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Did Management Changes at Estée Lauder Boost Fiscal 3Q16 Sales?

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Price movement

Estée Lauder (EL) fell by 1.2% to close at $93.23 per share during the third week of July 2016. The stock’s weekly, monthly, and YTD (year-to-date) price movements were -1.2%, -0.38%, and 6.6%, respectively, on the same day. EL is trading 1.2% above its 20-day moving average, 1.2% above its 50-day moving average, and 4.6% above its 200-day moving average.

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Related ETF and peers

The iShares Russell 3000 ETF (IWV) invests 0.08% of its holdings in Estée Lauder. The ETF tracks a cap-weighted index that measures the investable US equities market, covering the entire market-cap spectrum, including micro-caps. The YTD price movement of IWV was 7.6% on July 22.

The market caps of Estée Lauder’s competitors are as follows:

  • Coach (COH)—$11.9 billion
  • Coty (COTY)—$9.0 billion
  • Avon Products (AVP)—$1.7 billion

Estée Lauder’s key appointments

Jean-Guillaume Trottier has been promoted to President of Global Brand, Jo Malone London, effective July 1, 2016, and will report to Mr. Demsey. He is serving as a member of Estée Lauder’s executive leadership team.

Julie Van Ongevalle has been appointed as Senior Vice President and Global General Manager of Origins, effective October 1, 2016, and will report to Jane Hertzmark Hudis, Group President of Estée Lauder. Ms. Van Ongevalle will join the executive leadership team of the company.

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Performance of Estée Lauder in fiscal 3Q16

Estée Lauder reported fiscal 3Q16 net sales of ~$2.7 billion, which is 2.9% higher than its net sales of ~$2.6 billion in fiscal 3Q15. It reported restructuring and other charges of $15.2 million in fiscal 3Q16.

The company’s net income fell to $265.6 million in fiscal 3Q16, as compared to $272.1 million in fiscal 3Q15. It reported EPS (earnings per share) of $0.71 in fiscal 3Q16 and fiscal 3Q15.

Estée Lauder’s cash and cash equivalents and inventory and promotional merchandise fell by 45.5% and 5.4%, respectively, in fiscal 3Q16 over fiscal 4Q15. Its current ratio fell to 1.8x, and its debt-to-equity ratio rose to 1.30x in fiscal 3Q16. This compares to a current ratio and debt-to-equity ratio of 2.1x and 1.25x, respectively, in fiscal 4Q15.

Projections

Estée Lauder has made the following projections for fiscal 2016:

  • net sales growth of 4%–5%, or 9%–10% on a constant-currency basis
  • foreign currency translation negatively impacting sales by ~5% due to a stronger US dollar
  • acquisitions contributing ~0.50% to sales growth and ~$0.05 per share to EPS
  • EPS of $3.00–$3.07, which includes charges associated with GTI (global technology infrastructure) restructuring activities

These projections don’t include charges related to the Leading Beauty Forward initiative.

In the next part, we’ll discuss Pool Corporation.

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