Solid Skin Care sales and strength in e-commerce business is favoring The Estee Lauder Companies Inc. EL. The leading skincare, makeup, fragrance and hair care product provider’s presence in emerging markets is noteworthy.
Let’s delve deeper.
Skin Care Division: Key Driver
The company’s Skin Care portfolio has been performing well. During the third quarter of fiscal 2022, the Skin Care category’s sales were up 6% year over year (up 7% at constant currency or cc) to $2,395 million. During the quarter, Skin Care net sales rose in The Americas and EMEA regions, fueled by solid double-digit La Mer sales 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). The company has nearly 76% ownership in DECIEM compared with 29% earlier. The addition of DECIEM complimented the company’s reported sales growth in the fiscal third quarter.
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Online Operations & Emerging Market Presence
The Zacks Rank #3 (Hold) company has a strong online business and expects it to be a major growth engine. 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 the company’s digital-first mindset have been aiding the company’s online sales. Management is focused on proper product placement and displays case tools, including virtual try-on, to ease decision-making. The company’s online business remained solid, driven by growth in areas where pandemic-induced restrictions were in place. The company has been expanding its omnichannel capabilities to make consumers’ shopping options flexible and convenient.
The Estee Lauder Companies has a strong presence in emerging markets, insulating it from the macroeconomic headwinds in the matured markets. The company derives significant revenues from emerging markets like Thailand, India, Russia and Brazil, encouraging it to make distributional, digital and marketing investments in these countries. The Estee Lauder Companies is investing in catering to consumer demand in China and Asia. To this end, it bought Korea-based skincare brand Dr. Jart in 2019.
During the third quarter of fiscal 2022, The Estee Lauder Companies’ organic sales fell in mid-single-digits across Mainland China, as a heavy decline in brick-and-mortar sales offset online growth. The company witnessed increased pandemic-inflicted restrictions across China from March 2022. Such temporary restrictions caused softness in consumer traffic and travel. In its last earnings call, management noted that the ongoing restrictions in China are temporary, but it expects these headwinds to have a greater impact on fourth-quarter results relative to the third quarter.
That being said, The Estee Lauder Companies’ aforementioned upsides are likely to offer respite.
Shares of EL have dropped 7% in the past three months compared with the industry’s 11.5% decline.
Looking for Top-Ranked Staple Bets? Check These
Some better-ranked stocks are Sysco Corporation SYY, Medifast MED and Campbell Soup CPB.
Sysco, which engages in marketing and distributing various food and related products, sports a Zacks Rank #1 (Strong Buy). SYY has a trailing four-quarter earnings surprise of 9.1%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Sysco’s current financial year sales and earnings per share (EPS) suggests growth of 32.5% and 124.3%, respectively, from the year-ago reported number
Medifast, which manufactures and distributes weight loss, weight management, healthy living products and other consumable health and nutritional products, currently carries a Zacks Rank #2 (Buy). MED has a trailing four-quarter earnings surprise of 12.9%, on average.
The Zacks Consensus Estimate for Medifast’s current financial year sales and EPS suggests growth of almost 19% and 13.4%, respectively, from the year-ago reported figure.
Campbell Soup, which manufactures and markets food and beverage products, currently carries a Zacks Rank #2. Campbell Soup has a trailing four-quarter earnings surprise of 10.8%, on average.
The Zacks Consensus Estimate for CPB’s current financial year sales suggests growth of 0.5% from the year-ago reported figure.
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