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Estée Lauder’s Skincare Segment: Disappointing Results for 4Q15

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Sep. 1 2015, Published 9:30 a.m. ET

An overview of Estée Lauder’s segments

The Estée Lauder Companies (EL) operates under the following four reportable segments:

  1. Skincare
  2. Makeup
  3. Fragrance
  4. Hair Care

As we’ve already seen, net sales were up for all product segments except skincare in constant-currency terms. Net sales decreased 16% to $1.0 billion for skincare in 4Q15, compared to $1.2 billion in 4Q14. However, sales decreased 9% in reported terms and 2% in constant-currency terms in 4Q15.

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Why did sales in the skincare segment go down?

Estée Lauder’s skincare sales fell primarily due to the negative impact of foreign currencies and lower sales of significant Estée Lauder and Clinique serums and moisturizers that were launched the year before. However, recent launches such as Estée Lauder’s Re-Nutriv Ultimate Diamond products and Clinique Smart Custom-Repair Serum kept sales from dropping too low. Incremental sales from the recent acquisition of GLAMGLOW also helped grow the popularity of subcategories such as masks.

Recently, peers Coty (COTY) and Procter & Gamble (PG) entered into a merger agreement to divest 43 Procter & Gamble beauty brands to Coty. To learn more about the deal, you can read Coty Buys 43 Procter & Gamble Brands: What Investors Should Know.

Higher sales in EL’s luxury skincare brands such as La Mer and Origins and incremental sales from recent acquisitions like GLAMGLOW partially offset the decrease in sales.

Operating income in 4Q15 for EL’s skincare segment decreased ~43% to $0.1 billion. This was driven by the impact of accelerated orders and significant launch activity by the Estée Lauder and Clinique brands.

Outlook

Estée Lauder aims to strengthen its skincare segment by innovation across categories and demographics. The company is launching a special collection of skincare and makeup products developed for the North America Sephora stores and their millennial consumers. The collection, called the Estée Edit by Estée Lauder, will be supported by digital and social media.

The Estée Edit, along with Estée Lauder’s best-selling skincare products, will launch in March in more than 250 Sephora stores in the United States and Canada and on Sephora.com. This could give Estée Lauder a higher competitive edge in skincare against peers L’Oréal (LRLCY) and Avon (AVP).

EL & PG have exposure in the Consumer Staples Select Sector SPDR ETF (XLP), with a combined weight of 12.37% as of August 18, 2015.

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