The Estée Lauder Companies Inc. (EL) - Catching a Falling Knife Trade or 10x for Future
EL plummeted 26% on Thursday after the cosmetics giant reported a revenue miss posted revenue of $3.36 billion in the period, missing Street forecasts, reported a loss of $156 million in its fiscal first quarter and withdrew its fiscal 2025 outlook amid ongoing challenges in Global especially business in China and travel retail.
Fundamentals: Strong Brand Portfolio and Global Presence: Estee Lauder owns a diversified portfolio of premium brands, including MAC, Clinique, and La Mer, which have strong recognition and customer loyalty globally. Its presence in high-growth regions, like Asia-Pacific, gives it a robust international foothold to leverage in emerging markets and adapt to shifting demographics and beauty trends. Focus on Digital Transformation: The company has been investing in digital channels, e-commerce, and data-driven personalization, allowing it to cater directly to consumers with personalized products and marketing strategies. This shift has enabled them to capture a growing share of online beauty sales, which is expected to continue expanding post-pandemic. Exposure to Slowing Luxury Demand: As a luxury brand, Estee Lauder is vulnerable to economic downturns, particularly in the U.S. and Europe. If global economies slow further, discretionary spending on high-end cosmetics could drop, affecting sales and profitability in key markets. Supply Chain and Cost Pressures: Rising costs for raw materials and logistics have impacted Estee Lauder’s operating margins, and the ongoing cost inflation could continue to affect profit margins. Persistent supply chain disruptions also pose risks to product availability and lead times, potentially impacting customer satisfaction and revenue growth.
Declining Dividend: EL reducing its dividend which affords more financial flexibility for the incoming leadership team to reaccelerate the profitable growth trajectory.
Change of management: Stéphane de La Faverie will be EL New President and Chief Executive Officer, effective January 1, 2025.
Outlook: For the second quarter, the company’s reported and organic net sales are forecasted to decrease between 8% and 6% versus the prior-year period.
Through Wednesday’s close, Estée Lauder stock has declined 70% from its record closing high of $374 on Jan 2022, according to Dow Jones Market Data. The stock is down 70% since the day it joined the S&P 500, which is the worst performance over the past three years.
Conclusion: This mix of positives and challenges could position Estee Lauder well for long-term growth but requires navigating through some short-term pressures.
These are my personal opinions not Financial advice and I do not hold shares in EL
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Modify on 2024-11-01 00:00
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