. is one of the world’s leading manufacturers and marketers of quality skin care, makeup, fragrance and hair care products. The Company’s products are sold in approximately 150 countries and territories under brand names including: Estée Lauder, Aramis, Clinique, Prescriptives, Lab Series, Origins, Tommy Hilfiger, M·A·C, Kiton, La Mer, Bobbi Brown, Donna Karan New York, DKNY, Aveda, Jo Malone London, Bumble and bumble, Michael Kors, Darphin, Tom Ford, Smashbox, Ermenegildo Zegna, AERIN, RODIN olio lusso, Le Labo, Editions de Parfums Frédéric Malle, GLAMGLOW, KILIAN PARIS, BECCA, Too Faced and Dr. Jart+
Estee Lauder 1st quarter 2021 earnings report overview
Total reported operating income was $705 million, a 9% decrease from $779 million in the prior-year period. Operating income decreased 11% excluding (i) restructuring and other charges and adjustments of $9 million compared with restructuring and other charges and adjustments of $25 million recorded in the prior-year period and (ii) the unfavorable impact of currency translation of $1 million. This decline largely reflected lower net sales due to the impacts of COVID-19, partially offset by strong growth in skin care and online as well as disciplined expense management throughout the business from cost containment actions taken in response to COVID-19.
Skin Care
Makeup
Fragrance
Hair Care
Skin Care
- Skin care net sales grew across most regions, led by Estée Lauder and La Mer.
- Net sales of Dr. Jart+, which the Company acquired in December 2019, contributed approximately 6% to skin care net sales growth.
- Estée Lauder delivered strong double-digit growth, reflecting growth in many markets globally, led by double-digit growth in travel retail and in mainland China as well as online. The net sales growth was driven by the launch of the new Advanced Night Repair Synchronized Multi-Recovery Complex as well as consumer demand for high loyalty hero franchises, including Perfectionist and Micro Essence.
- Double-digit growth from La Mer was driven by Asia/Pacific, with significant strength in mainland China, as well as growth in many markets globally. Net sales in travel retail also grew strong double-digit. La Mer’s growth was primarily driven by the launch of the new The Concentrate, one of its hero products. Targeted expanded consumer reach also contributed to growth.
- Skin care operating income increased, primarily from higher net sales at Estée Lauder and La Mer. Incremental cost containment in response to COVID-19 partially offset expenses and strategic investments that were made during the quarter.
Makeup
- Net sales declined in makeup with declines at all brands except Too Faced, which delivered a small increase. The effects of COVID-19 continued to disproportionately impact makeup, particularly foundation and lip, and makeup sales continued to be soft in most markets.
- Makeup operating income declined, primarily reflecting lower net sales, partially offset by disciplined expense management across all brands in response to COVID-19.
Fragrance
- Net sales decreased, primarily due to declines from Estée Lauder, Clinique, certain designer fragrances, Jo Malone London and Tom Ford due to the impacts of COVID-19. Certain luxury and artisanal fragrance brands grew during the quarter as retail stores opened and consumers were able to enjoy sensorial experiences in person. Targeted expanded consumer reach also contributed to growth at the artisanal fragrance brands.
- Strong double-digit net sales growth in Asia/Pacific accelerated year-over-year driven by the Company’s luxury and artisanal fragrance portfolio.
- Net sales from Le Labo rose double digits with growth in all regions. Net sales more than doubled in Asia/Pacific and online. Targeted expanded consumer reach also contributed to growth.
- Growth from KILIAN PARIS and Editions de Parfums Frédéric Malle were driven primarily by the successful launch of the brands in China and strong double-digit growth online.
- Fragrance operating income declined, driven primarily by lower net sales partially offset by disciplined expense management.
Hair Care
- Hair care net sales were flat, reflecting an increase at Aveda that was offset by a decline at Bumble and bumble driven by some temporary retail and salon closures during part of the quarter due to COVID-19.
- Aveda’s net sales growth was driven by successful innovation, including the launch of Botanical Repair in August as well as strong double-digit online growth, in part reflecting Aveda’s effort to support salon owners in developing online sales.
- Hair care operating results improved reflecting disciplined expense management in response to COVID-19.
Management commentary on their 1st quarter 2021 earnings report
New York, November 2, 2020 - The Estée Lauder Companies Inc. (NYSE: EL) today reported net sales of $3.56 billion for its first quarter ended September 30, 2020, a decrease of 9%, on a reported basis and in constant currency, from $3.90 billion in the prior-year period. The net sales decline was driven by some temporary retail store closures and lower foot traffic in open stores attributable to COVID-19, partially offset by strong growth online. Travel retail net sales were relatively flat year-over-year and net sales from the Company’s acquisition of Have&Be Co. Ltd. (“Dr. Jart+”) contributed approximately 3 percentage points of net sales growth. The Company reported net earnings of $523 million, compared with net earnings of $595 million in the prior-year period. Diluted net earnings per common share was $1.42, compared with $1.61 reported in the prior-year period. Excluding the benefit of currency translation, adjusted diluted earnings per common share decreased 14% to $1.44.
Fabrizio Freda, President and Chief Executive Officer said, “We are pleased with the stronger than expected start to our fiscal year amid this difficult moment as the global community continues to confront COVID-19. We delivered significant sequential improvement in net sales growth in every product category driven by progress around the world. Asia/Pacific again excelled with double-digit year-over-year growth in mainland China. Travel retail was a standout performer as Chinese tourists were drawn to the growing duty-free shops in Hainan Island and purchase limits increased there. Innovation flourished, representing over 30% of sales in the quarter, and the online channel1 thrived in every region. We successfully adjusted our cost structure to minimize the deleveraging effects of lower sales, while continuing to invest for growth, enhancing our capabilities online and supporting our innovation.
Looking ahead, our focus, first and foremost, is still the safety and well-being of our employees and consumers. We remain mindful of the ongoing effects of COVID-19 on consumers, the retail sector and economies as well as geopolitical uncertainty. We continue to expect our multiple engines of growth strategy to deliver sequentially improving sales growth each quarter in fiscal 2021, which we expect will build upon our estimated global prestige beauty share gains since the pandemic began. We are confident in the long-term growth opportunities for global prestige beauty and for the Company, reflected in our announcement today to raise our quarterly dividend by 10%.” Freda concluded, “Today, we will release our fiscal 2020 Citizenship and Sustainability Report, entitled Beauty Inspired, Values Driven. The report highlights the achievement of our 2020 ESG goals as well as meaningful progress towards our 2025 goals. These milestones were reached across our citizenship and sustainability priority focus areas, despite the challenges of the pandemic.”
COVID-19 Business Update
The outbreak and global spread of COVID-19 continues to cause significant disruption in the Company’s operating environment, temporarily impacting retail traffic and consumer preferences. During the three months ended September 30, brick-and-mortar business continued to re-open gradually in countries around the world. The Company continues to monitor the effects of the pandemic, which negatively impacted many areas of its business in the first quarter of fiscal 2021. The resurgence of COVID-19 cases in various parts of the world, including the United Kingdom, Ireland and other countries in Europe, has caused the reimplementation of government restrictions to prevent further spread of the virus. These restrictions include the temporary closure of businesses deemed "non-essential", travel bans and restrictions, social distancing and quarantines. The Company will continue to invest behind the most attractive growth opportunities while taking measures designed to protect the safety of its employees, beauty advisors and consumers.
Retail Impact
Many brick-and-mortar retail stores globally that sell the Company’s products, whether operated by the Company or its customers, were closed for some period of time during the first quarter, and consumer traffic declined significantly.
• In The Americas, approximately 20% of the stores were closed at the beginning of July 2020, and by the end of September 2020, nearly all retail stores had re-opened.
• In Europe, the Middle East & Africa, approximately 15% of stores were closed at the beginning of July 2020, and nearly all were open by the end of September 2020.
• In Asia/Pacific, nearly all retail stores were open during the entire quarter.
• In addition, international travel has remained largely curtailed globally due to both government restrictions and consumer health concerns, which continues to adversely impact consumer traffic in most travel retail locations.
During the first quarter of fiscal 2021, online sales growth remained strong in every region as the Company and its retailers activated digital strategies to capture consumer demand online. As a result, total net sales in mainland China, Korea and several other markets delivered strong growth year-over-year, and the sales growth rate improved in nearly every market globally.
Consumer Preferences
The COVID-19-related closures of offices, retail stores and other businesses and the significant decline in social gatherings have also influenced consumer preferences and practices. Demand for skin care and hair care products has been more resilient than the demand for makeup and overall fragrance. Within skin care, the demand for innovative products within hero franchises has remained strong, driving double-digit growth at Estée Lauder and La Mer during the first quarter of fiscal 2021. As stores re-opened throughout the quarter, consumers have re-engaged with the sensorial experience in fragrance, contributing to double-digit net sales growth at several luxury and artisanal fragrance brands, including Le Labo and Editions de Parfums Frédéric Malle.
Manufacturing and Distribution
By the end of the quarter, all of the Company’s manufacturing and distribution facilities were operating at sufficient levels. Cost Controls In response to the ongoing impacts from COVID-19, the Company continues to implement strict cost control actions to effectively manage the changing business environment. As a result, the Company delivered a consistent operating margin as in the prior-year period despite a net sales decline. These expense actions included advertising and promotion activities, travel, meetings, consulting, and certain employee costs, including furloughs and similar unpaid temporary leaves of absence for many point of sale employees, temporary salary reductions for senior executives and other management employees, and a temporary elimination of cash retainers for the Board of Directors.
Fabrizio Freda, President and Chief Executive Officer said, “We are pleased with the stronger than expected start to our fiscal year amid this difficult moment as the global community continues to confront COVID-19. We delivered significant sequential improvement in net sales growth in every product category driven by progress around the world. Asia/Pacific again excelled with double-digit year-over-year growth in mainland China. Travel retail was a standout performer as Chinese tourists were drawn to the growing duty-free shops in Hainan Island and purchase limits increased there. Innovation flourished, representing over 30% of sales in the quarter, and the online channel1 thrived in every region. We successfully adjusted our cost structure to minimize the deleveraging effects of lower sales, while continuing to invest for growth, enhancing our capabilities online and supporting our innovation.
Looking ahead, our focus, first and foremost, is still the safety and well-being of our employees and consumers. We remain mindful of the ongoing effects of COVID-19 on consumers, the retail sector and economies as well as geopolitical uncertainty. We continue to expect our multiple engines of growth strategy to deliver sequentially improving sales growth each quarter in fiscal 2021, which we expect will build upon our estimated global prestige beauty share gains since the pandemic began. We are confident in the long-term growth opportunities for global prestige beauty and for the Company, reflected in our announcement today to raise our quarterly dividend by 10%.” Freda concluded, “Today, we will release our fiscal 2020 Citizenship and Sustainability Report, entitled Beauty Inspired, Values Driven. The report highlights the achievement of our 2020 ESG goals as well as meaningful progress towards our 2025 goals. These milestones were reached across our citizenship and sustainability priority focus areas, despite the challenges of the pandemic.”
COVID-19 Business Update
The outbreak and global spread of COVID-19 continues to cause significant disruption in the Company’s operating environment, temporarily impacting retail traffic and consumer preferences. During the three months ended September 30, brick-and-mortar business continued to re-open gradually in countries around the world. The Company continues to monitor the effects of the pandemic, which negatively impacted many areas of its business in the first quarter of fiscal 2021. The resurgence of COVID-19 cases in various parts of the world, including the United Kingdom, Ireland and other countries in Europe, has caused the reimplementation of government restrictions to prevent further spread of the virus. These restrictions include the temporary closure of businesses deemed "non-essential", travel bans and restrictions, social distancing and quarantines. The Company will continue to invest behind the most attractive growth opportunities while taking measures designed to protect the safety of its employees, beauty advisors and consumers.
Retail Impact
Many brick-and-mortar retail stores globally that sell the Company’s products, whether operated by the Company or its customers, were closed for some period of time during the first quarter, and consumer traffic declined significantly.
• In The Americas, approximately 20% of the stores were closed at the beginning of July 2020, and by the end of September 2020, nearly all retail stores had re-opened.
• In Europe, the Middle East & Africa, approximately 15% of stores were closed at the beginning of July 2020, and nearly all were open by the end of September 2020.
• In Asia/Pacific, nearly all retail stores were open during the entire quarter.
• In addition, international travel has remained largely curtailed globally due to both government restrictions and consumer health concerns, which continues to adversely impact consumer traffic in most travel retail locations.
During the first quarter of fiscal 2021, online sales growth remained strong in every region as the Company and its retailers activated digital strategies to capture consumer demand online. As a result, total net sales in mainland China, Korea and several other markets delivered strong growth year-over-year, and the sales growth rate improved in nearly every market globally.
Consumer Preferences
The COVID-19-related closures of offices, retail stores and other businesses and the significant decline in social gatherings have also influenced consumer preferences and practices. Demand for skin care and hair care products has been more resilient than the demand for makeup and overall fragrance. Within skin care, the demand for innovative products within hero franchises has remained strong, driving double-digit growth at Estée Lauder and La Mer during the first quarter of fiscal 2021. As stores re-opened throughout the quarter, consumers have re-engaged with the sensorial experience in fragrance, contributing to double-digit net sales growth at several luxury and artisanal fragrance brands, including Le Labo and Editions de Parfums Frédéric Malle.
Manufacturing and Distribution
By the end of the quarter, all of the Company’s manufacturing and distribution facilities were operating at sufficient levels. Cost Controls In response to the ongoing impacts from COVID-19, the Company continues to implement strict cost control actions to effectively manage the changing business environment. As a result, the Company delivered a consistent operating margin as in the prior-year period despite a net sales decline. These expense actions included advertising and promotion activities, travel, meetings, consulting, and certain employee costs, including furloughs and similar unpaid temporary leaves of absence for many point of sale employees, temporary salary reductions for senior executives and other management employees, and a temporary elimination of cash retainers for the Board of Directors.
Estee Lauder (EL) stock price history over the last 5 years
The image below, obtained from Google, shows the stock price history of Estee Lauder (EL) over the last 5 years. And its been a very good time for Estee Lauder stockholders. 5 years ago the stock was trading around $86 a stock and its currently trading at $223.85. That's a significant return of 166% provided to Estee Lauder stockholders over the last 5 years.
The stock of Estee Lauder (EL) is trading at a lot closer to its 52 week high than it is to its 52 week low which is a clear indication that the short term sentiment and momentum of Estee Lauder stock is very positive at this point in time.
The stock of Estee Lauder (EL) is trading at a lot closer to its 52 week high than it is to its 52 week low which is a clear indication that the short term sentiment and momentum of Estee Lauder stock is very positive at this point in time.
Estee Lauder (EL) vs Procter and Gamble (PG) vs COTY (COTY) stock over the last 5 years
The image below shows the stock price history of Estee Lauder (EL) vs Procter and Gamble (PG) vs COTY (COTY) stock price performances over the last 5 years. All three of these firms are active in the beauty and make-up products market. While they are all active in the same industry their stock price trends and performance over the last 5 years are very different. The summary below shows the stock price performance of these firms over the last 5 years
Estee Lauder has been by far the best performer over the last 5 years while the stock of COTY has been by far the worst performer over the 5 year period
- Estee Lauder: 166.1%
- Procter and Gamble: 65.7%
- COTY: -89%
Estee Lauder has been by far the best performer over the last 5 years while the stock of COTY has been by far the worst performer over the 5 year period
Stock valuation of Estee Lauder (EL)
So based on Estee Lauder (EL) latest earnings report what do we value their stock at? Based on their latest earnings report our valuation model provides a target price of $161.40 a stock. We therefore believe the stock of Estee Lauder is overvalued at its current price.
We usually recommend that investors look to enter a stock at least 10% below our target price which in this case is $161.40. Therefore a good entry point into the stock of Estee Lauder would be at $145 or below.
Since the stock of Estee Lauder is trading at well above our suggested entry price or target price we rate the stock of Estee Lauder as a sell.
We usually recommend that investors look to enter a stock at least 10% below our target price which in this case is $161.40. Therefore a good entry point into the stock of Estee Lauder would be at $145 or below.
Since the stock of Estee Lauder is trading at well above our suggested entry price or target price we rate the stock of Estee Lauder as a sell.
Next earnings release of Estee Lauder (EL)
It is expected that Estee Lauder (EL) will release their 2nd quarter 2021 earnings report in late Janaury 2021
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