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Estee Lauder (EL) on Track With Profit Recovery Amid Hurdles
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The Estee Lauder Companies Inc. (EL - Free Report) is capitalizing on its sturdy presence in emerging markets, where demand appears to be growing. The company boasts a strong online business. This beauty company’s Profit Recovery Plan shows encouraging prospects. However, Estee Lauder continues to operate in a challenging macroeconomic environment.
Let’s discuss this in detail.
Solid Presence in Emerging Markets
Estee Lauder has a strong presence in emerging markets, where demand appears to be growing. It generates significant revenues from emerging markets like Thailand, India, Russia and Brazil, which encourages it to make distributional, digital and marketing investments in these countries.
The company has also been building infrastructure across emerging regions that help in generating continued growth. As a result, the company is well insulated from macroeconomic headwinds in developed nations. In its last earnings call, management highlighted that strong double-digit growth in Mexico, Brazil and India during third-quarter fiscal 2024 boosted performance in emerging markets year to date.
Image Source: Zacks Investment Research
Online Business Shows Promise
EL boasts a strong online business. It is implementing new technology and digital experiences, including online booking for each store appointment, omnichannel loyalty programs and high-touch mobile services. These initiatives and its digital-first mindset have been aiding Estee Lauder’s online sales. The company is expanding its omnichannel capabilities to aid flexible and convenient shopping options for consumers.
In its last earnings call, management highlighted that it is strategically integrating AI across its global brands to enhance traditional strengths and elevate customer experiences. The company’s collaboration with leading technology firms is focused on leveraging AI to accelerate market responsiveness and deliver tailored media targeting solutions at scale.
Rebuilding Profitability
The Zacks Rank #3 (Hold) company commenced the implementation of its Profit Recovery Plan for the fiscal 2025 and 2026 (announced in Nov 2023) aimed at fortifying profitability, fostering accelerated sales growth and enhancing operational agility. This plan is tailored to enhance gross margins, streamline costs and diminish overhead expenses while amplifying investments in pivotal consumer-facing endeavors.
The company is optimistic about the long-term potential within the global prestige beauty sector. Additionally, management is confident in its ability to strategically position itself to achieve more diversified growth across its portfolio. The company streamlined its innovation pipeline for the fiscal 2025 and 2026, prioritizing trend-setting products.
What’s Hurting Estee Lauder?
Estee Lauder continues to operate in a challenging macroeconomic environment and geopolitical tensions across certain parts of the world. The company is exposed to the dangers of unfavorable currency headwinds. Considering macroeconomic challenges — including softness in overall prestige beauty in mainland China and geopolitical volatility in certain regions — management offered a drab view for the fiscal 2024.
For the fiscal 2024, management projects a net sales decline of 2-3%. Organic net sales are anticipated to decline 1-2% in the fiscal 2024. The annual operating margin is likely to be between 9% and 9.5%, suggesting a contraction from the previous year's margin of 11.4%. Adjusted earnings per share (EPS) are expected in the band of $2.14-$2.24, suggesting a decline from $3.46 reported in the fiscal 2023.
EL’s shares have slumped 26.7% in the past three months compared with the industry’s decline of 16.7%.
The Zacks Consensus Estimate for Vital Farms’ current financial-year sales and earnings indicates growth of 22.6% and 62.7%, respectively, from year-ago reported numbers.
Freshpet, Inc. (FRPT - Free Report) , a pet food company, has a trailing four-quarter earnings surprise of 118.2%, on average. FRPT currently sports a Zacks Rank #1.
The Zacks Consensus Estimate for Freshpet’s current financial-year sales and earnings indicates growth of 24.8% and 177.1%, respectively, from the prior-year reported level.
Utz Brands Inc. (UTZ - Free Report) , which manufactures a diverse range of salty snacks, currently carries a Zacks Rank #2 (Buy). UTZ has a trailing four-quarter earnings surprise of 2%, on average.
The consensus estimate for Utz Brands’ current financial-year earnings indicates growth of 26.3% from year-ago reported numbers.
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Estee Lauder (EL) on Track With Profit Recovery Amid Hurdles
The Estee Lauder Companies Inc. (EL - Free Report) is capitalizing on its sturdy presence in emerging markets, where demand appears to be growing. The company boasts a strong online business. This beauty company’s Profit Recovery Plan shows encouraging prospects. However, Estee Lauder continues to operate in a challenging macroeconomic environment.
Let’s discuss this in detail.
Solid Presence in Emerging Markets
Estee Lauder has a strong presence in emerging markets, where demand appears to be growing. It generates significant revenues from emerging markets like Thailand, India, Russia and Brazil, which encourages it to make distributional, digital and marketing investments in these countries.
The company has also been building infrastructure across emerging regions that help in generating continued growth. As a result, the company is well insulated from macroeconomic headwinds in developed nations. In its last earnings call, management highlighted that strong double-digit growth in Mexico, Brazil and India during third-quarter fiscal 2024 boosted performance in emerging markets year to date.
Image Source: Zacks Investment Research
Online Business Shows Promise
EL boasts a strong online business. It is implementing new technology and digital experiences, including online booking for each store appointment, omnichannel loyalty programs and high-touch mobile services. These initiatives and its digital-first mindset have been aiding Estee Lauder’s online sales. The company is expanding its omnichannel capabilities to aid flexible and convenient shopping options for consumers.
In its last earnings call, management highlighted that it is strategically integrating AI across its global brands to enhance traditional strengths and elevate customer experiences. The company’s collaboration with leading technology firms is focused on leveraging AI to accelerate market responsiveness and deliver tailored media targeting solutions at scale.
Rebuilding Profitability
The Zacks Rank #3 (Hold) company commenced the implementation of its Profit Recovery Plan for the fiscal 2025 and 2026 (announced in Nov 2023) aimed at fortifying profitability, fostering accelerated sales growth and enhancing operational agility. This plan is tailored to enhance gross margins, streamline costs and diminish overhead expenses while amplifying investments in pivotal consumer-facing endeavors.
The company is optimistic about the long-term potential within the global prestige beauty sector. Additionally, management is confident in its ability to strategically position itself to achieve more diversified growth across its portfolio. The company streamlined its innovation pipeline for the fiscal 2025 and 2026, prioritizing trend-setting products.
What’s Hurting Estee Lauder?
Estee Lauder continues to operate in a challenging macroeconomic environment and geopolitical tensions across certain parts of the world. The company is exposed to the dangers of unfavorable currency headwinds. Considering macroeconomic challenges — including softness in overall prestige beauty in mainland China and geopolitical volatility in certain regions — management offered a drab view for the fiscal 2024.
For the fiscal 2024, management projects a net sales decline of 2-3%. Organic net sales are anticipated to decline 1-2% in the fiscal 2024. The annual operating margin is likely to be between 9% and 9.5%, suggesting a contraction from the previous year's margin of 11.4%. Adjusted earnings per share (EPS) are expected in the band of $2.14-$2.24, suggesting a decline from $3.46 reported in the fiscal 2023.
EL’s shares have slumped 26.7% in the past three months compared with the industry’s decline of 16.7%.
Key Staple Picks
Vital Farms Inc. (VITL - Free Report) offers a range of produced pasture-raised foods. It currently sports a Zacks Rank #1 (Strong Buy). VITL has a trailing four-quarter average earnings surprise of 102.1%. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Vital Farms’ current financial-year sales and earnings indicates growth of 22.6% and 62.7%, respectively, from year-ago reported numbers.
Freshpet, Inc. (FRPT - Free Report) , a pet food company, has a trailing four-quarter earnings surprise of 118.2%, on average. FRPT currently sports a Zacks Rank #1.
The Zacks Consensus Estimate for Freshpet’s current financial-year sales and earnings indicates growth of 24.8% and 177.1%, respectively, from the prior-year reported level.
Utz Brands Inc. (UTZ - Free Report) , which manufactures a diverse range of salty snacks, currently carries a Zacks Rank #2 (Buy). UTZ has a trailing four-quarter earnings surprise of 2%, on average.
The consensus estimate for Utz Brands’ current financial-year earnings indicates growth of 26.3% from year-ago reported numbers.