Estée Lauder

Estee Lauder reported underwhelming results for Q4. The headline is that China isn’t quite back and consumer discretionary products are starting to feel the pain. Skincare sales fell 20% - skincare has been a “hero” line the past decade, as the consumer focus has shifted from makeup to self-care. It’s a big harbinger of consumer pain - we think more so than other disappointing results (Apple, Snap, etc). The other headline to note here is that EL’s budget line - “The Ordinary”, which grew double-digits in every region. In comparison, ultra-luxe lines like La Mer experienced a decline in sales, which suggests that the wallet of top-middle-income-bracket folks is starting to be stretched. We reiterate our buy-rating, as the company remains best-in-class. Since our initial recommendation the stock has re-rated +25%.