Estee Lauder Gains After China Expansion Helps Lift Forecast

Updated on
  • Company also benefited from Too Faced, Becca acquisitions
  • Latest results extend rally for cosmetics maker this year

A sales assistant arranges lipsticks at an Estee Lauder Companies Inc. store in the Raffles City shopping mall in Shanghai, China, on Wednesday, May 31, 2017.

Photographer: Qilai Shen/Bloomberg

Estee Lauder Cos. climbed the most in six years after its rapid expansion in China and the acquisition of millennial-friendly brands helped brighten its outlook.

The cosmetics giant boosted its sales and profit forecasts for the year following better-than-expected growth in the fiscal first quarter. Earnings amounted to $1.21 a share in that period, excluding some items, handily beating the 97 cents estimated by analysts.

The results added momentum to a dramatic rally this year for Estee Lauder, which has seen sales surge in Asia and at duty-free shops -- a category known as travel retail. It also acquired Too Faced and Becca Cosmetics last year to appeal to younger consumers, a move that now seems to be paying off.

“We benefited from a continued acceleration in China, Hong Kong, travel retail and global online,” Chief Executive Officer Fabrizio Freda said in a statement.

Estee Lauder rose as much as 12 percent to $124.80 on Wednesday after the start of trading in New York. The stock had already gained 46 percent this year through Tuesday’s close.

The standout category was skin care, where sales surged 15 percent from a year earlier, propelled by Chinese shoppers. Growth in the segment jumped from the 6 percent expansion reported in the previous quarter.

“The growth in skincare is a surprise. They’ve been doing a huge amount on reformulation and innovation of skincare and that’s paying off,” said Deborah Aitken, an analyst at Bloomberg Intelligence. “China and Hong Kong, both online and in travel retail channel, add major impetus.”

The company now expects earnings of $4.04 to $4.12 a share for fiscal 2018, excluding certain items. Analysts had estimated $3.97. Sales are seen growing 10 percent to 11 percent in the period.

Freda also said the company saw improvement at some U.S. high-end department stores.

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