Estée Lauder Companies Inc.’s EL posted robust fourth-quarter fiscal 2016 results, wherein both earnings and revenues beat the Zacks Consensus Estimate.
Adjusted earnings of 43 cents per share beat the Zacks Consensus Estimate and also improved from the prior-year quarter earnings of 40 cents by 9%. Excluding currency impact and accelerated orders, earnings improved 11% year over year to 44 cents.
Revenues and Margins
Estée Lauder’s net sales of $2.65 billion beat the Zacks Consensus Estimate of $2.64 billion by 0.4% and also grew 5% from the prior-year quarter.
Sales grew in each of the geographic regions, except for the Asia Pacific, where it reported flat sales. All the product categories, except for skin care, reported increase in sales.
ESTEE LAUDER Price, Consensus and EPS Surprise
Gross profit increased 5% year over year to $2.14 billion. Gross margin remained flat at 80.7% as improved revenues offset the higher cost of sales. Adjusted operating income rose 7.2% to $244.7 million due to lower operating expenses. Operating margin contracted 10 bps to 9.1%.
Americas: Sales in the Americas inched up 1% year over year driven by growth in most brands. New product introductions and expanded distribution contributed to double-digit gains. Sales were negatively impacted by a decline in retail traffic in the United States, primarily mid-tier department stores. This significantly affected Estée Lauder and Clinique as well as certain M•A•C freestanding stores due to a decrease in tourism. Net sales were negatively impacted by a decline in retail traffic in the United States, primarily related to mid-tier department stores.
Europe, the Middle East & Africa: Sales increased 9% year over year as the company continued to outperform prestige beauty industry in most markets in the region. In travel retail, net sales increased on new launch initiatives, global airline passenger traffic growth and expanded distribution. However, foreign currency impacted sales by 7%, with the United Kingdom, Russia, South Africa, and Germany bein the worst hit.
Asia/Pacific: Sales in the region remained flat at $2.2 billion but increased 5% on a constant currency basis.
Adjusted earnings of $3.20 per share beat the Zacks Consensus Estimate of $3.16 by 1.26% and increased from the prior-year quarter of $3.05 by 4.2%. Estée Lauder’s net sales of $11.26 billion were in line with the Zacks Consensus Estimate and also grew 4% from the prior-year quarter.
Fiscal 2017 Guidance
Estée Lauder expects continued growth opportunities in the global prestige beauty category, which is expected to grow 4–5% during the year. However, volatility and economic challenges are slowing the pace of market growth in Hong Kong, France and several emerging markets.
For fiscal 2016, Estée Lauder maintained net sales growth projection at 6–7% on a constant currency basis. Foreign currency is expected to impact sales negatively by 1%.
The company expects adjusted earnings in the range of $3.38–$3.44. per share for fiscal 2017. On a constant currency basis and after adjusting for the effect of accelerated retailer orders, earnings are expected to grow 8–10%.
Estee Lauder has a Zacks Rank #3 (Hold).
Stocks to Consider
Some better-ranked stocks in the cosmetics sector include Nu Skin Enterprises Inc. NUS and Coty Inc. COTY with a Zacks Rank #1 (Strong Buy). Another stock in the same sector worth considering is Elizabeth Arden Inc. RDEN with a Zacks Rank #2.
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ELIZABETH ARDEN (RDEN): Free Stock Analysis Report
NU SKIN ENTERP (NUS): Free Stock Analysis Report
ESTEE LAUDER (EL): Free Stock Analysis Report
COTY INC-A (COTY): Free Stock Analysis Report
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