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The Estee Lauder Companies Inc. EL exhibited a volatile stock trajectory in recent months, driven by weak consumer sentiment amid high inflation and rising interest rates. The company is also grappling with issues such as market instability in mainland China and Asia travel retail, lower conversion rates, and negative foreign currency impacts.
As a result, shares of this New York-based provider of skincare, makeup, fragrance and hair care products have plunged 42.4% year to date compared with a 37.7% drop in the broader industry. In contrast, the Consumer Staple sector and the S&P 500 have posted increases of 9.4% and 16.3%, respectively, during the same period. Closing the trading session at $84.20 on Thursday, shares of EL stand close to its recently reached 52-week low of $82.39.
EL is trading below its 50 and 200-day moving averages, indicating a bearish outlook and challenges in sustaining the recent performance levels.
EL Stock Trades Below 50 and 200-Day Moving Average
Decoding Challenges Faced by EL
In the fiscal 2024, The Estee Lauder Companies faced significant challenges in the Asia-Pacific region, particularly in mainland China, due to a broader slowdown in the prestige beauty sector. Sales in the Asia-Pacific region fell 7% to $1,205 million during the fiscal fourth quarter. The downtick was largely caused by weakness in mainland China. Consumer confidence remained low and cautious spending behavior contributed to a decline in prestige beauty retail sales, which worsened from mid-single digits in the third quarter to low-double digits. The Asia travel retail market also struggled, with sales in Hainan plunging more than 40% in the fiscal fourth quarter. Weaker consumer sentiment, smaller basket sizes and a shift toward spending on experiences played a key role in these declines. Looking ahead to fiscal year 2025, the recovery in China and Asia travel retail is expected to be slow, which might limit sales growth and profitability in these key markets.
Another concerning point is the contraction in adjusted operating margins, which contracted 120 basis points to 10.2% in the fiscal 2024. While there was a modest recovery in the later part of the fiscal 2024, the outlook for fiscal 2025 indicates a slower-than-expected pace of margin expansion. This delay is partially attributed to continued pressure from high-margin categories like skin care, which are still facing declines in sales.
The company is losing market share in channels that are growing more slowly, such as traditional retail, despite some gains in high-growth platforms like Amazon AMZN. However, these gains are not enough to offset losses in brick-and-mortar stores, particularly in North America, where competition is fierce.
The Estee Lauder Companies faces significant financial pressure due to unfavorable currency rates. Currency fluctuations, particularly in regions like Israel and the Middle East, compounded by business disruptions, further impacted the company's profitability in the fiscal 2024. These currency headwinds are expected to continue affecting earnings, potentially reducing earnings per share (EPS) by approximately 3 cents in the fiscal 2025.
What to Expect From The Estee Lauder Companies in FY25?
The company continues to face a challenging macroeconomic environment, with ongoing volatility in the global prestige beauty market, especially in mainland China and Asia travel retail. For fiscal year 2025, management expects a more modest performance compared to industry averages, primarily due to its strong presence in these regions. Weak consumer sentiment and changing traveler behavior, with more spending on experiences over products, are impacting Asia travel retail. Additionally, risks such as retailer destocking and intense competition, particularly in North America, are further complicating the company’s outlook.
In the first quarter of fiscal 2025, the company anticipates continued pressure from these challenges, projecting a 3-5% year-over-year decline in reported and organic net sales. Adjusted EPS are expected to fall sharply, ranging between 1 and 9 cents and suggesting a decline of 17-89% on a constant-currency basis.
Analysts Downgrade EL’s Earnings Estimates
EL appears to be in a troubled spot. The Zacks Consensus Estimate for the current and next fiscal year EPS has moved downward by 2.9% and 4.3% to $2.97 and $4.03, respectively, in the past seven days. This downward adjustment reflects a negative sentiment among analysts and suggests potential challenges in achieving projected profitability.
EL’s Valuation Premium Raises Questions
The Estee Lauder Companies valuation remains a point of contention. Despite the pullback in the stock price, EL is trading at a premium relative to industry peers like Coty Inc. COTY and Inter Parfums, Inc. IPAR, which seems increasingly difficult to justify. EL is currently trading at a forward 12-month P/E of 25.99, higher than the industry’s 21.89. This valuation discrepancy indicates that while investors have high expectations for the company’s future growth, the stock's current performance and the broader market challenges could pose risks.
Can Growth Strategies Turn the Tide?
Despite several challenges, The Estee Lauder Companies is making significant strides with its Profit Recovery and Growth Plan (PRGP). This initiative focuses on three core areas — accelerating margin expansion, targeted growth investments, and simplifying processes for greater agility. For the fiscal 2025, the PRGP is expected to deliver substantial benefits, with around 80% of gains improving gross profit through optimized pricing, reduced discounts and enhanced precision marketing. The remaining 20% aims to cut operating expenses by streamlining operations and expanding shared services. These efforts are projected to generate $1.1-$1.4 billion in net savings by the fiscal 2026.
The company is also leveraging its strengths in high-growth areas, including its global prestige skin care portfolio and luxury fragrance brands such as Jo Malone London, TOM FORD and Le Labo. Its focus on digital transformation is another key growth driver, with strong online sales growth across nearly 50 markets. Digital initiatives, combined with precision marketing using AI and consumer profiles, position the company for sustained growth and future market leadership.
While EL is resorting to restructuring, the fiscal 2025 forecast reveals more conservative sales growth and profitability improvements than originally anticipated. This suggests that the company’s recovery will take longer than planned, leaving investors wary of future profitability in the near term.
What’s Next for Investors?
The Estee Lauder Companies is facing significant challenges, including weak consumer sentiment, declining sales in key markets like China, and currency headwinds. Its reliance on Asia travel retail and luxury beauty has led to pressure on margins and overall profitability. The stock is trading below key moving averages, signaling a bearish trend. While the profit recovery plan aims to improve margins and streamline operations, the road to recovery might be longer than anticipated. With a lofty valuation and analysts downgrading earnings estimates, investors should approach EL stock with caution. EL currently carries a Zacks Rank #5 (Strong Sell).
You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.
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New York-based The Estée Lauder Companies Inc. manufactures, markets, and sells skin care, makeup, fragrance, and hair care products. With a market cap of $30.5 billion, Estée Lauder's operations span the Americas, Asia Pacific, Europe, Africa, and the Middle East.
Companies worth $10 billion or more are generally described as "large-cap stocks," Estée Lauder fits right into that category, with its market cap exceeding this threshold, reflecting its substantial size, influence, and dominance in the household & personal products industry.
Estée Lauder touched its 52-week high of $159.75 on Feb. 5 and is currently trading 47.1% below that peak. EL has declined 28.1% over the past three months, lagging behind the Nasdaq Composite’s ($NASX) marginal gains during the same time frame.
Over the longer term, EL has substantially underperformed NASX. EL has declined 44.9% over the past year and 42.2% in 2024, compared to NASX’s 25% gains over the past 52 weeks and 15.9% returns on a YTD basis.
To confirm the bearish trend, EL has mostly traded below its 50-day and 200-day moving averages over the past year with slight fluctuations.
Shares of Estée Lauder dipped 2.2% after the release of its fiscal 2024 earnings on Aug. 19. The beauty giant has continued to grapple with several challenges, including persistent weak consumer sentiment in China, a downturn in Asia travel retail, and adverse foreign currency translations.
These factors have led to a decline in both revenues and profits. The company reported a 1.9% year-over-year decrease in net sales to $15.6 billion. While its net income attributable to shareholders plummeted by a staggering 61.2% to $390 million.
Looking ahead, Estée Lauder’s fiscal 2025 outlook remains weak, with its reported and organic net sales projected to decline between 5% and 3% versus the prior-year period.
Estée Lauder’s competitor, Coty Inc. , has outperformed EL. However, COTY has also dipped 23.7% over the past year and 28.6% in 2024.
Among the 27 analysts covering the EL stock, the consensus rating is a “Moderate Buy.” The mean price target of $114.46, represents a 35.4% potential upside from current price levels.
On the date of publication, Aditya Sarawgi did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
Coty Inc. COTY continues to benefit from robust growth in the global beauty market, driven by a strong brand presence and consumer demand for fragrances, cosmetics and skincare. With a focus on six growth pillars, including growing Consumer Beauty and fragrances, the company demonstrates a proactive approach to sustainable growth.
Despite rising costs and currency fluctuations, Coty's commitment to innovation and strategic partnerships enhances its competitive position across the beauty market. These fundamental factors underscore Coty's resilience and potential for long-term success, irrespective of short-term headwinds. Let’s discuss.
Coty's Strong Performance and Market Presence
Coty has demonstrated significant growth in the global beauty market, driven by strong brand strength and consumer demand for fragrances, cosmetics, and skincare products. In the fourth quarter of fiscal 2024, Coty’s net revenues reached $1,363.4 million, marking a 1% increase year over year. This growth was fueled by a rise in prestige and mass fragrances, as well as prestige cosmetics and mass skin & body care. Notably, the company's revenue growth was particularly strong in Latin America, Asia (excluding China), and the Travel Retail channel, with Consumer Beauty seeing a 4% increase on a like-for-like (LFL) basis.
Coty’s Focused Strategy and Innovations Fuel Growth
Coty is advancing its strategic goals through six key priorities aimed at sustainable growth. These include stabilizing and growing Consumer Beauty brands, accelerating luxury fragrances, and enhancing e-commerce and Direct-to-Consumer (DTC) capabilities. The company's focus on innovation has led to successful product launches such as Gucci Flora Gorgeous Orchid and Burberry Goddess. Coty’s e-commerce channel saw impressive growth in the fiscal fourth quarter, with Consumer Beauty e-commerce revenues up over 30%. In addition, Coty’s Travel Retail segment experienced over 20% LFL growth in fiscal 2024, benefiting from its extensive geographic reach and strategic retailer partnerships.
Coty’s Cost-Saving Tactics and Partnerships Show Promise
Coty is committed to optimizing its cost structure through the All In to Win transformation program, which achieved over $115 million in savings for fiscal 2024 and aims for an additional $75 million in fiscal 2025. The company has also formed strategic partnerships to enhance its brand portfolio, including long-term agreements with Lena Gercke, Etro and Marni. Coty renewed its license with Jil Sander and entered into agreements with Orveda and Perfect Corp., reinforcing its position in both the prestige and Consumer Beauty segments. These efforts highlight Coty’s focus on driving growth and maintaining a competitive edge in the beauty industry.
COTY’s Roadblocks: What You Need to Know
Coty faced increased operating costs in a challenging geopolitical and macroeconomic climate. In the fiscal fourth quarter, the company’s SG&A expenses surged to $791 million, up from $672.9 million a year ago, equating to 58% of net revenues compared with 49.8% previously. The company's A&CP spend reached nearly 27% of sales. If rising costs are not managed, they could further affect margins and profitability.
Coty’s global operations expose it to currency risk, potentially squeezing profit margins abroad. In the quarter, net revenues were negatively impacted by 2% due to unfavorable foreign exchange rates. For fiscal 2025, Coty anticipates a low-single-digit percentage headwind from currency fluctuations, highlighting the ongoing risk posed by volatile exchange rates.
Coty’s Future Growth: Key Takeaways
Despite these challenges, the global beauty market, especially prestige fragrances, is thriving. Coty anticipates mid-single-digit growth in mature markets and double-digit increases in key growth areas and travel retail for fiscal 2025. With a robust e-commerce boost and an innovative pipeline, Coty expects 6-8% LFL revenue growth for fiscal 2025 and the first half of the year. Adjusted earnings per share is projected to rise 15-20% year-over-year, reaching 54-57 cents for the year.
Shares of this Zacks Rank #3 (Hold) company have declined 8.8% in the past three months, surpassing the industry’s 25.9% decline.
Better-Ranked Staple Stocks
Here, we have highlighted three better-ranked food stocks, namely, The Chef's Warehouse CHEF, Ollie's Bargain Outlet OLLI and Flowers Foods FLO.
The Chef’s Warehouse, which engages in the distribution of specialty food products, currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
CHEF has a trailing four-quarter earnings surprise of 33.7%, on average. The Zacks Consensus Estimate for The Chef’s Warehouse’s current fiscal year sales and earnings each indicates growth of 9.7% and 12.6%, respectively, from the year-ago reported numbers.
Ollie's Bargain, the extreme-value retailer of brand-name merchandise, carries a Zacks Rank #2 (Buy). OLLI has a trailing four-quarter earnings surprise of 7.9%, on average.
The Zacks Consensus Estimated figure for Ollie's Bargain’s current financial-year sales and earnings each indicates a rise of around 8.7% and 12.7%, respectively, from the year-earlier figures.
Flowers Foods, one of the largest producers of packaged bakery foods in the United States, currently carries a Zacks Rank #2. FLO has a trailing four-quarter earnings surprise of 1.9%, on average.
The Zacks Consensus Estimate for Flowers Foods’ current financial-year sales and earnings each implies growth of around 1.1% and 4.2%, respectively, from the year-ago reported numbers.
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