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Estée Lauder’s Gains in the Hair Care Business

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Hair care business overview

Estée Lauder (EL) is a multinational beauty and cosmetics company. Its hair care products include shampoos, conditioners, styling products, treatments, finishing sprays, and hair color products. EL offers these products mainly in prestige salons, specialty multi-brand retailers, and department stores. Origins, Aveda, and Bumble and bumble are some of its hair care brands.

Estée Lauder’s hair care products accounted for 4.7% of its total net sales, or $0.5 billion, in fiscal year 2014[1. Year ended on June 30, 2014]. This was the lowest among all product categories. The segment’s operating income was reported at $0.03 billion, contributing 1.8% to the total operating profit of the company.

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Explaining EL’s increase in operating profit

Operating profit increased 26% in fiscal year 2014. The increase in operating profit was due to continued success and growth of the Invati line of products and the new and reformulated Dry Remedy line of products from Aveda. Also, the strategic exit of Ojan products from the direct response television, or DRTV, channel resulted in a reduction in spending and higher operating income.

In addition to these products, EL sells ancillary products and services that contributed 0.4% of its total net sales for fiscal year 2014. The net sales were stable at 6% in fiscal 2014 on a constant currency basis compared to fiscal 2013. This was due to EL’s limited focus on the haircare product portfolio compared to skincare and makeup.

Efforts to expand hair care

The hair care products of EL’s competitors L’Oréal (LRLCY), Procter & Gamble (PG), and Unilever (UL) are available in large format retail stores as well as in beauty salons, depending on the brand. EL focuses on the expansion of hair care products both in salons and in other retail (XRT) channels. Its Aveda brand manufactures innovative plant-based hair care products. This helps to attract customers and adds brand value to Estée Lauder.

EL has exposure in the iShares Core S&P 500 ETF (IVV) with 0.1%[2. Updated July 29, 2015] of the total weight of the portfolio.

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