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From December 1, 1995 to September 6, 2019 Estee Lauder stock returned roughly 2633% versus the S&P 500 return of roughly 392% or about 6x the return of “the market”. Beauty & vanity matters.

COMPANY PROFILE

The Estée Lauder Companies Inc. is one of the world’s leading manufacturers and marketers of quality skin care, makeup, fragrance and hair care products. The Company’s products aresold in approximately 150 countries and territories under brand names including: EstéeLauder, Aramis, Clinique, Prescriptives, Lab Series, Origins, Tommy Hilfiger, M•A•C,Kiton, La Mer, Bobbi Brown, Donna Karan New York, DKNY, Aveda, Jo Malone London, Bumble and bumble, Michael Kors, Darphin, Tom Ford, Smashbox, Ermenegildo Zegna, AERIN, Tory Burch, RODIN olio lusso, Le Labo, Editions de Parfums Frédéric Malle, GLAMGLOW, By Kilian, BECCA and Too Faced.

 

Recent Earnings

Prestige beauty continues to be one of the most desirable consumer sectors. As the best diversified pure play in the industry, we are uniquely positioned to capture global share. In fiscal 2020, we plan to continue to invest in the most compelling opportunities, including those in emerging markets beyond China. We expect another year of strong net sales growth, margin improvement and a double-digit increase in earnings per share.
— Fabrizio Freda, President and CEO
  • For the year, sales grew 12% to $14.86 billion

  • EPS climbed 21%, our second consecutive year of EPS growth over 20%

  • Direct-to-consumer business accelerated. Sales from new product innovation reached an all-time high.

  • Our digital marketing and social media divisions were highly effective.

  • Our sales growth was supported by more than $380 million of cost savings.

  • Our strategy of serving the growing middle class in many emerging markets with locally relevant products was highly successful. Sales rose in virtually all our emerging markets worldwide, led by China, India, the Middle East including Turkey, and Southeast Asia countries and as a group, they grew over 30%. Our growth in China was outstanding. 

  • Our online sales rose significantly in China and we introduced our Tom Ford Beauty and Jo Malone London brands on Tmall. Tom Ford was our biggest launch to date on the platform.

  • Our brand sites have become valuable media properties. They collectively attracted this year more than 400 million visits, allowing our brands to engage with consumers.

  • With our strong cash position and financial success, we raised the dividends by double digit for the 10th consecutive year.

  • Our share of global prestige beauty reached 15.3%, up 2.3 points, making us the clear global leader.

  • Our total shareholder return topped 1,100%. Total cash returned to stakeholders exceeded $10.5 billion, and cash flow from operations skyrocketed from $700 million to $2.5 billion.

  • Our overarching goal is to reach diverse global consumers of all ages and reinforce our connection with loyal users.

  • For the year, net sales are forecasted to grow 7% to 8% in constant currency at the upper end of our long-term goal of 6% to 8%. Pricing is expected to contribute approximately 2 points to growth, expanded targeted consumer reach is expected to add 2 to 3 points of growth and the strength of our existing business will account for the remainder.

 

Opinion

From a factor scoring perspective versus the other 199 brands in the brands index, here’s where Estee Lauder scores well as of 9/17/19:

  • 90% high margins versus industry peers

  • 87% high Return of invested capital (ROIC)

  • 84% high ROIC over weighted cost of capital (WACC)

  • 83% strong price momentum

  • 83% high ROE

  • 86% low debt to enterprise value

Can you think of anything more predictable than global vanity? The global beauty market is about $110B per year and Estee Lauder has plenty of growth in front of it, particularly in China and Asia. The company has embraced digital and it’s paying off huge. The latest quarter beat expectations and raised guidance and cited China growth as their biggest opportunity and where the strongest momentum is. I love investing in brands that serve multiple demographic groups, multiple geographies with multiple skews and that have high frequencies of repeat business from loyal customers. The stock is not cheap currently but as long as the growth continues, the multiple can expand and the stock can keep rising while growing into its valuation. There has been some softening in the cosmetics industry so any dips on this one are a screaming buy in my humble opinion. Global vanity is a significant secular theme that warrants exposure in a portfolio, particularly given the enormous global millennial and Gen-Z population.