PARIS — The Estée Lauder Cos. Inc. outlined some key objectives at the Deutsche Bank Global Consumer Conference 2015, which began here Tuesday.
Despite a fiscal year when the strong dollar is having an unusually large adverse impact on the company’s reported results, it expects to perform “well ahead” of the global prestige beauty market on a constant-currency basis, said Tracey Travis, chief financial officer of the Estée Lauder Cos.
“Our goal is to grow at least a point faster than global prestige beauty, and we target acquisitions to contribute a point of growth over a three-year time horizon,” she said.
“Global prestige beauty is one of the most exciting areas of consumer goods,” continued Cedric Prouvé, group president of international at the Estée Lauder Cos., who called the company the category leader with a share of nearly 15 percent. “The industry is thriving, generating consistent mid-single-digit growth, at a rate higher than mass and higher than household-product companies.”
Prouvé said the firm, which makes more than 60 percent of its total sales outside of the U.S., has outpaced the industry by about 3 percentage points and gained 70 basis points of share over the past five years.
Travis, in response to an analyst’s question, discussed which categories the company finds attractive for mergers-and-acquisitions activities. (It’s been busy of late, recently snapping up Editions de Parfums Frédéric Malle, Le Labo, Glamglow and Rodin Olio Lusso.)
First, Estée Lauder eyes segments that represent strengths for it — namely skin care, makeup and fragrance.
“Then we look typically at smaller to medium-size brands that we can scale…that we can leverage [with] our R&D expertise, our creative and marketing expertise, as well as our distribution network — to grow and to scale and to get a very high return on,” said Travis, adding the company seeks differentiation relative to its existing portfolio and takes into account consumer trends.
“Channel diversification plays a role, as well,” Prouvé said.
He explained the existing brands in the company portfolio are at different stages of development, giving it “great balance.” Three, including MAC Cosmetics, make more than $2 billion in sales, while numerous midsize labels are also growing at a double-digit pace and have become meaningful contributors to overall gains. And small brands are developing well, too, with many showing potential to become mid-size or even larger in the long term.
“Our strategy of buying small and midsize brands and growing them reduces acquisition risks,” Prouvé said. “We have a great track record, but if one does not perform as expected, the financial investment is relatively minor.”
Beside M&A, the company has identified promising growth areas such as emerging markets, aging populations seeking skin-care benefits, makeup trends and new distribution channels. Estée Lauder is already particularly well-positioned in travel retail, for example, where it leads in skin care and makeup, and online, Prouvé said.
“Our travel-retail business, freestanding retail stores [of which there are about 1,400] and online channel have each been growing as a percent of our sales over the last five years and continue to offer opportunity for growth,” he continued.
Contributing further to a balanced portfolio — and sustainable sales advances in constant-currency terms — is Estée Lauder’s strategy to expand geographically by brand and by channel, according to Travis.
“Whether you look at our business by brand, channel or market, about one-third of it is growing double digits,” Prouvé said. “The rest just has to grow in line with the industry for us to achieve our growth targets.”
“And continuing to leverage pricing to at least offset inflation, combined with a mixed shift toward the direct-to-consumer channels is expected to positively impact sales growth going forward,” added Travis.
The current fiscal year looks promising.
“Despite 27 cents of currency headwinds and 6 cents of dilution from acquisitions, in constant currency we continue to expect double-digit growth,” said Travis, explaining Estée Lauder is in a good position to continue above industry organic sales gains and double-digit earnings-per-share increases, also due to value creation from its storage-management-initiative program and “smart” resource allocation.
This year, for instance, Estée Lauder’s marketing investment is expected to be flat spending in dollars, as many of its fastest-growing brands don’t require as much traditional advertising as in the past, and digital becomes a larger share of the company’s media mix.
“Compelling macro trends bode well for continued growth in our company and in global prestige beauty,” Travis said.