Estee Lauder's New Indie Brands Spark Brighter Sales Outlook

(Bloomberg) -- Estee Lauder Cos., the seven-decade-old cosmetics company, is getting a payoff from its push to acquire hipper brands and expand its e-commerce business.

The shares jumped as much as 8.1 percent on Friday, the most since November 2015, after the beauty company forecast annual profit that exceeded Wall Street expectations. Beyond the boost from its new brands, Estee Lauder also cited strength from duty free stores, China and specialty shops such as Ulta Beauty Inc.

The rosier forecast reflects the company’s move to acquire smaller brands such as Too Faced and Becca Cosmetics and meet younger shoppers’ growing demand for niche products, according to Chief Executive Officer Fabrizio Freda. He also cited healthy sales at the direct-to-consumer online website and at other companies’ e-commerce stores.

“We expect the great momentum we built throughout the past year to continue in fiscal 2018,” Freda said in a statement released early Friday, adding that the company is “well-positioned to deliver strong profitable growth.”

Estee Lauder’s forecast for adjusted profit in a range of $3.87 to $3.94 a share in fiscal 2018 tops the average projection of $3.78 from analysts, while sales are expected to increase 8 percent to 9 percent. Estee Lauder will target sales growth of 6 percent to 8 percent and double-digit profit expansion for the next three years.

Estee Lauder shares rose to as high as $106.30 in New York trading. The stock had gained 29 percent this year through Thursday’s close.

Department Stores

Its fourth-quarter profit of 51 cents a share beat the 43-cent projection from analysts, while sales of $2.89 billion were slightly above the consensus forecast of $2.86 billion.

In a conference call with investors, Freda said the company is carefully watching the performance of department stores, which make up 17 percent of Estee Lauder’s global sales. Poor results at chains such as Macy’s Inc. and J.C. Penney Co. have sparked investor fears that the industry’s woes are part of a prolonged slump as consumers shift spending and shopping habits.

To cope with the declining sales at the department stores, the company has put more focus on developing other fast-growing sales channels, including online, travel retail and specialty stores. Growth in these areas exceeded 20 percent.

“Estee Lauder’s superior sales growth is testament to a model which is ahead of many of its peers in having diversified away from high U.S. department-store dependency,” said Bloomberg Intelligence analyst Deborah Aitken. She expects the strategy will allow the company to even further reduce its reliance on department stores as the fiscal year progresses.

The company has no plans to sell its products on Amazon.com at least in fiscal 2018 as it focuses on higher-end distribution channels, Freda said.

Web Presence

Estee Lauder’s e-commerce business represented 11 percent of the company’s total sales, up from 4 percent five years ago.

The company, which now has 700 websites in 39 countries, is betting local employees can help set up sales plans and marketing events to win domestic shoppers, said Dennis McEniry, who oversees the company’s online business.

The company’s sales teams “speak the local languages and know the consumer and the social trends,” he said in an interview. “Consumers seem to react to that the best.”

To contact the reporter on this story: Stephanie Wong in New York at swong139@bloomberg.net.

To contact the editors responsible for this story: Nick Turner at nturner7@bloomberg.net, Jonathan Roeder