$EL Quick Pitch
The Estée Lauder Companies Inc. is the 2nd American multinational cosmetics company, a manufacturer and marketer of makeup, skincare, perfume, and hair care products
EL 0.00%↑ #QuickPitch mcap= $26.96B, price $75.10 / share
EL 0.00%↑ #Pitch:
Estée Lauder, a big name in luxury beauty, is hitting some rough patches right now. While there are challenges to tackle in the short term, the company’s bold restructuring plans and focus on high-end products might just set the stage for a solid recovery.
Estée Lauder dominates the beauty world with well-known brands like La Mer, Clinique, and MAC. It also holds a strong 30% share in luxury fragrances with names like Le Labo and Jo Malone London. Even though sales dipped by 6% in the second quarter compared to last year, the company’s brands are still a moat.
Kicking off in February 2025, Estée Lauder’s "Beauty Reimagined" strategy is all about getting sales growing again and hitting a healthy double-digit operating margin in the next few years. The idea is to focus more on what customers want by tapping into fast-growing sales channels and offering products at different price points. It’s an exciting shift, but whether it pays off depends on how well the management can pull it off.
The company’s keeping up with the times by expanding online and into new markets. They’ve launched on TikTok Shop in the U.K., Amazon’s Premium Beauty store in the U.S., and opened up shops in Thailand and China. Plus, they saw great results during the 11.11 Global Shopping Festival. It’s clear they’re adapting to where shoppers are today.
About 30% of Estée Lauder’s sales come from Asia. If things pick up in places like China and Korea—or if travel shopping spots like Hainan rebound—it could give the company a nice boost.
Estée Lauder isn’t sitting still when it comes to new ideas. They’re working with MIT and opening a BioTech Hub in Belgium to create sustainable, high-profit products. They’re also rolling out trendy items fast, like the MACximal Lipstick and Clinique CX for China. These moves could keep their brands strong, though it’ll take time and money to see the payoff.
The Profit Recovery and Growth Plan (PRGP) is Estée Lauder’s big effort to save between $800 million and $1 billion each year by 2027. This means tough steps like cutting 5,800–7,000 jobs, streamlining suppliers, and outsourcing some work. Early results look good—their gross margin jumped 3.1 points to 76.1% in Q2.
With 30% of revenue tied to Asia, weak consumer spending (sales dropped 11% in Q2) is a worry. Add in geopolitical issues like tariffs, and it’s a real risk to watch.
The PRGP has to work as planned, or cash flow could take a hit. Recent write-downs of brands like TOM FORD and Too Faced, totaling $861 million, also show some weak spots in their lineup.
Sales in global travel retail fell sharply in Q2 because tourism hasn’t fully bounced back. That said, things are starting to look up, which could help margins recover.
Rivals like L’Oréal and Coty are making moves in both affordable and luxury beauty. Plus, Estée Lauder’s reliance on department stores—a channel that’s losing steam—makes them a bit more exposed.
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In Q2 2025, Estée Lauder reported a net loss of $1.64 per share, compared to a profit of $0.87 the year before. This was mostly due to over $1 billion in write-downs and restructuring costs. Strip those out, and they still make $0.62 per share. It’s a company in transition, not a sinking ship.
The good news? Cost-cutting boosted the gross margin to 76.1% from 73.0%. The downside? The operating margin fell to -14.5% (or 11.5% adjusted) because of lower sales and one-time expenses. If sales pick up, margins could improve, but it’s uncertain for now.
Operating cash flow dropped to $387 million in the first half of 2025, down from $937 million, thanks to weaker earnings and shifts in working capital. They paid out $366 million in dividends and spent $273 million on upgrades, leaving cash at $2.59 billion (down from $3.94 billion). It’d be nice to see more of that cash tackle the $7.28 billion in long-term debt instead of dividends. While the debt’s manageable for now, it does limit their flexibility.
Long-term debt stands at $7.28 billion, dwarfing cash on hand. While manageable (no immediate liquidity crisis), this leverage constrains financial maneuverability. I keep a close eye on the debt as this could lead to refinancing risks.
Total assets fell to $19.76 billion from $23.28 billion, hit by write-downs and cash use, while shareholder equity dropped to $4.17 billion. This could mean the company’s undervalued—or that there’s less cushion if things go wrong.
At a market cap of $26.96B billion, Estée Lauder’s stock price shows that investors are cautious about its short-term outlook. But if their plans succeed, it might be a chance to buy low.
The stock is priced at 25 times next year’s expected earnings, lower than its five-year average of 35 times. If the PRGP pushes operating margins above 11.5% (they were 13.5% in 2023), the stock could climb to 30 times earnings. Compared to L’Oréal at 30 times, that suggests a possible 30% upside.
Expected Gain: EL is a turnaround bet—cheap for a reason, with the upside tied to management’s ability to navigate a choppy fiscal 2025 and beyond. I could see 100%+ returns, but I do not like high-risk, high-reward turnaround plays.