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Higher Passenger Traffic From Asia-Pacific Should Bolster Estee Lauder Travel Retail Sales

Apr 3 2014, 8:28am CDT | by

In FY2013, prestige beauty product maker Estée Lauder reported sales of approximately $10.2 billion compared to $9.7 billion in sales in FY2012, a 5.2% increase. The company sells its...

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29 weeks ago

Higher Passenger Traffic From Asia-Pacific Should Bolster Estee Lauder Travel Retail Sales

Apr 3 2014, 8:28am CDT | by

In FY2013, prestige beauty product maker Estée Lauder reported sales of approximately $10.2 billion compared to $9.7 billion in sales in FY2012, a 5.2% increase. The company sells its products through various upscale departmental stores, specialty retailers, prestige salons and spas. In total, Estée Lauder estimates it has close to 30,000 points of sale within these distribution channels, generating sales of its beauty products across the world. Additionally, the company also markets its products through freestanding stores, duty-free and travel retail outlets worldwide, and also its own and other authorized retailer websites.

In this note, we provide an analysis of Estée Lauder’s travel retail business, underlining various factors that impact the division’s performance and its potential value contribution to overall top line for the company. We have a $75 Trefis price estimate for Estée Lauder, which stands at an 11% premium to its market price.

See Our Full Analysis for Estée Lauder

A Look At Estée Lauder’s Travel Retail Business
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Travel retail sales for Estée Lauder increased to over $1 billion in FY2012, driven by the increase in global passenger traffic. For fiscal 2013, sales from the travel retail channel grew at thrice the pace of global passenger growth rate. According to data from the IATA, global passenger demand expanded 5.2% in 2013, from close to 3 billion passengers in 2012. This should put Estée Lauder’s travel retail sales growth rate at over 15% for fiscal 2013, to stand at approximately $1,156 million. Much of the 15% growth rate in travel retail comes from the sale of skin care products. As a percentage of overall revenue, this marks a sizable 11.4% contribution from the travel retail channel for Estée Lauder.

Asia-Pacific Passenger Traffic Growth Should Support Strong Travel Retail Expansion
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A major factor for travel retail revenues standing at three times global passenger traffic is the combination of expanding disposable income in the Asia-Pacific region, along with strategic positioning of travel retail outlets by Estée Lauder. The main customer base for a travel retail outlet is the global passenger, and hence, positioning such outlets in high traffic corridors is key to having a higher growth rate.

International passenger demand is the highest for the Middle Eastern region at 12.1% in 2013. Similarly, emerging market regions of Latin America, Africa and Asia-Pacific registered growth rates of 8.1%, 5.5% and 5.3% respectively, in international passenger demand. Meanwhile, developed economies of Europe and North America had growth rates of 3.8% and 3% in international passenger demand. The Asia-Pacific region, in addition to outpacing passenger demand from developed economies, leads the world passenger traffic with a 29% share according to Airbus, followed by Europe and North America at 26% and 25% respectively.
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Estée Lauder has capitalized on the strong demand for international travel from Asian customers and is the leading travel retailer in the Asia-Pacific market. By the end of fiscal 2012, the company had a total of 1,600 travel retail outlets worldwide. However, we believe a majority of these travel retail outlets to be situated in travel corridors popular among Asian customers, given their expanding discretionary wallet share. Going forward, the company could continue to establish itself as a strong travel retailer within the Asia-Pacific region by opening more stores.

Travel Retail Investments Should Lead To Market Share Expansion For Estée Lauder

Going forward, Airbus expects domestic travel within China and India to drive overall Asia-Pacific passenger demand, with annualized growth rates of 7% and 10% respectively through 2032. In addition to strong domestic travel growth, international travel corridors (such as Intra Asia, Asia – Middle East, Asia – PRC and Central Europe – Western Europe) are expected to see a higher demand in passenger traffic than the global growth rate of 4.7% annually through 2032. This burgeoning demand surrounding the Asia-Pacific and Middle East regions should drive future investments into travel retail from cosmetics companies.

We expect Estée Lauder to increase its investments into the travel retail business in the future, driven by the higher revenue growth rate from the division. Through its travel retail channel, Estée Lauder has achieved a 15% top line growth rate compared to 4% for overall revenues in CY2013. Additionally, growth in travel retail is primarily resulting from the sale of skin care products. At the end of CY2013, we estimate Estée Lauder’s skin care market share to stand at approximately 7.6%. However, higher investments into travel retail should be able to drive future revenues and expand its skin care market share in the future.

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Update
2

8 weeks ago

Khazanah throws MAS RM6b lifeline

Aug 29 2014 5:01pm CDT | Source: Business Times Singapore

August 30, 2014 1:15 AMKHAZANAH Nasional will inject RM6 billion (SS$2.4 billion) over three years to resuscitate loss-making Malaysia Airlines (MAS) under a recovery plan that includes even an Act of Parliament. Other key moves are migrating its operations, assets and liabilities to a new company (NewCo) and slashing the workforce of 20,000 by 30 p ...
Source: Business Times Singapore   Full article at: Business Times Singapore
 

 
Update
1

8 weeks ago

MAS posts loss of RM307m for Q2

Aug 28 2014 5:00pm CDT | Source: Business Times Singapore

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