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The Estee Lauder Companies Inc Class A EL

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Morningstar’s Analysis

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Wide-Moat Estee Lauder Is Competently Navigating Pandemic Disruption, but Valuation Is Not Pretty

Analyst Note

| Rebecca Scheuneman, CFA |

Despite many COVID-19-related store closures across continental Europe, Latin America, and Asia throughout Estee Lauder’s September-ended first fiscal quarter, the firm reported 18% organic constant currency sales growth, or 16.5% excluding second-quarter shipments that were pulled forward, handily beating our 12% estimate. While we don’t expect double-digit growth to persist, as the pace was boosted by an easy comparison, demand for Estee’s products remain robust, with organic first-quarter sales 7% ahead of the same period two years prior. All product categories were ahead of prepandemic levels except makeup, which remains 19% depressed, given ongoing mask mandates. We expect Estee’s cosmetics business will fully recover in time as COVID-19 restrictions continue to ease and the firm rolls out a robust pipeline of innovations, backed with solid marketing investments (we forecast 23% of sales in fiscal 2022), continuing to support the firm’s strong brand intangible assets, which serves as the foundation of Estee’s wide moat.

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Company Profile

Business Description

Estee Lauder is the world leader in the global prestige beauty market, participating across skincare (58% of fiscal 2021 sales), makeup (26%), fragrance (12%), and haircare (4%) categories, with popular brands such as Estee Lauder, Clinique, MAC, La Mer, Jo Malone, Aveda, Bobbi Brown, Too Faced, Origins, Dr. Jart+, and The Ordinary. The firm operates in 150 countries, with 23% of fiscal 2021 revenue stemming from the Americas, 43% from Europe, the Middle East and Africa, and 34% from Asia-Pacific. The company sells its products through department stores, travel retail, multibrand specialty beauty stores, brand-dedicated freestanding stores, e-commerce, salons/spas, and perfumeries.

767 Fifth Avenue
New York, NY, 10153
T +1 212 572-4200
Sector Consumer Defensive
Industry Household & Personal Products
Most Recent Earnings Sep 30, 2021
Fiscal Year End Jun 30, 2022
Stock Type Classic Growth
Employees 62,000