Estée Lauder Companies

Consumer Non-Durables
Written By Candy Cowan

Estee Lauder is an American multinational cosmetics company, a manufacturer and marketer of makeup, skincare, fragrance, and hair care products.

The company owns a diverse portfolio of brands, including La Mer, Jo Malone London, Clinique, and Tom Ford Beauty among many more sold in approximately 150 countries and territories.

Employees: 60,000+

Revenue: $17.74bn for FY2022

HQ Location: Midtown Manhatten, New York City, U.S.

What they do:

  • They manufacture, market, and sell quality make-up, skincare, fragrance, and hair care products.

  • They sell under brand names including Estée Lauder, Aramis, Clinique, Lab Series, Origins, M·A·C, La Mer, Bobbi Brown, Aveda, Jo Malone London, Bumble and bumble, Darphin Paris, TOM FORD BEAUTY, Smashbox, AERIN Beauty, Le Labo, Editions de Parfums Frédéric Malle, GLAMGLOW, KILIAN PARIS, Too Faced, Dr.Jart+, and the DECIEM family of brands, including The Ordinary and NIOD.

  • They sell in three main geographic regions: Asia/Pacific; Europe, the Middle East & Africa; and The Americas.

Their vision and priorities:

They are a Beauty Inspired, Values-Driven business. This means that they value and promote inclusion, diversity, and equity; seek to deliver long-term value as they embed sustainability deeply within their business; and are committed to doing good in the communities where people live and work.

‘At The Estée Lauder Companies, our success is deeply rooted in our core values and the positive impact we have on our employees, our communities and the planet. Beauty Inspired, Values Driven is our promise to accelerate progress in these areas of strategic importance in order to continue delivering long-term, sustainable growth’

Fabrizio Freda, President and Chief Executive Officer

Financial and Business Goals

  • To focus on long-term growth as the impacts of Covid-19 subside

  • To increase net sales annually by 6% - 8%

  • To exceed global prestige beauty growth by at least 1%

  • Third Quarter Outlook for 2023:

    • Organic net sales, which excludes returns associated with restructuring and other activities; non-comparable impacts from acquisitions, divestitures and brand closures; as well as the impact of foreign currency translation, are forecasted to decrease between 10% and 8%.

    • Reported net sales are forecasted to decrease between 14% and 12% versus the prior year period. This range includes:

      • A shift in the return to growth in Asia Travel Retail and mainland China, as detailed above.

      • A negative 3% due to foreign currency translation.

      • The negative impact of 1% from the termination of the Company’s license agreements for the Donna Karan New York, DKNY, Michael Kors, Tommy Hilfiger, and Ermenegildo Zegna

        Organic net sales, which excludes returns associated with restructuring and other activities; non-comparable impacts from acquisitions, divestitures, and brand closures; as well as the impact of foreign currency translation, are forecasted to decrease between 10% and 8%.

    • Outlook for Fiscal 2023:

      • Reported net sales are forecasted to decrease between 7% and 5% versus the prior-year period. This range includes:

        • A shift in the return to growth in Asia Travel Retail and mainland China, as detailed above.

        • A negative 4% due to foreign currency translation, as well as an additional 1% due to certain foreign currency transactions in key international travel retail locations.

        • The negative impact of 1% from the termination of the Company’s license agreements for Donna Karan New York, DKNY, Michael Kors, Tommy Hilfiger, and Ermenegildo Zegna.

      • Organic net sales, which exclude returns associated with restructuring and other activities; non-comparable impacts from acquisitions, divestitures, and brand closures; as well as the impact of foreign currency translation, are forecasted to be down 2% to flat. This includes the negative impact related to foreign currency transactions, noted above.

Things to know right now

  • China Innovation Labs and manufacturing facility in Asia Pacific Opened

    They have made several strategic initiatives to drive growth and resiliency in their business. They significantly strengthened their capabilities in innovation, manufacturing, and distribution as they opened the China Innovation Labs and their first plant in Asia Pacific.

  • Deal with Tom Ford moving forward

    In November 2022, the Company announced it signed an agreement to acquire the TOM FORD brand. This transformational luxury acquisition will make Tom Ford an own brand of Estée Lauder Companies, enabling them to manage the brand's intellectual property and equity. The transaction is expected to be completed in the fiscal 2023 fourth quarter to be funded through a combination of cash, debt, and deferred payments to the sellers.

  • Agreements reached

    Estee Lauder has also reached agreements with luxury companies Zegna Group and Marcolin to license the brand's fashion and eyewear businesses, respectively. BALMAIN license agreement has also been agreed.

What does each business unit do?

Skin Care

Moisturizers, serums, cleansers, toners, body care, exfoliators, acne and oil correctors, facial masks, cleansing devices, and sun care products

Makeup

Lipsticks, lip glosses, mascaras, foundations, eyeshadows, nail polishes, and powders. Also compacts, brushes, and other makeup tools

Fragrance

Eau de perfume sprays and colognes, as well as lotions, powders, creams, candles, and soaps that are based on a particular fragrance

Hair Care

Shampoos, conditioners, styling products, treatments, finishing sprays, and hair color products

Their Competitors

  • Chanel

  • Beiersdorf

  • Coty

  • Shiseido

  • L'Oreal

  • Johnson & Johnson

  • Unilever

  • Procter & Gamble

Their financial calendar

Q1: August-October - Earnings 1st November 2023

Q2: November-January - Earnings 5th February 2024

Q3: February-April - Earnings 3rd May 2023

Q4: May-July - Earnings 18th August 2023

Next Earnings Report:

Around 3rd May 2023

Positives from the last earnings report Q2FY23:

  • Organic net sales benefited from continued double-digit growth in Fragrance as well as strong holiday offerings and performance during the 11.11 Global Shopping Festival.

  • Per product segment:

    • Skincare

      • Net sales from The Ordinary grew double digits across every region, reflecting growth in hero products, and successful innovation, such as New! Multi-Peptide Lash & Brow Serum and increased productive distribution.

      • Hero products, including Soothing Cleansing Oil and Vitamin Enriched Face Base, drove net sales growth from Bobbi Brown.

    • Makeup

      • Net sales growth from M·A·C and Clinique

      • M·A·C double-digit net sales growth reflected continued success from hero products, such as Studio Fix foundation, and recent launches, including Powder Kiss Velvet Blur Slim Stick lipstick, as well as strong 11.11 Global Shopping Festival performance and holiday demand. The increase in net sales also reflected the expected benefit from changes to the brand’s take back loyalty program made in the fiscal 2023 second quarter.

      • The continued success of Almost Lipstick in Black Honey continues to drive net sales growth from Clinique. Strength from the concealer and eye subcategories also contributed to growth.

      • Net sales grew double digits in most countries in Europe, the Middle East & Africa, Asia/ Pacific and Latin America as they continued to reopen and evolve in recovery

    • Fragrance

      • Net sales grew in every region, driven primarily by growth from Estée Lauder, Le Labo and Tom Ford Beauty.

      • Estée Lauder net sales grew double digits, driven primarily by strong holiday demand for the Beautiful franchise line of products, such as Beautiful Magnolia Intense.

      • Net sales from Le Labo rose strong double digits, reflecting growth in every region due to the continued consumer demand for the brand’s artisanal offerings, robust holiday performance and targeted expanded consumer reach.

      • Tom Ford Beauty net sales grew double digits, fueled by growth in existing hero franchises like Oud Wood and Ombre Leather and recent launches, such as Noir Extreme Parfum.

    • Haircare

      • Hair Care net sales rose 4%, reflecting growth from both The Ordinary, due to the recent launch of the brand’s hair care products, and Aveda. Page 5 of 22

      • Aveda’s net sales growth reflected strength in Europe, the Middle East & Africa, the launch of the brand in mainland China and strong performance during holiday and key shopping moments.

  • Per Geographical Segment:

    • The Americas

      • Net sales grew in both the Fragrance and Makeup categories.

      • In Latin America, net sales rose double digits, fueled by growth in the Makeup and Fragrance categories.

    • Europe, Middle East and Asia

      • Net sales in the United Kingdom grew mid-single-digits, powered by the progression of the makeup renaissance as usage occasions returned, as well as strong growth in Fragrance and Skin Care.

      • Net sales from most emerging markets in the region increased double digits, led by India and Turkey, driven by growth in the Makeup category. Developed markets also grew, led by France, Spain and Italy.

    • Asia Pacific

      • COVID recovery drove strong net sales growth in most countries, led by Japan, Australia, Malaysia and the Philippines. In Korea, double-digit growth from most brands was more than offset by the decline from Dr.Jart+’s travel retail business. • Fragrance and Hair Care net sales grew double digits in the region.

Challenges from the last earnings report Q2FY23:

  • The COVID-19 pandemic continued to disrupt the Company’s operating environment through the first half of fiscal 2023, including the COVID-related impacts, affecting Asia travel retail, particularly Hainan, and retail traffic in mainland China. In Asia travel retail, these challenges led to prolonged store closures as well as the curtailment of travel and caused the tightening of inventory by certain retailers who had previously placed orders in anticipation of the return of travel that was since delayed.

  • During the first half of fiscal 2023, the Company’s business was also negatively impacted by the strong U.S. dollar, along with inflationary pressures and recession concerns, which caused certain retailers in the United States to tighten inventory.

  • While the Company’s monthly retail trends improved sequentially during the fiscal 2023 second quarter in the United States, the pace was slower than anticipated resulting in lower replenishment orders compared to the prior-year period.

  • Net sales of $4.62 billion a decline of 17% from $5.54 billion in the prior-year period, including negative impacts from foreign currency.

  • Organic net sales fell 11%. the evolution of the COVID-19 environment, including restrictions in mainland China and the rising number of COVID cases, led to stronger headwinds as the quarter progressed.

  • Total reported operating income was $0.56 billion, a 61% decrease from $1.42 billion in the prior-year period.

  • Per product segment:

    • Skincare

      • Skin Care net sales declined 20%, primarily reflecting the challenges of the prolonged COVID-related impacts, including both the anticipated tightening of inventory by certain retailers in Asia travel retail and limited retail traffic in mainland China. Lower replenishment orders in the United States also negatively impacted the category’s growth. Net sales growth from The Ordinary and Bobbi Brown was offset by declines from Estée Lauder, La Mer, Dr.Jart+, and Clinique.

      • Net sales from Estée Lauder, La Mer, Dr.Jart+, and Clinique declined, reflecting the aforementioned Skin Care challenges.

      • Skin Care's operating income decreased, reflecting the decline in net sales and another intangible asset impairment of $100 million related to Dr.Jart+.

    • Makeup

      • Makeup net sales decreased 3%, primarily reflecting the ongoing COVID-related impacts affecting Asia travel retail and mainland China.

      • Net sales from Estée Lauder and Tom Ford Beauty were negatively impacted by the decline in retail traffic and travel due to the ongoing COVID-related impacts.

      • Makeup operating income decreased, primarily reflecting $107 million of other intangible asset impairments relating to Too Faced and Smashbox, combined, and lower net sales, partially offset by disciplined expense management.

    • Fragrance

      • Fragrance operating income decreased, driven primarily by strategic investments to support brick-and-mortar recovery and the expansion of freestanding stores, as well as investments in advertising and promotional activity to support holiday

    • Haircare

      • Hair Care operating results decreased, reflecting strategic investments to support innovation and Aveda’s launch in mainland China.

  • Per Geographical Segment:

    • The Americas

      • Net sales declined 3%, driven by the negative impact of lower replenishment orders in the United States primarily impacting the Skin Care category.

      • The license terminations related to certain of the Company’s designer fragrances contributed approximately 2 percentage points to the decline in reported net sales

      • Operating income in The Americas decreased, primarily reflecting lower intercompany royalty income due to the decline in income from the Company’s travel retail business, other intangible asset impairments of $107 million relating to Too Faced and Smashbox, combined, and the decline in net sales.

    • Europe, Middle East and Asia

      • Net sales declined 17%, primarily due to the ongoing COVID-related impacts, affecting Asia travel retail.

      • The license terminations related to certain of the Company’s designer fragrances contributed approximately 1 percentage point to the decline in reported net sales.

      • Global travel retail net sales decreased by double digits, reflecting the ongoing COVIDrelated impacts that led to reduced travel in Asia, particularly to Hainan. Travel retail net sales grew in Europe, the Middle East & Africa, and The Americas, benefiting from an increase in professional and personal travel compared to the prior-year period.

      • Operating income decreased, driven by the decline in net sales, partially offset by a lower intercompany royalty expense due to the decline in income from the Company’s travel retail business and disciplined expense management.

    • Asia Pacific

      • Net sales declined 7%, due to the ongoing COVID-related impacts affecting brick-and-mortar in Greater China and Dr.Jart+ travel retail in Korea.

      • Operating income decreased, driven by the decline in net sales and other intangible asset impairment of $100 million related to Dr.Jart+.

Candy Cowan
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