Estée Lauder Companies Inc (EL) is on a roll, seemingly shaking off trade concerns, accounting changes and earnings revisions after posting a solid fourth quarter.
The shares soared 4.7% at the market open on Monday.
The New York-based beauty giant reported net sales of $3.3 billion, 14% jump compared to a year ago. EL also reported solid operating income of $277 million, a 20% increase from the previous year.
Investors appears to take in stride that the company revised its earnings guidance for the next quarter to be between $1.18 and $1.22 per share. The revenue growth for the fiscal year 2019 is projected at 4-5% with $4.62-$4.71 earnings per share compared to $5.00 consensus.
The New York-based cosmetics conglomerate said it expects new revenue accounting standard and Leading Beauty Forward initiative to negatively impact its sales growth going forward. Leading Beauty Forward is projected to result in a charge of $50 million to $55 million or $0.10 to $0.11 per share.
Estée Lauder is "mindful of risks related to social and political issues, geopolitical tensions, regulatory matters, including the imposition of tariffs, global security issues, currency volatility and economic challenges affecting consumer spending in certain countries and travel corridors," the company said in a statement on Monday.
China Concerns
Deutsche Bank AG (DB) analyst Steve Powers said on August 16 macroeconomic factors, particularly tariffs and trade disputes between the US and China, pose the risk of a "significant slowdown" in net sales in the country that has accounted for significant growth for the retailer despite difficulty domestically.
Still, many remain positive on the prospects for the company in China.
Net sales increased by almost $700 million in the Asia and Pacific region, of which the company credited China as the biggest driver, while US sales increased by less than $200 million.
China fears are also not deterring many analysts from issuing a buy rating on the stock. Despite his concern on Chinese markets, Powers issued a buy rating and a price target of $172 ahead of the earnings call, well above the current price of $133.
"While geopolitical risk remains, we believe EL's growth vectors-China, digital, prestige, skincare- should support fiscal year 2019 guidance that brackets the Street's estimates," Erinn Murphy, senior research analyst Erinn Murphy of Piper Jaffray wrote in an August 15 note anticipating the presentation this morning.
She added that the Chinese market could sustain the company with growth in the mid-teens year over year.
Bullish on the stock, she issued a buy rating and a $162 price target for the company.
Estée Lauder Companies brands include Clinique, Origins, MAC, Bobbi Brown, La Mer, Aveda, Jo Malone London, Bumble and bumble, Smashbox, GLAMGLOW, and of course the namesake Estée Lauder line.
As the market for cosmetics explodes by consumer base, China remains to be source of growth for Estée Lauder, for now.
