Estée Lauder and the success of its new products

The company´s operating profit grew 16% in the third quarter to nearly $400 million, beating the analyst estimates. While its sales did not grow, the fact is that the market has put much more attention on the improvement of its estimates for the rest of 2015. The company said that its revenues will grow between 3 and 4% this year, compared with its previous forecast, which expected to increase sales by 2%. According to its calculations, this improvement is due to new products launched, with two particularly outstanding cases: contour kits Smashbox and MAC´s collection inspired by the Cinderella.

New channels and segments to grow
In addition to these new launches, the company is implementing a strategy to increase its presence in channels and segments where it was not strongly present before. A good example is the advertising campaign being conducted in the US, starring Kendall Jenner, focused on getting the products of its brands Estee Lauder and Clinique to a younger audience than usual. Another example is the activiy in social networks and e-commerce, which is expected to grow 30% this year.

Estée Lauder is also growing through acquisitions. Last year announced four purchases designed to cover the gaps in its current offer and try to fend off the growth strategy of its main competitor, L’Oreal.

This strategy and the good expectations have driven the market value of Estée Lauder. It traded at record highs after gaining 14% so far this year and 21% in the last twelve months, bringing its market value above $33 billion. In any case, this evolution has been lower than that of L’Oreal, which has risen nearly 40% in one year. At current prices, the two companies seem trading around its fair value, with levels of PER over 30 times in both cases.

Disclosure: The author is not responsible for the views expressed in the article. The text has been written freely expressing ideas, without receiving any compensation. The author has no business relationship with any of the companies whose shares are listed in this article.