Estée Lauder's bright holiday-quarter forecast boosts shares

Estée Lauder’s stock hit a record high after the cosmetics maker forecast holiday-quarter sales ahead of market expectations on Wednesday, banking on demand for its recently acquired makeup brands that are popular with millennials.


Estée Lauder


The strong forecast followed better-than-expected sales and profit in the first quarter ended September. Lauder, the second-largest cosmetics company in the world, has been growing through acquisitions such as those of Too Faced and BECCA Cosmetics, aimed at attracting millennials.

The 72-year old company has also signed up social media influencers and celebrities such as Kendall Jenner, and popular YouTube vloggers to promote its products.

The company expects second-quarter sales of $3.63 billion to $3.69 billion, ahead of analysts’ average estimate of $3.56 billion. Sales in the first quarter rose 14.2 percent to $3.27 billion. The shares jumped nearly 12 percent to $124.75 in morning trading on Wednesday.

Too Faced and BECCA Cosmetics added about 4 percentage points to sales growth in the first quarter, it said.

These acquisitions, and demand from Hong Kong, France and China contributed to the company’s first-quarter performance, RBC Capital Markets analyst Nik Modi said in a pre-earnings client note.

Business for makeup companies such as Lauder is booming in Asia Pacific, especially China, as more people travel and visit duty-free stores at airports and beauty retailers such as ULTA Beauty.

Sales in the company’s Europe, Middle East and Africa (EMEA) business surged 20 percent in the first quarter. Asia Pacific sales climbed 16 percent.

It expects its Asia business to benefit from the recent launch of MAC cosmetics on Lazada, an online platform owned by Alibaba, the company said on a post-earnings call.

“We plan to invest more in China and other emerging markets this fiscal year to further awareness and demand for our brands,” Chief Executive Fabrizio Freda said on the call. Lauder’s travel-retail business is expected to remain robust this year, he said.

Sales in the makeup business rose about 18 percent to $1.37 billion. The business accounts for nearly half of the company’s total sales, which also includes revenue from skincare products and perfumes.

Excluding certain items, it earned $1.21 per share, beating analysts’ average estimate of 97 cents per share, according to Thomson Reuters I/B/E/S.

For fiscal year 2018, the firm expects an adjusted profit of $4.04 to $4.12 per share. It had previously forecast an adjusted profit of $3.87 to $3.94 per share.
 

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