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Estée Lauder’s Unexpected Pivot: Can China’s Reopening Fuel a Turnaround Amid Softening Demand?

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  • Estée Lauder’s fiscal year 2023: Challenges due to COVID-19, yet strategic initiatives and brand diversity pave the path for success.
  • Resilience seen across product segments and geographies despite net sales decline; brands like M·A·C, Bobbi Brown Cosmetics, and The Ordinary counterbalance.
  • Long-term vision focuses on global prestige beauty growth, adaptable strategies, and strong distribution network for emerging opportunities.

The Estée Lauder Companies Inc. (NYSE: EL) has faced challenges in the fiscal year ending June 30, 2023, due to the COVID-19 pandemic. Despite this, the company’s strategic initiatives, diverse beauty brand portfolio, and sustainability focus position it for long-term success.

Resilience Across Product Categories and Geographies

Estée Lauder demonstrated resilience in emerging markets and Fragrance segments, even with a decline in net sales, particularly in skincare and makeup categories. Notable growths in brands like M·A·C, Bobbi Brown Cosmetics, and The Ordinary helped offset the decline. Makeup remained steady, with growth in M·A·C and Clinique. Fragrance saw an increase, driven by strong growth in TOM FORD, Estée Lauder, and Le Labo.

Product Category 2023 Sales ($M) 2022 Sales ($M) % Change
Skin Care $8,202 $9,886 -17.01%
Makeup $4,516 $4,667 -3.23%
Fragrance $2,512 $2,508 0.16%
Hair Care $653 $631 3.49%
Other $54 $49 10.20%
Total $15,937 $17,741 -10.19%


Geographic Insights and Recovery Strategies

While the Americas region experienced challenges, Latin America displayed robust growth, especially in Brazil. EMEA faced a drop due to Asia travel retail challenges, but developed markets like the United Kingdom, France, Germany, Spain, and Italy exhibited increases. Emerging markets, particularly India, demonstrated double-digit growth. Asia/Pacific grew steadily, notably in Hong Kong SAR, Macau SAR, mainland China, Australia, and Japan.

Region 2023 Sales ($M) 2022 Sales ($M) % Change
The Americas $4,518 $4,623 -2.27%
Europe, Middle East & Africa $6,225 $7,681 -18.96%
Asia/Pacific $5,194 $5,437 -4.47%
Total $15,937 $17,741 -10.19%


Long-Term Vision and Adaptability

Estée Lauder remains confident in the attractiveness of the global prestige beauty market, expecting it to grow at a CAGR of 6% from 2023 to 2027. The company’s strategy focuses on building strengths, addressing challenges, and accelerating profit recovery. With a diversified portfolio of brands and a focus on sustainability, Estée Lauder is well-positioned to capitalize on emerging opportunities.

Strong Distribution Network and Innovation

The company’s diverse distribution network, encompassing digital and physical touchpoints, supports its upscale image and global reach. The digital channel and partnerships with authorized online retailers play a crucial role. Estée Lauder’s presence in key locations and strong sales teams further bolster its distribution strategy.

Valuation Multiples of EL : A Compelling Investment Opportunity

Valuation Ratios Current 2024 2025 2026
EV/ Sales 3.36 4.34 5.03 4.54
EV/ EBITDA 22.26 22.61 23.18 19.24
EV/ EBIT 29.64 29.36 28.82 23.15
Price/Earnings 53.19 39.96 37.64 28.06

Analyzing the provided valuation multiples, the stock currently priced at $159.33 appears to merit a buy rating with a target price of $195. The projected EV/Sales ratios indicate a consistent growth trend, possibly reflecting increasing revenue expectations. The relatively stable EV/EBITDA and EV/EBIT ratios suggest consistent operational performance over the forecast period. Furthermore, the declining Price/Earnings ratio implies a potential improvement in earnings efficiency. It is , however, necessary to conduct a thorough assessment considering industry trends and specific company factors prior to finalizing an investment decision.

Disclosure: We don’t hold any position in the stock.

Contributor: Equisights Team


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