Asia Demand Drives Estée Lauder’s Global Performance

Powered by Asia-Pacific demand (and Mainland China in particular), The Estée Lauder Companies Inc. (NYSE: EL) reported net sales of $4.85 billion for its second quarter ending December 31, 2020, which was an increase of 5 percent on a reported basis and 3 percent in constant currency, up from $4.62 billion in the same period last year. The company returned to growth in the quarter earlier than expected, which President and CEO Fabrizio Freda attributed to “multiple engines of growth strategy.”

Better-than-expected e-commerce and travel retail sales in Asia were offset by lower foot traffic and temporary retail store closures (Mainland China and South Korea performed particularly well for Estée Lauder.) The company reported growth among ten of its portfolio brands, led by Estée Lauder and La Mer. It attributed this to a successful combination of technology, data, and its beauty advisors, with their ability to “deliver high-touch services that enrich the online shopping experience.” The brand added that it expects to deliver sequentially-improving sales growth each quarter for the remainder of the 2021 fiscal year.

In terms of the continued impact of the COVID-19 pandemic on the company’s operating environment, Estée Lauder noted that it had temporarily impacted retail traffic and “certain consumer preferences” along with renewed government restrictions as a result of a resurgence of COVID-19 cases later in the second quarter. However, the company noted that most brick-and-mortar retail stores selling Estée Lauder portfolio brand products were open in the second quarter despite an overall decrease in foot traffic.

An area of particular concern for the company will undoubtedly be the continued curtailing of international travel, which has trimmed sales in key tourist destinations, particularly those popular with Chinese tourist-shoppers. The company still recorded a single-digit rise in travel retail net sales, mostly due to travel within the Asia/Pacific region.

The aforementioned changing consumer preferences were reflected in the company’s second-quarter results via indications that demand for makeup remains tepid compared to skincare, fragrances, and hair care products, which are more quarantine-proof. Continued demand for skincare, in particular, drove double-digit growth for Estée Lauder and La Mer.

Meanwhile, portfolio fragrance brands Le Labo and Editions de Parfums Frédéric Malle saw double-digit total net sales growth, and increases were also recorded for Jo Malone London and Tom Ford Beauty. Without a doubt, Estée Lauder benefited in the second quarter from the continued fragrance craze sweeping China. Home fragrances — traditionally a hard sell in China — have seen a jump in demand over the past year as a byproduct of the “homebody lifestyle” movement that gained critical mass in early 2020 and was promoted by popular homebody and single living-centric programs like iQiyi’s “I Want to Live Like This” (我要这样生活), Youku’s “Not a Loner” (看我的生活), and Tencent Video’s “Make Life Beautiful” (让生活好看).

But overall, the brands to watch in the Estée Lauder portfolio during the second quarter were Estée Lauder (the top-selling beauty brand on Tmall’s 11.11 Global Shopping Festival), La Mer (which was the top-selling luxury beauty brand on Tmall’s 11.11 Global Shopping Festival), and Dr. Jart+, a brand the company acquired in December of 2019 that contributed roughly seven percent to skincare net sales growth.

As Freda said of the company’s results, “Our performance this quarter gives us confidence, as we delivered strong sales and earnings growth amid the pandemic while living our company values and investing in technology for new capabilities to support accelerating growth drivers.”

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