Founded in 1946 with just 4 cosmetic products, Estee Lauder first began selling its products in overseas markets in the 1960s, commencing with the flagship luxury London retailer Harrods. Since then the corporation has grown its markets across 150 countries. Today, Estee Lauder prides itself on being one of the world’s most prestigious manufacturers of luxury beauty and cosmetic products. What lifts Estee Lauder from the crowd in this sector is not simply the fact that each of its 28 luxury beauty and cosmetic brands has enjoyed continuing success over recent decades. In many ways, what is more significant is the fact that, even during the course of perhaps the most dramatic period of global economic volatility for nearly a century the corporation has, against all the odds, continued to successfully launch new brands. Evidence of this is available from the corporation’s newest brand ‘Tom Ford’ which, since its launch in London in September, has already become a best seller product.
Equally important is the fact that, the results for the corporation’s first quarter of the 2012 fiscal year have shown that double digit growth has been experienced in a significant number of corporation’s Skin Care, Makeup and Hair Care products. Overseas sales have also shown healthy growth over the past twelve months, particular in countries such as China and Korea, with sales in emerging markets growing by 23%.
The financials
The financial returns and data available from the corporation’s historical financial information show that, over the decade ending in 2011, net sales increased from $4.617 to $8.810 billion, an increase of approaching 89%. Net operating income increased from $345.2 million to $1.089 billion, a 215.6% increase. Apart from the 2008-2009 year, when like other manufacturers Estee Lauder’s results were adversely affected by the global financial crisis, revenues have continued to grow each year.
During the past five years, there has been a shift in the segment sales. Whereas in 2007 the domestic market accounted for just over half of the corporation’s total revenue, by 2011 this had fallen to 43%, with Europe, the Middle East and Africa, and Asia, accounting for 37% and 20% respectively. Europe, the Middle East and Africa has also become the most profitable area of the business, now accounting for nearly 57% of operating income, although profits from Asia are increasing exponentially as well.
Stock market performance
Since the depth of the financial crisis when, at the beginning of 2009 Estee Lauder’s share value was at just over 11 cents, this has risen by over 200% to a current high of approaching 59 cents in January 2012. This means that in the past two years the corporation has continued to outperform both its competitors and the S&P 500 index by a considerable margin,
Future Objectives
For the future, Estee Lauder’s strategy is to expand the global sales of its brands to a position where international sales account for at least 60% of total revenue, while at the same time aiming to maintain operating margins at between 14-15%. If these objectives are realised, then it is likely that the results will exceed the performance that has been reported over the past two years, which can only serve to return continued improvement of the business value going forward.
Investment opinion
It follows from the preceding discussion that for investors who have a penchant for the corporate beauty and cosmetic sector that an investment in Estee Lauder at present, subject to the performance of the normal due diligence process, is worthy of attention.