Is Estée Lauder making money from Cosmetics?

Estée Lauder Companies (NYSE:EL) shows the conventional wisdom that COVID-19 has killed the cosmetic industry is dead.

Notably, Estée Lauder’s income and gross grew in 2020. Moreover, Stockrow estimates that Estée Lauder’s revenues grew by 4.95% in the quarter ending on 31 December 2020.

For example, Estée Lauder (NYSE:EL) reported a quarterly operating income of $1.063 billion and a quarterly gross profit of $3.769 billion on 31 December 2020. The quarterly operating income grew from $261 million and the quarterly gross profit grew from $3.583 billion on 31 December 2019.

Similarly, Estée Lauder’s quarterly revenues grew from $4.624 billion on 31 December 2019 to $4.853 a year later. Thus, Estée Lauder grew during a pandemic.

Has COVID-19 killed the Cosmetics Industry?

Estée Lauder’s gross profits, revenues, and income growth show that American women still buy enormous amounts of makeup.

I think Estée Lauder’s performance disproves the notion that women are not wearing cosmetics because many of them are not going out to work. Interestingly, the Coronavirus put just a small dent in cosmetics sales.

Statista estimates the US cosmetic and beauty industry revenues fell from $49.5 billion in 2019 to $49.2 billion in 2020. Notably, US cosmetic and beauty industry sales fell form $50 billion in 2018. Thus the drop was greater year before coronavirus.

Why Cosmetics did not Collapse

Instead of collapsing, the cosmetics industry is chugging along with slightly lower sales. My guess is that two forces drove the continued cosmetic sales.

First, enormous numbers of women still had to leave the home to work. That workforce included many retail and service workers (servers and sales clerks) who wear makeup at work.

Second, many bored women were sitting around home with nothing to do but play with cosmetics. A similar development is that women who use Zoom for meetings still want to look good on video. Hence, they still need cosmetics.

Third, cosmetics are easy to order and ship through online retailers such as Amazon (NASDAQ: AMZN). Remember, cosmetics are small and light and relatively cheap. Hence, cosmetics are a luxury cash strapped women can still afford. Moreover, many women had extra cash to buy cosmetics because they were not going out and doing anything.

How Much Money is Estée Lauder making?

Hence Estée Lauder (EL) could be a recession-proof company because it makes a consumer product people will buy even in the worst of times.

Moreover, as a luxury products company, Estée Lauder can generate cash. Estée Lauder reported a quarterly operating cash flow of $1.62 billion on 31 December 2020. The quarterly operating cash flow rose from $1.425 billion on 31 December 2019.

Thus, the quarterly operating cash flow rose in 2020. However, the quarterly ending cash flow fell in 2020. Estée Lauder began 2020 with a quarterly ending cash flow of $1.337 billion on 31 December 2019. The company ended 2020 with a quarterly ending cash flow of $1.278 billion on 31 December 2020.

Estée Lauder borrowed money and paid debts in 2020. Estée Lauder reported quarterly financing cash flows of $1.103 billion on 31 December 2019 and $838 million on 31 March 2020. However, the company reported negative quarterly financing flows of -$890 million and -$229 million on 30 September and 31 December 2020.

Thus, Estée Lauder was paying debts while other consumer products companies were borrowing. However, Estée Lauder’s total debt grew from $5.184 billion on 31 December 2019 to $5.383 billion on 31 December 2020.

What Value Does Estée Lauder have?

Estée Lauder (NYSE: EL) finished 2020 with more cash. The cash and short-term investments rose from $3.596 billion on 31 December 2019 to $5.545 billion on 31 December 2020.

Moreover, Estée Lauder’s total assets grew from $17.937 billion on 31 December 2019 to $19.595 billion on 31 December 2020. Hence, the company added value during a pandemic.

I conclude that the pandemic made Estée Lauder’s brand more valuable, even with department stores closed. To elaborate, Estée Lauder’s customers stayed loyal and bought its brands at Amazon (AMZN) instead of Macy’s (M).

I think the greatest value at Estée Lauder is its stable of brands. Those brands have strong name recognition, which helps customers find them at Amazon.

The Estée Lauder brands include AERIN, Aramis, AVEDA, Bumble and bumble, Bobbi Brown, Becca, Clinique, Darphin Paris, DKNY, Frederic Malle, DonnaKaran, Dr.Jart+, GlamGlow, Estée Lauder, Jo Malone, Kilian, La Mer Lab Series, Le Labo, MAC, Michael Kors, Origins, Rodin, smashbox, Tom Ford Beauty, Tommy Hilfiger, and Too Faced.

Mr. Market overvalues Estée Lauder (NYSE: EL)

I think Mr. Market overvalued Estée Lauder (NYSE: EL) at $289.21 on 12 Mach 2021. I do not think a company with $19.595 billion in assets can be worth $289.21 a share.

However, Estée Lauder has gained enormous share value over the past year. Mr. Market paid $187.38 for its shares on 10 March 2021. Consequently, I consider Estée Lauder a credible growth stock but not a value investment because it is expensive.

On the other hand, I consider Estée Lauder a credible income stock because it will pay a 53₵ quarterly dividend on 15 March 2021. That dividend grows, the company paid a 48₵ quarterly dividend on 15 September 2020.

Overall, Estée Lauder paid a $2.12 forward annualized dividend and a 0.74% dividend yield on 12 March 2020. Thus, I classify Estée Lauder as a respectable dividend stock that Mr. Market overprices.

If you are seeking a strong luxury or consumer stock, Estée Lauder is worth a look. However, I consider this stock overpriced.