Can Estee Lauder (EL) Continue its Business Momentum?
On Sep 25, 2014, we issued an updated research report on Estee Lauder Inc. (EL). The cosmetics maker reported decent fourth-quarter fiscal 2014 results on Aug 15, 2014.
Estee Lauder’s fourth-quarter fiscal 2014 earnings of 45 cents soared 83% year over year backed by higher revenues. But earnings missed Zacks Consensus Estimate by 20% as higher sales were offset by weak margins during the quarter.
Net sales climbed 5% from the year-ago level mainly due to higher sales in most of the geographical areas and product categories. However, sales missed Zacks Consensus Estimate by 3.3%.
The Makeup category surged 25% year over year baked by a rise of demand for lipstick. While gross margin expanded 20 basis points (bps) to 80.4% backed by increased sales, higher operating expenses resulted in operating income margin contraction of 780 bps to 66.4%.
Estee Lauder’s strong brand portfolio boasting names like M-A-C, Estee Lauder, Aramis, Clinique, Tommy Hilfiger, Donna Karan and Origins provides a competitive advantage and bolsters its position in the market.
The company enhances brand equity through consistent innovation. Among the major launches in the fourth quarter, Clinique's Even Better Essence Lotion in China, Estée Lauder brand’s improved Advanced Night Repair Serum, La Mer’s Lifting Contour Serum and Lifting and Firming Mask, M-A-C’s new Pure Color Envy Sculpting Lipstick collection are worth mentioning.
However, Estee Lauder’s strategic expansion into the emerging markets is facing hindrance from a soft macroeconomic condition in Greater China and Korea. This is slowing the company’s growth in Asia. Lower consumer spending owing to uncertain economic environment along with falling exports and slow growth in industrial production, retail sales and job market is denting sales growth.
Moreover, the ongoing political crisis in Ukraine is hampering top line in the region. This sluggish environment might slow down Estee Lauder’s international growth in fiscal 2015.
Estee Lauder currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks to consider in the retail industry include V.F. Corp. (VFC), Michael Kors Holdings Ltd. (KORS) and Under Armour Inc. (UA), all carrying a Zacks Rank #2 (Buy).
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