Estee Lauder (NYSE: EL) strengthened its brand portfolio by acquiring By Kilian, Becca, and Too Faced in 2016. The year was marked by a staggering 52 acquisitions of beauty companies by traditional players, per McKinsey – aimed primarily at enhancing digital marketing capabilities. In this article, Trefis analyzes Leading Beauty Forward – EL’s growth strategy to save costs and spur revenue growth by optimizing distribution channels and increasing social and digital media presence.
Our price estimate for Estee Lauder stock stands at $192, which is in-line with the current market price. We highlight trends in Estee Lauder’s revenues over recent years in an interactive dashboard along with our forecast for fiscal 2020 (ending June). You can also find more of our Consumer Discretionary sector data here.
A Quick Look at Estee Lauder’s Revenues
Estee Lauder reported $14.8 billion in Net Sales for the fiscal year 2019. This includes four revenue streams:
Skincare: $6.5 billion in FY2018 (44% of Net Sales). The segment comprises of all skincare products such as moisturizers, serums, cleansers, etc. under the company’s brand portfolio.
Makeup: $5.8 billion in FY2018 (39% of Net Sales). The segment comprises of all makeup products such as lipsticks, lip glosses, mascaras, etc. under the company’s brand portfolio.
Fragrance: $1.8 billion in FY2018 (12% of Net Sales). The segment comprises of all fragrance products such as perfumes, aromatic soaps, lotions, etc. under the company’s brand portfolio.
Haircare: $584 million in FY2018 (4% of Net Sales). The segment comprises of all hair care products such as shampoos, conditioners, colors, etc. under the company’s brand portfolio.
Leading Beauty Forward – Estee Lauder’s Growth Strategy
Today In: Money
Estee Lauder launched its Leading Beauty Forward program in May 2016 to reduce annual recurring selling, general and administrative expenses by $200-300 million in the long run.
The strategy involves enhancing marketing capabilities and driving growth by optimizing various supply-chain functions and exiting less profitable businesses.
This ongoing initiative is expected to be completed by 2021, and will cost the company nearly $1 billion.
The company recognizes these charges separately and has incurred $775 million under this expense head since 2016.
Changes In Marketing Strategy
Since 2016, the share of advertising and promotion expenditure has increased by 3-percentage points to nearly 39% of the total SG&A in 2019.
However, Estee Lauder has done well to keep its overall profit margin figure stable.
The strategy involved a shift in marketing communication channels from traditional to digital, which now contributes nearly 70% of the company’s media spend.
In 2019, travel retail and online distribution contributed nearly 38% of the company’s sales.
Both these channels have consistently reported double-digit growth with the share of travel retail increasing from 14% in 2017 to 23% in 2019.
Considering the aforementioned factors, we believe the company’s increased focus on digital marketing and its omni-channel push has enabled it to overcome disruption in the beauty market.
Considering Estee Lauder’s revenues (shows key revenue components) of $16 billion for 2020, we estimate its non-GAAP EPS to be $5.87. This EPS figure coupled with a forward P/E multiple of 32.5, works out to a price estimate of $192 for Estee lauder’s stock (shows cash and valuation analysis), which is in-line with the current market price.
What’s behind Trefis? See How It’s Powering New Collaboration and What-Ifs For CFOs and Finance Teams| Product, R&D, and Marketing Teams More Trefis Data Like our charts? Explore example interactive dashboards and create your own