netrashetty
Netra Shetty
The Estee Lauder Companies (NYSE: EL) manufactures and sells skin care, makeup, fragrance, and hair care products in 140 countries. EL distributes its products through a variety of different channels, including large department store retailers, smaller boutique retailers, beauty salons and spas, and direct-selling through company-owned stores, online websites, and TV informercials. [1] Its most important distribution channel is department stores worldwide which accounted for 57% of net sales in 2009. North American department stores such as Macy's and Kohl's accounted for 30% of net sales in 2009. [2]
In FY2009, EL's sales figures were affected by a poor global retail environment, which resulted in fewer sales of its heritage products as well as adverse currency exchange rates. EL posted decreases in sales throughout all of its product segments seeing its net income drop over 50% in the 2009. [3] Notably, FY2009 saw a strong increase in its Asian markets, with sales increasing 10% from 2008.[3]
However, as EL continues to acquire more brands, especially in its fragrance division, its products face the risk of cannibalization by competing with each other for clients from the same market segment. Competition in the mid to low-end markets also continues to be a challenge for EL.
Business Overview
Contents
1 Business Overview
1.1 Business Segments
1.1.1 Skin Care (41.3% of 2010 Net Sales)
1.1.2 Make Up (38.1% of 2010 Net Sales)
1.1.3 Fragrance (14.6% of 2010 Net Sales)
1.1.4 Hair Care (5.3% of 2010 Net Sales)
1.2 Business and Financial Metrics
1.2.1 Fiscal 2009 Performance
1.2.2 Fiscal 2010 Performance (ended June 30, 2010)
1.2.3 Fiscal Q1 2011 Performance (ended September 30, 2010)
1.2.4 Fiscal Q2 2011 Performance (ended January 31, 2011)
2 Trends and Forces
2.1 Diverse Brand Names Target Different Market Niches
2.2 Spending on Discretionary Items Projected to Recover
2.3 Large Presence in Global Market Exposes EL to Currency Fluctuation Risks
3 Competition
4 References
The Estee Lauder Companies is a manufacturer and retailer of skin care, makeup, fragrance, and hair care products worldwide. EL distributes its products through various channels appropriate for the market position and audience of its different products. These channels include department stores such as Macy's, beauty retailers such as Sephora, perfumeries and pharmacies, beauty salons and spas, and direct-selling through company stores, online websites and TV infomercials. [1]
Business Segments
Skin Care (41.3% of 2010 Net Sales)
This product category includes Moisturizers, creams, lotions, cleansers, sun screens and self-tanning products.[4] EL is currently focusing on high growth segments, such as products to fix visible signs of aging, to increase net sales. In 2009, EL launched Advanced Night Repair Synchronized Recovery Complex, Advanced Night Repair Eye Synchronized Complex, and Hydrationist Maximum Moisture Crème and Lotion, which contributed incremental sales of $247 million combined. Introduction of other skin care products from Clinique and La Mer also contributed $119 million to the increase in net sales. [5]
Make Up (38.1% of 2010 Net Sales)
This product category consists of lipsticks, lip glosses, mascaras, foundations, eye shadows, nail polishes and powders.[4]. In 2009, its net sales increased by 5% to $2.98 billion, which was primarily due to strong growth of $135 million from EL’s makeup artist brands and international sales.[6] EL also identified underperforming stock keeping units in terms of their relevance to their long-term perfumery strategy in the Europe, Middle East, and Africa region. With this evaluation, certain products in perfumeries were discontinued, which led to a $27 million charge from participating retailers due to EL’s returns approval policy.[6]
A breakdown of FY2010 net sales by product category.[6]
A breakdown of FY2010 net sales by region. [6]
Fragrance (14.6% of 2010 Net Sales)
This product category consists of eau de parfum sprays, colognes, lotions, powders, creams and soaps based on particular fragrances.[4] In 2009, net sales decreased 1% to $1.14 billion, which was due to lower sales of certain designer fragrances. Approximately a decrease of $69 million in sales is prominently attributable to fragrances such as DKNY Delicious Night, Estee Lauder Sensuous, Clinique Happy, etc.[6]
Hair Care (5.3% of 2010 Net Sales)
This product category consists of Shampoos, conditioners, styling gels and cremes, hair coloring products and hairsprays.[4] In 2009, net sales increased 3% to $413.9 million, due to an increase in net sales of certain styling and hair color products and sales from expanded distribution outside of the US.[6]
Business and Financial Metrics
EL owns more than 20 skin care and makeup brands as well as a variety of fragrance brands. Its core cosmetics brands include Estee Lauder, Clinique, Prescriptives, Origins, MAC, Bobbi Brown, Darphin, La Mer, and Tom Ford. EL also owns global licenses to market fragrances under brand names such as Tommy Hilfiger, Donna Karan Cosmetics, Sean John Cosmetics, and Aramis. [1]
EL markets its products in 140 countries around the world. Its largest markets are the Americas and Europe, which constituted 82.3% in total revenues in FY2009. [3] EL distributes its various brands through limited channels and places high priority on maintaining its most important retailer relationships. In fact, in FY 2006, 2007, and 2008, EL's primary retailer Macy's accounted for 16%, 14%, and 12% of net sales, respectively. [1] High-end brands such as La Mer and Darphin have very limited distribution channels and are sold only in upscale boutique or department stores, while BeautyBank brands are marketed at more budget-conscious retailers such as Kohl's. [1]
Despite the recession America faced in 2009, the department store sector has not deteriorated much since the beginning of the year. EL gets 29% of its revenue from department store sales and has also seen increased market share in its Clinique brand. EL has also increased Internet and Home Shopping Network sales. However, there is some weakness in the company's travel retail business, which accounts for 20% of profits. Revenue from that segment decreased in the second quarter of fiscal 2009 due to lower international travel.[7]
Fiscal 2009 Performance
Net sales decreased 7.4% to $7.32 billion and net earnings fell 54% to $218.4 million. [3] Skin Care and Makeup products continued to be strongest in sales, together making up 78% of total revenues in FY2009 a 2% increase from the previous fiscal year. [3] However, EL saw sales in all its product categories fall between 3-20%, with fragrance falling 19.6% from FY2008 due to the poor retail climate and decreased sales of its heritage brands. EL believes this to be temporary and that this trend will reverse itself as the retail climate picks up and it introduces newer brands. [3] Sales in Asia/Pacific grew by 10% from FY2008 to FY2009, bolstered by sales in China, Japan, and Hong Kong as well as benefits from favorable exchange rates with the Japanese Yen. Sales growth in Europe, Middle East, and Africa fell by 11/5%, due to decreased retail traffic in the region as well as unfavorable exchange rates due to a stronger US dollar. [3]
Fiscal 2010 Performance (ended June 30, 2010)
Estee Lauder reported net sales of $7.80 billion, a 6% increase compared with $7.32 billion in 2009. Excluding the impact of foreign currency conversion, net sales increased 5% from a year ago. EL generated its largest full-year increase in operating income and operating margin since becoming a public company in 1995. It reported net earnings for the year of $478.3 million, compared with $218.4 million last year. Diluted net earnings per common share rose to $2.38, compared with $1.10 reported in the prior year. [8]
Skin care, makeup, hair care and fragrance all experienced sale increases with skin care reporting the largest increase of 12%. The introductions of new products such as Even Better Clinical Dark Spot Corrector and Youth Surge Night Age Decelerating Night Moisturizer contributed to the sales increase with sales of existing products dropping slightly year over year. [9]
The emerging markets in Asia contributed to the largest sales increase geographically, increasing 16% year over year. Sales in this region had strong growth in each major product category with double-digit gains in skin care and hair care. [10]
In Q1, net Income was $141 million ($0.75 EPS). Compared to Q1 FY09, EL profit increased 275%, as the firm had a $42.3 million restructuring charge in that quarter. [11] Even taking into account the restructuring charge, the company's EPS beat Wall Street estimates, inline with the better-than-expected earnings of its competitors, Elizabeth Arden (RDEN) and Avon Products (AVP).
In Q2, net Income was $256.21 million ($1.28 EPS), an increase of 62% compared to Q2 FY2009. [12] This exceeded the expectations of analysts, who expected $2.24 billion ($1.21 EPS) in income for the period. [12] Net sales increased 11% from the year before, however, to $2.26 billion.[12]
In Q3, net earnings doubled from $27.2 million in Q3 FY 2009 to $57.5 million.[13] Net sales rose 10% to $1.86 billion for the quarter, compared to $1.70 billion in Q3 FY 2009.[13] Increased company sales were driven by strong performance in travel retail and Asia/Pacific groups..[13]
In Q4, EL reported net sales of $1.84 billion, a 9% increase from $1.68 billion in the comparable prior-year period. Excluding the impact of foreign currency translation, net sales increased 8%. On a reported basis, as well as in constant currency, net sales grew in each geographic region. [14]
Fiscal Q1 2011 Performance (ended September 30, 2010)
EL had net sales of $2.09 billion, which is a 14% increase from FY2011 Q1. The company also reported net earnings for the quarter of $191.1 million, which is a 36% increase from the same period last year. These results also included charges associated with restructuring activities of $3.6 million and without these charges, net earnings would come out to $194.4 million, which is a 16% increase from the same period last year.[15] According to Freda, President and CEO, robust sales growth internationally were especially due to the investment of substantial funds in targeted advertising, the company’s high-touch selling model, and the weaker US dollar.[15] All of its product categories posted double digit increases in net sales from the same period last year, except for hair care which had a 4% decrease in net sales. Net sales results by geographic region also had double digit growth, with EL’s Asia/Pacific region leading with a 16% increase from the same period last year. [15]
Fiscal Q2 2011 Performance (ended January 31, 2011)
For the second quarter, EL reported net sales of $2.49 billion, which was a 10% increase compared to the same period from a year ago. Net earnings for the quarter increased 34% from last year to $343.9 million.[16] Earnings per share increased 34% to $1.71, which beat analysts’ estimates of $1.44 per share.[17] EL attributed these strong results to the overall holiday business, especially from the company’s largest brands. Out of its product categories, skin care performed the best with a 14% increase in net sales. In terms of geographic regions, all of the regions had double digit sales growth except for the Americas. The Asia/Pacific region had the highest sales with a 16% increase in sales, while the Americas had a 8% increase in net sales. EL estimates that its earnings per share for the year will be between $3.40 and $3.60 per share.[16]
EL Net Sales and Earnings ($mln) [1]
Metric FY2010 Chg from FY2009 FY2009 Chg from FY2008 FY2008
Net Sales $7,323.8 (7%) $7,911 12.4% $7,037.5
Sales Breakdown by Products
Skin Care $3,227 11.8% $2,886.3 (3.7%) $2997
Make Up $2,978 5.2% $2,830 (5.65%) $3000
Fragrance 1,137 (1.2%) $1,150 (19.63%) $1432
Hair Care $413 2.9% $402.4 (5.78%) $427
Sales Breakdown by Regions
The Americas $3,442 0.6% $3,421.2 (7.82%) $3712
Europe, Middle East & Africa $2,859 9.5% $2,661.2 (11.48%) $3007
Asia/Pacific $1,510 16.2% $1,299.4 8.95% $1193
Net Earnings $478.3 119% $218.4 (54%) $473.8
Trends and Forces
Diverse Brand Names Target Different Market Niches
EL's primary strength lies in the variety of brands that it has acquired in the last two decades, since each brand has its own market niche, brand image, as well as regional appeal. Skin care brands Clinique and Origins appeal to customers that want products with organic, natural, and allergen-free ingredients. Makeup lines M.A.C. and Bobbi Brown target fashion-conscious customers who prefer professional-grade makeup products and tools. In the high-end market, La Mer and Darphin have substantial brand recognition as prestige skin care and makeup brands, while the newly acquired brand BeautyBank, with makeup brands and products such as AmericanBeauty and Flirt, targets more low-end consumers. The popularity of its professional-grade makeup brands and high-end products have helped to offset the hit from the global economic downturn. [1]
Spending on Discretionary Items Projected to Recover
As a member of the discretionary item industry, EL saw sales and income decrease during the poor economic climate of 2009 as consumer confidence and disposable income both decreased dramatically. Coming out of the recession of 2009, EL saw sales almost double in the Q3 of 2010.[18] This increase is in line with many of the discretionary item companies that have seen sales drops during the 2009 recession. A better economic climate and an increase in disposable income will mean that EL will see its prices increase.
Large Presence in Global Market Exposes EL to Currency Fluctuation Risks
Since 53% of EL's sales revenues come from markets outside of the United States, exchange rates play a major role in EL's sales performance. As the firm doesn't engage in any significant hedging activity against exchange rate risk, the final amount of its sales and profits are greatly exposed to fluctuations in the value of the U.S. dollar . weakening of the dollar against foreign currencies would allow AVP products to become more competitively priced in global markets, thus positively affecting sales revenue from foreign markets; however, a weak dollar would also mean higher costs for products manufactured overseas. For example, in FY2008, net dollar sales grew in Europe, Middle East & Africa by 21% in local currency, but when calculated in terms of local currencies, growth was only 12%. [19]
This was a major positive for EL in FY2007 and FY2008, as the dollar has been fallen in value since late 2007 and a domestic recession would keep exchange rates in favor of companies with foreign sales. This can have an opposite effect also, however, as seen in the 2009 fiscal year where a strengthening dollar in respect to the Euro caused EL to see a decrease in income from its European sales. [3]
Competition
EL's brands face substantial competition in the cosmetics industry. Although its professional makeup brands such as M.A.C and Bobbi Brown face little competition due to the specialized clientele that it targets, its all-natural brands face competition from Bare Escentuals, and its most popular mid-end brands such as Estee Lauder face competition from the myriad of products of Revlon, Avon, and Elizabeth Arden. In addition, the cosmetics industry faces challenges from small, private companies with specialized offerings that can also fight for market share. [20]
Major Competitors
L'oreal (LRLCY)
Avon Products (AVP)
Revlon (REV)
Elizabeth Arden (RDEN)
Bare Escentuals (BARE)
FY2008 Comparison of Top EL Competitors (in $millions)
Company Sales Revenue (millions) Sales Growth from FY2008 Operating Margin Net Earnings (millions) Net Profit Margin % of Sales from Overseas (outside N. America)
Estee Lauder Companies (EL) [21] $7,323 (7.4%) 5.7% $226 $3.0% 53%
L'oreal (LRLCY) [22] $24,745 1.5% 15.5% $2,746 11.1% 76%
Avon Products (AVP) [23] $10,328 (2.8%) 9.8% $625 6.0% 78%
Revlon (REV) [24] $1,295 3.8% 13.2% $49 3.8% 42%
Elizabeth Arden (RDEN) [25] $1,070 (6.2%) 1.0% ($6.2) -- 36%
Bare Escentuals (BARE) [26] $557 0.2% 28.5% $98 17.6% 13%
References
In FY2009, EL's sales figures were affected by a poor global retail environment, which resulted in fewer sales of its heritage products as well as adverse currency exchange rates. EL posted decreases in sales throughout all of its product segments seeing its net income drop over 50% in the 2009. [3] Notably, FY2009 saw a strong increase in its Asian markets, with sales increasing 10% from 2008.[3]
However, as EL continues to acquire more brands, especially in its fragrance division, its products face the risk of cannibalization by competing with each other for clients from the same market segment. Competition in the mid to low-end markets also continues to be a challenge for EL.
Business Overview
Contents
1 Business Overview
1.1 Business Segments
1.1.1 Skin Care (41.3% of 2010 Net Sales)
1.1.2 Make Up (38.1% of 2010 Net Sales)
1.1.3 Fragrance (14.6% of 2010 Net Sales)
1.1.4 Hair Care (5.3% of 2010 Net Sales)
1.2 Business and Financial Metrics
1.2.1 Fiscal 2009 Performance
1.2.2 Fiscal 2010 Performance (ended June 30, 2010)
1.2.3 Fiscal Q1 2011 Performance (ended September 30, 2010)
1.2.4 Fiscal Q2 2011 Performance (ended January 31, 2011)
2 Trends and Forces
2.1 Diverse Brand Names Target Different Market Niches
2.2 Spending on Discretionary Items Projected to Recover
2.3 Large Presence in Global Market Exposes EL to Currency Fluctuation Risks
3 Competition
4 References
The Estee Lauder Companies is a manufacturer and retailer of skin care, makeup, fragrance, and hair care products worldwide. EL distributes its products through various channels appropriate for the market position and audience of its different products. These channels include department stores such as Macy's, beauty retailers such as Sephora, perfumeries and pharmacies, beauty salons and spas, and direct-selling through company stores, online websites and TV infomercials. [1]
Business Segments
Skin Care (41.3% of 2010 Net Sales)
This product category includes Moisturizers, creams, lotions, cleansers, sun screens and self-tanning products.[4] EL is currently focusing on high growth segments, such as products to fix visible signs of aging, to increase net sales. In 2009, EL launched Advanced Night Repair Synchronized Recovery Complex, Advanced Night Repair Eye Synchronized Complex, and Hydrationist Maximum Moisture Crème and Lotion, which contributed incremental sales of $247 million combined. Introduction of other skin care products from Clinique and La Mer also contributed $119 million to the increase in net sales. [5]
Make Up (38.1% of 2010 Net Sales)
This product category consists of lipsticks, lip glosses, mascaras, foundations, eye shadows, nail polishes and powders.[4]. In 2009, its net sales increased by 5% to $2.98 billion, which was primarily due to strong growth of $135 million from EL’s makeup artist brands and international sales.[6] EL also identified underperforming stock keeping units in terms of their relevance to their long-term perfumery strategy in the Europe, Middle East, and Africa region. With this evaluation, certain products in perfumeries were discontinued, which led to a $27 million charge from participating retailers due to EL’s returns approval policy.[6]
A breakdown of FY2010 net sales by product category.[6]
A breakdown of FY2010 net sales by region. [6]
Fragrance (14.6% of 2010 Net Sales)
This product category consists of eau de parfum sprays, colognes, lotions, powders, creams and soaps based on particular fragrances.[4] In 2009, net sales decreased 1% to $1.14 billion, which was due to lower sales of certain designer fragrances. Approximately a decrease of $69 million in sales is prominently attributable to fragrances such as DKNY Delicious Night, Estee Lauder Sensuous, Clinique Happy, etc.[6]
Hair Care (5.3% of 2010 Net Sales)
This product category consists of Shampoos, conditioners, styling gels and cremes, hair coloring products and hairsprays.[4] In 2009, net sales increased 3% to $413.9 million, due to an increase in net sales of certain styling and hair color products and sales from expanded distribution outside of the US.[6]
Business and Financial Metrics
EL owns more than 20 skin care and makeup brands as well as a variety of fragrance brands. Its core cosmetics brands include Estee Lauder, Clinique, Prescriptives, Origins, MAC, Bobbi Brown, Darphin, La Mer, and Tom Ford. EL also owns global licenses to market fragrances under brand names such as Tommy Hilfiger, Donna Karan Cosmetics, Sean John Cosmetics, and Aramis. [1]
EL markets its products in 140 countries around the world. Its largest markets are the Americas and Europe, which constituted 82.3% in total revenues in FY2009. [3] EL distributes its various brands through limited channels and places high priority on maintaining its most important retailer relationships. In fact, in FY 2006, 2007, and 2008, EL's primary retailer Macy's accounted for 16%, 14%, and 12% of net sales, respectively. [1] High-end brands such as La Mer and Darphin have very limited distribution channels and are sold only in upscale boutique or department stores, while BeautyBank brands are marketed at more budget-conscious retailers such as Kohl's. [1]
Despite the recession America faced in 2009, the department store sector has not deteriorated much since the beginning of the year. EL gets 29% of its revenue from department store sales and has also seen increased market share in its Clinique brand. EL has also increased Internet and Home Shopping Network sales. However, there is some weakness in the company's travel retail business, which accounts for 20% of profits. Revenue from that segment decreased in the second quarter of fiscal 2009 due to lower international travel.[7]
Fiscal 2009 Performance
Net sales decreased 7.4% to $7.32 billion and net earnings fell 54% to $218.4 million. [3] Skin Care and Makeup products continued to be strongest in sales, together making up 78% of total revenues in FY2009 a 2% increase from the previous fiscal year. [3] However, EL saw sales in all its product categories fall between 3-20%, with fragrance falling 19.6% from FY2008 due to the poor retail climate and decreased sales of its heritage brands. EL believes this to be temporary and that this trend will reverse itself as the retail climate picks up and it introduces newer brands. [3] Sales in Asia/Pacific grew by 10% from FY2008 to FY2009, bolstered by sales in China, Japan, and Hong Kong as well as benefits from favorable exchange rates with the Japanese Yen. Sales growth in Europe, Middle East, and Africa fell by 11/5%, due to decreased retail traffic in the region as well as unfavorable exchange rates due to a stronger US dollar. [3]
Fiscal 2010 Performance (ended June 30, 2010)
Estee Lauder reported net sales of $7.80 billion, a 6% increase compared with $7.32 billion in 2009. Excluding the impact of foreign currency conversion, net sales increased 5% from a year ago. EL generated its largest full-year increase in operating income and operating margin since becoming a public company in 1995. It reported net earnings for the year of $478.3 million, compared with $218.4 million last year. Diluted net earnings per common share rose to $2.38, compared with $1.10 reported in the prior year. [8]
Skin care, makeup, hair care and fragrance all experienced sale increases with skin care reporting the largest increase of 12%. The introductions of new products such as Even Better Clinical Dark Spot Corrector and Youth Surge Night Age Decelerating Night Moisturizer contributed to the sales increase with sales of existing products dropping slightly year over year. [9]
The emerging markets in Asia contributed to the largest sales increase geographically, increasing 16% year over year. Sales in this region had strong growth in each major product category with double-digit gains in skin care and hair care. [10]
In Q1, net Income was $141 million ($0.75 EPS). Compared to Q1 FY09, EL profit increased 275%, as the firm had a $42.3 million restructuring charge in that quarter. [11] Even taking into account the restructuring charge, the company's EPS beat Wall Street estimates, inline with the better-than-expected earnings of its competitors, Elizabeth Arden (RDEN) and Avon Products (AVP).
In Q2, net Income was $256.21 million ($1.28 EPS), an increase of 62% compared to Q2 FY2009. [12] This exceeded the expectations of analysts, who expected $2.24 billion ($1.21 EPS) in income for the period. [12] Net sales increased 11% from the year before, however, to $2.26 billion.[12]
In Q3, net earnings doubled from $27.2 million in Q3 FY 2009 to $57.5 million.[13] Net sales rose 10% to $1.86 billion for the quarter, compared to $1.70 billion in Q3 FY 2009.[13] Increased company sales were driven by strong performance in travel retail and Asia/Pacific groups..[13]
In Q4, EL reported net sales of $1.84 billion, a 9% increase from $1.68 billion in the comparable prior-year period. Excluding the impact of foreign currency translation, net sales increased 8%. On a reported basis, as well as in constant currency, net sales grew in each geographic region. [14]
Fiscal Q1 2011 Performance (ended September 30, 2010)
EL had net sales of $2.09 billion, which is a 14% increase from FY2011 Q1. The company also reported net earnings for the quarter of $191.1 million, which is a 36% increase from the same period last year. These results also included charges associated with restructuring activities of $3.6 million and without these charges, net earnings would come out to $194.4 million, which is a 16% increase from the same period last year.[15] According to Freda, President and CEO, robust sales growth internationally were especially due to the investment of substantial funds in targeted advertising, the company’s high-touch selling model, and the weaker US dollar.[15] All of its product categories posted double digit increases in net sales from the same period last year, except for hair care which had a 4% decrease in net sales. Net sales results by geographic region also had double digit growth, with EL’s Asia/Pacific region leading with a 16% increase from the same period last year. [15]
Fiscal Q2 2011 Performance (ended January 31, 2011)
For the second quarter, EL reported net sales of $2.49 billion, which was a 10% increase compared to the same period from a year ago. Net earnings for the quarter increased 34% from last year to $343.9 million.[16] Earnings per share increased 34% to $1.71, which beat analysts’ estimates of $1.44 per share.[17] EL attributed these strong results to the overall holiday business, especially from the company’s largest brands. Out of its product categories, skin care performed the best with a 14% increase in net sales. In terms of geographic regions, all of the regions had double digit sales growth except for the Americas. The Asia/Pacific region had the highest sales with a 16% increase in sales, while the Americas had a 8% increase in net sales. EL estimates that its earnings per share for the year will be between $3.40 and $3.60 per share.[16]
EL Net Sales and Earnings ($mln) [1]
Metric FY2010 Chg from FY2009 FY2009 Chg from FY2008 FY2008
Net Sales $7,323.8 (7%) $7,911 12.4% $7,037.5
Sales Breakdown by Products
Skin Care $3,227 11.8% $2,886.3 (3.7%) $2997
Make Up $2,978 5.2% $2,830 (5.65%) $3000
Fragrance 1,137 (1.2%) $1,150 (19.63%) $1432
Hair Care $413 2.9% $402.4 (5.78%) $427
Sales Breakdown by Regions
The Americas $3,442 0.6% $3,421.2 (7.82%) $3712
Europe, Middle East & Africa $2,859 9.5% $2,661.2 (11.48%) $3007
Asia/Pacific $1,510 16.2% $1,299.4 8.95% $1193
Net Earnings $478.3 119% $218.4 (54%) $473.8
Trends and Forces
Diverse Brand Names Target Different Market Niches
EL's primary strength lies in the variety of brands that it has acquired in the last two decades, since each brand has its own market niche, brand image, as well as regional appeal. Skin care brands Clinique and Origins appeal to customers that want products with organic, natural, and allergen-free ingredients. Makeup lines M.A.C. and Bobbi Brown target fashion-conscious customers who prefer professional-grade makeup products and tools. In the high-end market, La Mer and Darphin have substantial brand recognition as prestige skin care and makeup brands, while the newly acquired brand BeautyBank, with makeup brands and products such as AmericanBeauty and Flirt, targets more low-end consumers. The popularity of its professional-grade makeup brands and high-end products have helped to offset the hit from the global economic downturn. [1]
Spending on Discretionary Items Projected to Recover
As a member of the discretionary item industry, EL saw sales and income decrease during the poor economic climate of 2009 as consumer confidence and disposable income both decreased dramatically. Coming out of the recession of 2009, EL saw sales almost double in the Q3 of 2010.[18] This increase is in line with many of the discretionary item companies that have seen sales drops during the 2009 recession. A better economic climate and an increase in disposable income will mean that EL will see its prices increase.
Large Presence in Global Market Exposes EL to Currency Fluctuation Risks
Since 53% of EL's sales revenues come from markets outside of the United States, exchange rates play a major role in EL's sales performance. As the firm doesn't engage in any significant hedging activity against exchange rate risk, the final amount of its sales and profits are greatly exposed to fluctuations in the value of the U.S. dollar . weakening of the dollar against foreign currencies would allow AVP products to become more competitively priced in global markets, thus positively affecting sales revenue from foreign markets; however, a weak dollar would also mean higher costs for products manufactured overseas. For example, in FY2008, net dollar sales grew in Europe, Middle East & Africa by 21% in local currency, but when calculated in terms of local currencies, growth was only 12%. [19]
This was a major positive for EL in FY2007 and FY2008, as the dollar has been fallen in value since late 2007 and a domestic recession would keep exchange rates in favor of companies with foreign sales. This can have an opposite effect also, however, as seen in the 2009 fiscal year where a strengthening dollar in respect to the Euro caused EL to see a decrease in income from its European sales. [3]
Competition
EL's brands face substantial competition in the cosmetics industry. Although its professional makeup brands such as M.A.C and Bobbi Brown face little competition due to the specialized clientele that it targets, its all-natural brands face competition from Bare Escentuals, and its most popular mid-end brands such as Estee Lauder face competition from the myriad of products of Revlon, Avon, and Elizabeth Arden. In addition, the cosmetics industry faces challenges from small, private companies with specialized offerings that can also fight for market share. [20]
Major Competitors
L'oreal (LRLCY)
Avon Products (AVP)
Revlon (REV)
Elizabeth Arden (RDEN)
Bare Escentuals (BARE)
FY2008 Comparison of Top EL Competitors (in $millions)
Company Sales Revenue (millions) Sales Growth from FY2008 Operating Margin Net Earnings (millions) Net Profit Margin % of Sales from Overseas (outside N. America)
Estee Lauder Companies (EL) [21] $7,323 (7.4%) 5.7% $226 $3.0% 53%
L'oreal (LRLCY) [22] $24,745 1.5% 15.5% $2,746 11.1% 76%
Avon Products (AVP) [23] $10,328 (2.8%) 9.8% $625 6.0% 78%
Revlon (REV) [24] $1,295 3.8% 13.2% $49 3.8% 42%
Elizabeth Arden (RDEN) [25] $1,070 (6.2%) 1.0% ($6.2) -- 36%
Bare Escentuals (BARE) [26] $557 0.2% 28.5% $98 17.6% 13%
References
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