Summary

• The Estée Lauder Companies Inc. is a manufacturer, marketer and seller of quality skin care, makeup, fragrance and hair care products. The company was founded in 1946 by Estée and Joseph Lauder.
• It currently has operations in approximately 150 countries and territories. Some of the well-known brands of the company includes Estée Lauder, Clinique, Origins, M·A·C, Bobbi Brown Cosmetics, La Mer, Aveda, Jo Malone London, TOM FORD, Too Faced, Dr.Jart+, and The Ordinary.
• The company is also a global licensee of the AERIN and BALMAIN brand names for fragrances and cosmetics. The company sells its products in approximately 1,600 freestanding stores around the world. The company also operate over 250 multi-branded company stores in outlet malls.
• In the year end June 2023, the company experienced a decline in sales, with total sales reaching $15,910 million. This marked a decrease of $1,827 million or 10.3% compared to the sales figure of $17,737 million in the year end June 2022.
• The company's gross profit for 2023 amounted to $11,346 million, reflecting a difference of $2,086 million or 15.5% from the gross profit of $13,432 million in the previous year, 2022.
• The company's operating profit decreased in 2023, totaling $1,771 million, which was lower by $1,773 million or 50.1% compared to the operating profit of $3,544 million in 2022.
• The net profit for the year 2023 was $1,006 million, representing a decrease of $1,384 million or 36.6% compared to the net profit of $2,390 million in 2022.
• Moreover, the diluted earnings per share (EPS) for 2023 were reported as $2.79, which showed an increase of $0.93 or 33.3% compared to the diluted EPS of $1.86 in 2022.

Brief Company Overview

The Estée Lauder Companies Inc. (NYSE:EL) is a manufacturer, marketer and seller of quality skin care, makeup, fragrance and hair care products. The company was founded in 1946 by Estée and Joseph Lauder. It is headquartered in Midtown Manhattan, New York City. It currently has operations in approximately 150 countries and territories. Some of the well-known brands of the company includes Estée Lauder, Clinique, Origins, M·A·C, Bobbi Brown Cosmetics, La Mer, Aveda, Jo Malone London, TOM FORD, Too Faced, Dr.Jart+, and The Ordinary. The company is also a global licensee of the AERIN and BALMAIN brand names for fragrances and cosmetics. The company sells its products in approximately 1,600 freestanding stores around the world. Most freestanding stores of the company are operated by us under a single brand name, such as M·A·C, Jo Malone London and Aveda. The company also operate over 250 multi-branded company stores in outlet malls.

The had approximately 62,000 and 63,000 employees worldwide, including demonstrators at points of sale who are employed by the company, as of June 30, 2023 and 2022, respectively. The company reports its segments as product categorization - skin care, makeup, fragrance, hair care, and other. The company has these four major product categories and reports its financials accordingly. The Estée Lauder has been controlled by the Lauder family since the founding of the Company. Members of the Lauder family, some of whom are directors, executive officers and/or employees, beneficially own, directly or indirectly, as of August 11, 2023, shares of the Company's Class A Common Stock and Class B Common Stock having approximately 84% of the outstanding voting power of the Common Stock. Net sales of the company during the financial year 2023, ending June 30 is $15.9 billions, and operating income is $1.50 billions.

As on November, 2023, the company had a 52-week's price range of $102.22 - $283.62. As on the same date, trailing P/E ratio of the company is 80.15 times, price to sales (ttm) ratio is 2.85 times, price to book (mrq) is 8.21 times. Profit margin of the company is 3.54%, operating margin is 2.50%, return on assets (ttm) is 3.52%, return on equity (ttm) is 8.90%; total shares outstanding is 232.3 million.

Recent Developments

• On April 28, 2023, the Company completed the acquisition of 100% equity interests in 001 Del LLC, acquiring the TOM FORD brand for $2,550. This acquisition aims to enhance the Company's TOM FORD BEAUTY brand, historically licensed by the Company, and create new revenue streams through licensing. The TOM FORD Acquisition is treated as an asset acquisition, with the fair value concentrated in the TOM FORD trademark intangible asset. The acquisition included modifications, terminations, or renegotiations of existing license relationships. The total cost of the asset acquisition is $2,578 million, covering transaction-related costs and deferred consideration of $300 million. The deferred consideration is part of other noncurrent liabilities, with $150 million payable in July 2025 and the remaining $150 million in July 2026.¹
• The Estée Lauder Companies (ELC) inaugurated its Global Technology Center in Bucharest, Romania, on April 12, 2023. The center is part of ELC's strategy to enhance its Information Technology function and global competitiveness through advanced technology. The center focuses on digital solutions, utilizing artificial intelligence, cloud acceleration, intelligent automation, omnichannel, and more to enhance consumer experiences and supply chain efficiency.²
• The Estée Lauder Companies (ELC) UK & Ireland has unveiled the Voice-Enabled Makeup Assistant (VMA) application, an innovative AI-powered app designed to assist visually impaired users in applying makeup. Launched on January 11, 2023, the VMA app aims to empower the visually impaired community, facilitating self-expression through makeup. Driven by Augmented Reality and Artificial Intelligence, VMA incorporates smart mirror technology and machine learning. The app utilizes voice instructions to guide users through makeup application, providing audio feedback and tips on the evenness of lipstick, eyeshadow, or foundation application.³

Recent Financing Activities

• In January 2023, the Company entered into a $2,000 million senior unsecured revolving credit facility (the “364-Day Facility”) to support the Company's commercial paper program and for general corporate purposes, including to finance the Company's fiscal 2023 fourth quarter TOM FORD Acquisition. In January 2023, in connection with the 364-Day Facility, the Company increased its commercial paper program under which it may issue commercial paper in the United States from $2,500 million to $4,500 million. 
• In May 2023, the Company completed a public offering of $2,000 million, consisting of $700 million aggregate principal amount of its 2028 Senior Notes, $700 million aggregate principal amount of its May 2033 Senior Notes and $600 million aggregate principal amount of its 2053 Senior Notes. The Company used proceeds from this offering for general corporate purposes, including to repay outstanding commercial paper as it matured.⁴

Financial Performance Highlights

Q3 2023 Highlights

In the third quarter of 2023, the company reported sales of $3,518 million, reflecting a decrease of $412 million or 10.5% compared to the third quarter of 2022, which had sales of $3,930 million. The net profit for the third quarter of 2023 was $31 million, showing a decrease of $458 million or 93.6% when compared to the net profit of $489 million in the third quarter of 2022. Furthermore, the company's diluted earnings per share (EPS) for the third quarter of 2023 decreased to $0.09, a negative change of $1.26 or 93.3% compared to the diluted EPS of $1.35 in the third quarter of 2022.

Annual Performance Highlights

In the year end June 2023, the company experienced a decline in sales, with total sales reaching $15,910 million. This marked a decrease of $1,827 million or 10.3% compared to the sales figure of $17,737 million in the year end June 2022. The company's gross profit for 2023 amounted to $11,346 million, reflecting a difference of $2,086 million or 15.5% from the gross profit of $13,432 million in the previous year, 2022. Additionally, the company's operating profit decreased in 2023, totaling $1,771 million, which was lower by $1,773 million or 50.1% compared to the operating profit of $3,544 million in 2022. The net profit for the year 2023 was $1,006 million, representing a decrease of $1,384 million or 36.6% compared to the net profit of $2,390 million in 2022. Moreover, the diluted earnings per share (EPS) for 2023 were reported as $2.79, which showed an increase of $0.93 or 33.3% compared to the diluted EPS of $1.86 in 2022.

During the fiscal year ended June 30, 2023, the operating environment continued to be disrupted by the impact of the COVID-19 pandemic. Most notably, the pace of recovery in Asia travel retail and mainland China was slower than anticipated. In Hainan, prolonged store closures initially presented a headwind and, thereafter, low levels of conversion occurred when travel resumed. This was compounded by inventory tightening by certain retailers. In Korea, the travel retail business slowed during the transition to post-COVID-19 regulations. In addition, the slower than anticipated resumption of international flights, granting of visas, and organized group tours further challenged the Asia travel retail recovery. As a result, Asia’s retail business was challenged throughout the fiscal year by the slower than anticipated recovery. In mainland China, performance in the first half of fiscal 2023 was hindered by low retail traffic as a result of COVID-19-related restrictions and the rise in COVID-19 cases.

Elsewhere, the recovery from the COVID-19 pandemic progressed across markets globally over the course of the fiscal year as restrictions lifted. In the West, its recovery from the pandemic continued with net sales growth in many markets in Europe, the Middle East & Africa and in Latin America. In Asia/Pacific, certain of company’s markets emerged strongly into recovery across the fiscal year, to deliver net sales growth throughout the region. In the United States, net sales was unfavorably impacted by the slower than anticipated pace of improvement at retail and the tightening of inventory in certain retailers in the first half of fiscal 2023 due to inflationary pressures and recession concerns. Finally, company’s business was also pressured by the strong U.S dollar, inflation and recession concerns globally.

During fiscal 2023, net sales decreased 10%, reflecting the impacts noted above. Skin care net sales declined 17%, including the unfavorable impact of foreign currency translation of 3%, driven by declines from Estée Lauder, La Mer and Dr.Jart+, primarily reflecting the challenges in Asia travel retail business throughout the year, as previously discussed. Partially offsetting these declines was growth in every geographic region from The Ordinary, reflecting the success of hero products and new product launches, and from M·A·C, driven by the launch of the Hyper Real line of products. Makeup net sales decreased 3%, primarily due to the unfavorable impact of foreign currency translation of 4%. Net sales declines from Estée Lauder, TOM FORD and La Mer, primarily reflect the challenges in Asia travel retail throughout the year and in mainland China in the first half of the fiscal year, as previously discussed, were partially offset by higher net sales from M·A·C, primarily driven by the recognition of the previously deferred revenue due to changes to the BACK-To-M·A·C take back program, and Clinique.

Entity’s fragrance net sales remained virtually flat as growth driven by Estée Lauder, Le Labo, TOM FORD, Clinique, and Kilian Paris was offset by the impact of the license terminations effective June 30, 2022 related to certain of fragrances of 9% and the unfavorable impact of foreign currency translation of 4%.

Its hair care net sales increased 3%, driven by higher net sales from The Ordinary reflecting the recent launch of hair care products by the brand, partially offset by the unfavorable impact of foreign currency translation of 3%.

Operating Activities:

Net cash provided by operating activities witnessed a notable decrease from $3,040 million in the previous period to $1,731 million. This decline was primarily attributed to lower earnings before tax, excluding non-cash items. However, it was partially offset by a favorable change in working capital, driven by improvements in inventory and promotional merchandise, as well as accounts receivable. This positive aspect, however, was partially mitigated by lower accounts payable resulting from the timing of payments and reduced other accrued and noncurrent liabilities, which include the settlement of net investment hedges.

Investing Activities: The net cash flows used for investing activities reported a substantial negative change, shifting from $(945) million to $(3,217) million. This significant shift was primarily fueled by cash payments related to the acquisition of the TOM FORD brand during the fiscal 2023 fourth quarter. Additionally, the favorable impact from the settlement of net investment hedges contributed to this change. However, this positive factor was offset by an unfavorable change in other accrued liabilities, as mentioned earlier.

Financing Activities: On the financing front, there was a noteworthy change in net cash flows provided by (used for) financing activities, moving from $(3,036) million to $1,590 million. This change was predominantly driven by a reduction in treasury stock purchases compared to the prior year. Furthermore, there was an increase in debt, attributed to the issuance of Senior Notes in May 2023 and the issuance of commercial paper in the second half of fiscal 2023. This increase in debt was partly directed to finance the acquisition of the TOM FORD brand. However, this positive trend was partially offset by an increase in repayments of long-term debt.

Business Overview

The Estée Lauder Companies Inc. is a manufacturer of cosmetics product and is a global brand standing just after L'Oréal. The company's products are sold in approximately 150 countries and territories. The most well-known brand names include Estée Lauder, Clinique, Origins, M·A·C, Bobbi Brown Cosmetics, La Mer, Aveda, Jo Malone London, TOM FORD, Too Faced, Dr.Jart+, and The Ordinary.

Segments

The company has four reportable segments: skin care, makeup, fragrance, and hair care.

Skin Care - A broad range of skin care products of the company address various skin care needs. These products include moisturizers, serums, cleansers, toners, body care, exfoliators, acne and oil correctors, facial masks and sun care products.
Makeup - A full array of makeup products of the company includes lipsticks, lip glosses, mascaras, foundations, eyeshadows, nail polishes and powders. Many of the products are offered in an extensive palette of shades and colors. The company also sell related items such as compacts, brushes and other makeup tools.
Fragrance - The company offers a variety of fragrance products. The fragrances are sold in various forms, including eau de parfum sprays and colognes, as well as lotions, powders, creams, candles and soaps that are based on a particular fragrance.
Hair Care - The hair care products include shampoos, conditioners, styling products, treatment, finishing sprays and hair color products.

Other - The company also sell ancillary products and services that do not fit the definition of skin care, makeup, fragrance, and hair care. The other category also includes royalty revenue from licensing of the TOM FORD trademark to third parties since the fiscal 2023 acquisition of the TOM FORD brand.

Brands

Estee Lauder - Estée Lauder brand products, which have been sold since 1946, have a reputation for innovation, sophistication and superior quality. Estée Lauder is one of the world’s most renowned beauty brands, producing iconic skin care, makeup and fragrances.

aramit - The company pioneered the marketing of prestige men's fragrance, grooming and skin care products with the introduction of Aramis products in 1964.

CLINIQUE - Introduced in 1968, Clinique skin care and makeup products are all allergy tested and 100% fragrance free and have been designed to address individual skin types and needs. Clinique also offers select fragrances. The skin care and makeup products are based on the research and related expertise of leading dermatologists.

LAB SERIES - Lab Series, introduced in 1987, is a series of high performance, specialized skin care solutions uniquely created to improve the look and feel of men’s skin.

Origins - Introduced in 1990, Origins is known for high-performance natural skin care that is “powered by nature and proven by science.” The brand also sells makeup and fragrance products and is distributed primarily through online, specialty-multi and freestanding Origins stores. Origins has a license agreement to develop and sell beauty products using the name of Dr. Andrew Weil.

M·A·C - M·A·C, a leading brand of professional cosmetics, was created in Toronto, Canada. The Estée Lauder completed the acquisition of M·A·C in 1998. The brand’s popularity has grown through a tradition of word-of-mouth endorsement from professional makeup artists, models, photographers and journalists around the world.

Bobbi Brown - Acquired in 1995, Bobbi Brown is a global prestige beauty brand known for its high quality and undertone-correct makeup and skin care products that celebrate individual beauty and confidence. Reflecting its artistry roots, the brand is focused on creating a teaching and learning community
of women around the world.

La Mer - Acquired in 1995, La Mer is a leading global luxury skin care brand that is available in limited distribution worldwide. The brand is known for its iconic Crème de la Mer moisturizer, serums and lotions, as well as other skin care and foundation products that are created around the original “Miracle Broth.”

Aveda - Acquired in 1997, Aveda sells high-performance, naturally-derived hair care products, as well as skin care, makeup and fragrance. The brand is known for its innovative plant-based products and its commitment to environmental sustainability and corporate responsibility. It is distributed primarily through top-tier hair salons and direct-to-consumer, via online and Aveda stores.

Jo Malone London - Acquired in 1999, Jo Malone London is a scented British lifestyle brand with understated elegance, offering enchanted story-telling and “High-Touch” boutique services. The brand’s famous colognes are perfect alone or artfully layered with Fragrance Combining. Jo Malone London embodies the spirit of gifting generosity and inspires emotional elevation.

Other Business Information

The Company’s license agreements provide the Company with worldwide rights to manufacture, market and sell beauty and beauty-related products (or particular categories thereof) using the licensors’ trademarks. The current license arrangements have an initial term of approximately 5 years to 10 years, and are renewable subject to the Company’s compliance with the license agreement provisions. As of June 30, 2023, the remaining terms considering available renewal periods range from 7 years to approximately 27 years. Under each license, the Company is required to pay royalties to the licensor, at least annually, based on net sales to third parties. Certain license agreements may require minimum royalty payments, incremental royalties based on net sales levels and minimum spending on advertising and promotional activities. Royalty expenses are accrued in the period in which net sales are recognized while advertising and promotional expenses are accrued at the time these costs are incurred.  

Company History

1930s: Origins and Early Beginnings

The roots of the Estée Lauder Companies trace back to the 1930s when a visionary named Estée Lauder embarked on a journey that would redefine the beauty industry. Born Josephine Esther Mentzer in Queens, New York, Estée's passion for beauty was ignited by her Hungarian uncle, who crafted skincare formulations in her kitchen during her formative years. Under her uncle's guidance, she learned the art of formulating skincare and its application for optimal results.

In 1930, Estée married Joseph Lauter, and the couple moved to Manhattan. It was during this time that they adopted the name 'Lauder,' correcting a spelling error from Joseph's father's emigration from Austria. The name 'Estée Lauder' was officially born, marking the inception of a beauty legacy that would transcend generations.

1940s: A Bold Venture Begins

The year 1946 witnessed the founding of Estée Lauder cosmetics, initially offering a modest range of skincare products. The Lauders adopted an innovative approach to sales, demonstrating their products in beauty salons while customers sat under hair dryers. Estée's keen sense of luxury extended to the choice of packaging, with pale turquoise jars selected for their opulent appeal, matching bathroom decor of the time.

Estée's determination and marketing prowess came to the fore when, in 1948, she secured her first major department store order with Saks Fifth Avenue in New York. A legendary anecdote tells of Estée smashing a bottle of her perfume on the floor of a department store, leading to a surge in customer interest and subsequent orders.

1950s: Revolutionizing Fragrance

The 1950s witnessed Estée Lauder revolutionizing the fragrance industry. Departing from the tradition of reserving fragrances for special occasions, Estée introduced the concept of an everyday fragrance. In 1953, she created Youth-Dew, a bath oil that doubled as a skin perfume, challenging conventions and transforming the startup into a multimillion-dollar business.

1960s: Global Expansion and Innovation

The 1960s marked a period of exceptional growth and international expansion for Estée Lauder. The company opened its first overseas account in London's prestigious Harrods department store in 1960. In 1963, Estée Lauder introduced Aramis, the first prestige men's fragrance sold in department stores, embodying classic masculinity and sophistication.

In 1967, the company achieved a significant milestone with the creation of a 24kt gold-plated alligator refillable compact, a must-have beauty accessory that remains collectible to this day. The same year saw the establishment of Clinique, the industry's first allergy-tested, fragrance-free skincare brand, in collaboration with dermatologist Dr. Norman Orentreich.

The company's commitment to excellence was further underscored when Estée Lauder received the Spirit of Achievement Award from the Albert Einstein College of Medicine in 1968.

1980s: Night Repair and Iconic Launches

The 1980s marked a period of innovation with the launch of Night Repair in 1982, the first-ever serum in the U.S. market. Advanced Night Repair, introduced then, continues to be the UK's best-selling premium facial serum today. In 1984, Estée Lauder launched Beautiful, a major new scent for brides, and in 1987, it introduced the high-performance men's skincare brand Lab Series.

1990s: Family Takeover and Global Expansion

Expansion characterized the 1990s as Estée Lauder added Origins, the first wellness brand in U.S. department stores, to its portfolio. The decade saw the company transition to a publicly traded, family-controlled business, with Estée's daughter-in-law, Evelyn, launching the iconic Breast Cancer Awareness campaign in 1992.

In 1994, MAC Cosmetics joined the brand portfolio, bringing a high backstage presence to over 200 fashion week shows worldwide. The family legacy continued as Estée's son, Leonard, assumed leadership, and the company went public on the New York Stock Exchange in 1995.

The 1990s also witnessed significant acquisitions, including Aveda in 1997 and Jo Malone in 1999, showcasing Estée Lauder's commitment to holistic beauty and diverse offerings.

2000s: Expanding Horizons

The dawn of the 21st century brought further expansion with the addition of Tom Ford Beauty in 2005, signaling a collaboration with the renowned fashion designer. Estée Lauder continued its growth trajectory with the acquisition of Bumble & bumble in 2006 and Smashbox Beauty Cosmetics in 2010.

In 2016, Too Faced, the Paris-based fragrance brand Kilian, and the iconic beauty brand Estée Lauder itself continued to evolve and expand. The company demonstrated a commitment to innovation, sustainability, and global impact, achieving NetZero carbon emissions in 2020 and setting ambitious sustainability goals for packaging by 2025.

2020s & Beyond: A Sustainable Future

In recent years, Estée Lauder has continued to make strides in sustainability, achieving NetZero carbon emissions and setting ambitious targets for recyclable, refillable, and recycled packaging by 2025. As the company celebrated its 75th year in 2021, the legacy of Estée and Joseph Lauder lives on through 25+ major brands, sold in 150 countries, each contributing to impactful cause programs.

Recent Expansions and Acquisitions

The journey of Estée Lauder Companies continued into the 2020s, marked by strategic moves and global expansions. In 2021, the acquisition of Deciem Beauty Group Inc., a Canadian-based company, further diversified the company's portfolio. The opening of a 300,000 sq ft. distribution center in Galgenen, Switzerland, in 2022 exemplified the company's commitment to efficiency and global reach.

In November 2022, the company announced a monumental move, revealing its intention to acquire the designer fashion house Tom Ford in a deal worth $2.8 billion. This landmark acquisition solidifies Estée Lauder's position at the forefront of the beauty and fashion industries, with Tom Ford remaining as creative director until at least 2023.

References

1. ^ https://www.visionmonday.com/latest-news/article/estee-lauder-completes-acquisition-of-tom-ford-brand-marcolin-reiterates-extension-of-its-longterm-eyewear-licence/
2. ^ https://www.gcimagazine.com/brands-products/news/news/22820575/the-este-lauder-companies-opens-global-technology-center-in-romania
3. ^ https://www.premiumbeautynews.com/en/estee-lauder-launches-ai-powered,21360
4. ^ https://www.owler.com/reports/mufg/press-release--mufg---the-este-lauder-companies-to/1683706328985