VALUATION HIGHLIGHTS
- Skin Care constitutes 56% of the Trefis price estimate for Estee Lauder's stock.
- Makeup constitutes 22% of the Trefis price estimate for Estee Lauder's stock.
- Fragrance constitutes 20% of the Trefis price estimate for Estee Lauder's stock.
WHAT HAS CHANGED?
EL Stock vs. S&P 500 Performance
The changes in EL stock over the recent years have been far from consistent. Returns for the stock were 40% in 2021, -32% in 2022, -40% in 2023, and -48% in 2024. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, 24% in 2023, and 23% in 2024 — indicating that EL underperformed the S&P in 2022, 2023 and 2024.
Q2 2025 Earnings
Estée Lauder reported net sales of $4.0 billion in Q2 2025, down 6% from $4.3 billion in Q2 2024. The decline was seen across segments, except for Fragrance, which was up 1%. Operating margin plunged by 200 bps to 11.5% in Q2. The company's adjusted EPS stood at $0.62, vs. $0.88 in Q2 2024.
POTENTIAL UPSIDE & DOWNSIDE TO TREFIS PRICE
Skin Care
Estée Lauder's Skin Care EBITDA margin: Estée Lauder's Skin Care EBITDA Margin fell from 33% in 2019 to 16% in 2024. We expect margins to rebound to over 30% by the end of our forecast period. There could be over 15% downside to our price estimate, if margins were to grow at a slower pace and hover around 20% over our forecast period.
Makeup
Estée Lauder's Makeup EBITDA margin: Estée Lauder's Makeup EBITDA Margin fell from 11% in 2019 to 9% in 2024. We expect it to gradually increase to over 20% in the coming years. There could be close to 10% downside to our price estimate if margins were to rise only to 12%.
BUSINESS SUMMARY
Estée Lauder is a global leader in the personal and beauty care market, specializing in the manufacture and marketing of premium makeup, skin care, fragrance, and hair care products. Key competitors for Estée Lauder include prominent cosmetics companies such as L'Oréal, Shiseido Company, LVMH Moet Hennessy Louis Vuitton, Revlon, Coty, and Procter & Gamble Company.
Estée Lauder boasts a diverse portfolio of major brands, including Estée Lauder, Aramis, Clinique, M·A·C, Bobbi Brown, La Mer, and Aveda. The company also markets fragrances and cosmetics under licensed brands such as Donna Karan, Tommy Hilfiger, Michael Kors, and Sean John.
Estée Lauder distributes its premium-priced, often non-branded yet relatively expensive products through a selective network of channels. These primarily consist of upscale department stores, specialty retailers, upscale perfumeries, pharmacies, and prestige salons and spas. Additional distribution avenues include freestanding company-owned stores and spas, the company's and authorized retailers' websites, stores on cruise ships, direct response television, and in-flight and duty-free shops.
While maintaining a strong global presence, Estée Lauder's net sales are geographically diverse. As of the latest reports, the Americas contribute approximately 30% of net sales, Europe, the Middle East, and Africa account for around 40%, and the Asia-Pacific region makes up the remaining 30%. The company continues to strategically focus on expanding its presence and sales within the Asia-Pacific market.
SOURCES OF VALUE
The Skin Care and Makeup segments are the primary drivers of Estée Lauder's valuation. The Skin Care category is a strategic priority for the company, contributing roughly 50% to Estée Lauder's stock value, while Makeup contributes approximately 40%. Notably, the Skin Care segment also stands out as the most profitable within the company's beauty product offerings.
KEY TRENDS
Robust Growth in Skin Care Driven by Anti-Aging Products
There is a significant demand for anti-aging creams and anti-cellulite skin care products, particularly among aging populations in developed nations such as Japan (which has a notably older demographic), the United States, and Western Europe. Anti-aging products currently constitute about half of Estée Lauder's skin care business. The anti-aging market, encompassing products designed to address multiple signs of skin aging simultaneously, remains a rapidly expanding segment within the broader anti-aging beauty product category.
Increasing Popularity of Natural Products, the "Masstige" Segment, and Men's Product Lines
Consumer demand for natural and organic products is on the rise across most countries, a trend particularly prominent in developed markets like the US and Western Europe. This trend reflects an increasing preference for products and packaging that are perceived as less synthetic, eco-friendly, and more natural.
The "Masstige" trend, characterized by premium brands offered at more accessible price points through broader distribution channels, continues to gain traction. Furthermore, beauty care products specifically targeted towards men represent a growing niche market for players globally. In developed markets, especially the US and Western Europe, the introduction and expansion of men's product lines are significant contributors to growth within the beauty industry.
