EL – Market expectations call for record-high Uniform ROA, but management may have concerns about the pace of the retail recovery, China, and online business

• The Estée Lauder Companies Inc. (EL:USA) currently trades near historical highs relative to UAFRS-based (Uniform) earnings, with a 42.7x Uniform P/E, implying bullish expectations for the firm. However, management may have concerns about the pace of the retail recovery, opportunities in China, and their online business.
• Specifically, management may lack confidence in their ability to maintain adjusted operating margin improvements, sustain growth in their online business, and implement higher pricing. Additionally, they may have concerns about the pace of the recovery of their specialty-multi and free-standing stores, makeup brands in the U.S, and international travel. Furthermore, management may lack confidence in their ability to capitalize on Hainan’s dynamic travel and retail development opportunities, sustain double-digit growth across different brands and channels in mainland China, and further strengthen their online presence across China’s ecommerce platforms, particularly JD.com. Moreover, they may have concerns about the sustainability of Re-Nutriv’s halo effect on demand, the affordability of their luxury brand within the beauty category, and the potential of their in-store and online brand launches at Kohl’s and Target.