Beauty company Estée Lauder delivered better-than-anticipated results for the first quarter of fiscal 2021 (ended Sept. 30) even as the pandemic continued to hurt the sales of its makeup products. Shares of Estée Lauder, which owns popular brands like Tommy Hilfiger, M·A·C and Clinique, rose 1.9% on Monday in reaction to the results.
Estée Lauder’s (EL) 1Q FY21 sales declined 8.5% to $3.56 billion as a 10% gain in the Skin Care division was offset by a 32% and 12% drop in the company’s Makeup and Fragrance businesses. However, the company exceeded analysts’ sales forecast of $3.46 billion. Also, 1Q adjusted EPS declined about 14% year-over-year to $1.44 but easily surpassed analysts’ estimate of $0.90.
Meanwhile, within the Skin Care division, the company’s namesake Estée Lauder brand and La Mer brand experienced robust demand. Sales from Asia-Pacific grew 9% in 1Q mainly due to strength in China and South Korea, while sales from the Americas and Europe, the Middle East & Africa declined 25% and 8%, respectively. Estée Lauder also experienced strong online sales during the quarter while traffic in the reopened stores continued to be weak due to COVID-19. (See EL stock analysis on TipRanks)
For 2Q FY21, the company expects its sales to decline by 3%-5% year-over-year. It guided for adjusted EPS of between $1.45 and $1.60. Estée Lauder did not provide any guidance for the full-year FY21 given the uncertainty associated with COVID-19. The company will also continue to pay out its quarterly dividend, with its dividend yield landing at 0.8%.
Following the earnings release, Berenberg Bank analyst Fulvio Cazzol raised his price target for Estée Lauder stock to $259 from $244 and reiterated a Buy rating. He opined, “The solid performance across EL’s strategic priorities, which include skin care (up 4% year-over-year on a lfl basis), Asia-Pacific (up 7%) and e-commerce (up 40%), is encouraging, but a recovery in make-up (-32%) and further improvement in fragrances (-13%) may still depend on how quickly consumer habits return to ‘normal’.”
“While this may be somewhat outside of management’s control, we are pleased that management continues to invest for growth (innovations accounted for 30% of group sales in Q1 FY 2021, versus the 20-25% levels in previous quarters), which have supported market share growth, particularly in China where EL’s growth of c30% was well above the market’s 20%,” added Cazzol.
The Street is cautiously optimistic about Estée Lauder. A Moderate Buy analyst consensus for the stock is based on 11 Buys, 3 Holds and 1 Sell. With shares rising 8.4% year-to-date, the average analyst price target of $232.86 implies a modest upside potential of 4% in the coming months.
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