Estée Lauder (EL) 1Q19 Results: Company Beats Expectations and Raises Guidance

Source: Company reports/Coresight Research

Fiscal 1Q19 Results

Estée Lauder reported fiscal 1Q19 revenues of $3.52 billion, up 7.6% year over year and higher than the consensus estimate of $3.47 billion. Adjusted earnings per share (EPS) was $1.41, higher than the consensus estimate of $1.22 and higher than EPS of $1.21 in the year ago period. The company reported that comparable sales were up 11% overall in the period, which made it the sixth consecutive quarter of double-digit sales increases.

Segment Update: Skin Care Increasing in Nearly Every Channel

By segment, net sales in Skin Care grew by 16.5%, from $1.28 billion to $1.49 billion on a reported basis. The company reported that Skin Care grew in nearly every channel and segment, and experienced particularly strong growth in Asia, travel retail and online. The segment saw growth in La Mer (Estée Lauder’s luxury skin care brand) with net sales increasing in every region and channel, driven by higher net sales of both existing and new products, which includes The Treatment Lotion Hydrating Mask. Estée Lauder also launched the Advanced Night Repair Eye Supercharged Complex, which also contributed to overall sales in Skin Care during the quarter.

The Makeup segment’s net sales increased by 2% on a reported basis, from $1.37 billion to $1.41 billion, driven by increases in MAC, Estée Lauder and Tom Ford Beauty. Estée Lauder’s Double Wear line of products drove double-digit growth, as did Tom Ford’s lip- and eye-shadow lines. These increases were offset by lower net sales of Clinique and Smashbox makeup sales.

Net sales in the Fragrance segment decreased by 1% on a reported basis, from $476 million to $472 million, driven by the adoption of the new accounting standard, ASC 606; excluding the adoption of ASC 606, the fragrance segment saw increased net sales in Tom Ford Beauty, Le Labo, By Kilian and Jo Malone London, and growth in “Private Blend” fragrances including the launch of Tom Ford’s Ombre Leather and the extended reach of Jo Malone with the launch of the fragrance on Tmall in China.

Net sales in the Hair Care segment increased by 5.1% on a reported basis, from $136 million to $143 million due to growth from Aveda’s Invati Advanced product line and the launch of Cherry Almond Softening Shampoo and Conditioner.

Geography Update: Strongest Growth in APAC

By geography, APAC led net sales, growing by 24% on a reported basis. The company highlighted that sales in China and Hong Kong rose in strong double digits with broad-based growth across brands, categories and channels, and prestige beauty growth and department stores continued to grow more than 20%, and online sales more than doubled.

The company reported that net sales in Europe, the Middle-East region and Africa rose 14% on a reported basis, driven by strong double-digit increases in the global travel retail business and emerging markets.

Net sales in the Americas declined 7%, while North America continued to achieve double-digit growth in specialty multi-retail and online.

Third-Party Platform Expansion: Tmall, ASOS and Global Travel Retail

Estée Lauder reported that it is continuing to expand its brand on third-party platforms; it launched its Jo Malone fragrance brand on Tmall in China and launched five more brands on ASOS in the UK. The company highlighted that its Global Travel Retail business is rapidly growing and is experiencing broad-based growth across brands and countries, with eight of the top 10 brands growing in double digits in retail in the channel.

Outlook

For the second quarter, the company provided EPS guidance of $1.47–$1.50, compared to the consensus estimate of $1.63. Net sales are forecast to increase 4%–5%, compared to the consensus estimate of 4.6%.

For the full year, Estée Lauder raised its EPS guidance to $4.73–$4.82, up from $4.62–$4.71, compared to the consensus estimate of $4.77. The company provided revenue guidance of 4.5%, implying $12.75 billion.