EL Financial Analysis

Analysis Date: 1/24/2025

Business Model

The Estée Lauder Companies generates revenue through sales of prestige beauty products across skin care, makeup, fragrance and hair care categories through various channels globally

Revenue Sources

• Skin Care (51% of revenue)
• Makeup (29% of revenue)
• Fragrance (16% of revenue)
• Hair Care (4% of revenue)

Revenue Distribution by Channel

• Department stores, Specialty-multi retailers, Online and Travel retail are key channels

Income Statement Analysis

• Net sales decreased 2% due to ongoing softness in mainland China and Asia travel retail
• Gross margin improved slightly to 71.7% from 71.3% despite lower sales
• Operating income declined 36% due to goodwill/intangible impairments and restructuring charges

Balance Sheet Analysis

• Cash position decreased 16% to $3.4B
• Total assets declined 7% primarily due to goodwill impairment
• Total liabilities decreased 4% with debt reduction

Cash Flow Analysis

• Operating cash flow increased 36% to $2.36B driven by working capital improvements
• Capital expenditures decreased 8% to $919M
• Free cash flow nearly doubled to $1.44B

Capital Allocation

The company maintains balanced capital allocation with $947M in dividends paid, $919M in capital expenditures, and $745M for acquisition of remaining DECIEM stake. Cash position remains strong at $3.4B.

Management Commentary

Organic sales and adjusted EPS returned to growth in second half of fiscal 2024

Expects continued declines in China prestige beauty segment due to weak consumer sentiment

Implementing Profit Recovery and Growth Plan to offset China pressures

Overall Sentiment: Cautious but focused on executing turnaround strategies while facing continued China headwinds

Recommendation

Rating: Hold

Reason for Rating: Near-term headwinds balanced by restructuring benefits and long-term growth potential

Disclaimer: This analysis is based on company filings and public information. It is for informational purposes only and not financial advice. Past performance does not guarantee future results.

Generated on: 1/24/2025, 5:01:33 AM