Professional Documents
Culture Documents
01 - Estee - Lauder Case External Assement
01 - Estee - Lauder Case External Assement
A. Case Abstract
Este Lauder produces a diverse line of shampoo, perfumes, lip gloss and other
skin care products. A small sampling of the brand names marketed by Este
Lauder include: Este Lauder, Clinique, American Beauty, and Flirt. The
products are sold through various distribution channels, including specialty stores,
department stores, pharmacies, the and Web. Este Lauder operates in the
Americas, Europe, Middle East, Asia, and Africa. The company has over 28,000
employees and is led by CEO William Lauder whose base pay was over $3.5M in
2007. The firms two major competitors are conglomerate giant Procter &
Gamble and LOreal.
Este Lauder is committed to its name being synonymous with the best quality
skin care products in the world.
(proposed)
Our mission is to deliver the highest quality skin care products, fragrance,
cosmetics, and hair care products (2) for men and women of all ages and
nationalities (1) around the world (3). By using the latest technology (4) in
cosmetic design, we are able to ensure our customers high demand for superior
and safe products will be met or exceeded in each and every product purchased
(7). Providing the best products possible to our customers will enable our
philosophy (6) of improving the sprit of our customers mind, body and soul to
continue from generation to generation (5). By hiring the most experienced
1. Customer
2. Products or services
3. Markets
4. Technology
5. Concern for survival, profitability, growth
6. Philosophy
7. Self-concept
8. Concern for public image
9. Concern for employees
D. External Audit
Opportunities
Threats
1. Consumer complaints and inquires into the use of animal testing for new
products.
2. FDA plans to require cosmetic corporations to add a label stating the safety
of this product has not been determined.
3. Many new start up companies with specialty products are created each year.
4. Concerns about the use of aerosols, fluorocarbons and other chemicals in the
production of cosmetic products.
E. Internal Audit
Strengths
Weaknesses
1. In 1990, 75 nameplate department stores sold Este Lauder; today that number
is only 17.
2. Stock price has been stuck between $25 and $50 trading range since 1996.
3. Este Lauder lacks a clear mission and vision statements.
Date Book Value/ Share Debt/Equity ROE (%) ROA (%) Interest Coverage
06/07 $6.17 0.91 37.4 10.9 NA
06/06 $7.66 0.32 20.0 8.6 NA
06/05 $7.68 0.42 24.2 10.5 NA
06/04 $7.62 0.31 21.8 10.2 NA
06/03 $7.84 0.16 18.3 9.7 NA
Adapted from www.moneycentral.msn.com
F. SWOT Strategies
SO Strategies
1. Expand product offerings in foreign nations (S1, S8, O1).
2. Continue to acquire interest in start up companies (S6, S7, O2, O4, O5).
WO Strategies
1. Continue to expand the respective brand name websites and offer incentives to
customers (W1, W3).
2. Introduce new fragrance products for men and boys (W5, O4).
ST Strategies
1. Offer rebates to customers to compete with black and gray market distributors
(S7, S8, T5, T6).
2. Market new soaps and skin care products that tailor to the natural look (S7,
S8, T7).
WT Strategies
1. Draft new vision and mission statements along with a new clearer corporate
structure to compete with current competition (W3, W4, T3, T5, T6).
2. Create a new line of products tailored to customers on smaller budgets (W6,
T8).
G. SPACE Matrix
Financial Strength (FS) Average 4.0 Environmental Stability (ES) Average -4.0
Competitive Advantage (CA) Average -1.8 Industry Strength (IS) Average 4.4
QuadrantII QuadrantI
Weak Strong
Competitive Competitive
Position Position
QuadrantIII QuadrantIV
SlowMarketGrowth
Medium IV V VI
The EFE Total 2.0 to 2.99
Weighted Score
Este Lauder
J. QSPM
Strategic Alternatives
Introduce new Continue to expand
products for non into new geographic
traditional markets
Key Internal Factors Weight customers
Strengths AS TAS AS TAS
1. Wholly owned and operated offices in 43 countries 0.12 2 0.24 4 0.48
and territories and sold in over 135 countries.
2. Test products on animals only when required by
law. 0.03 --- --- --- ---
K. Recommendations
The QSPM strategies assessed further global expansion and focusing on new
nontraditional customers. The QSPM reveals that both strategies are viable
options and is inconclusive on which option is the best alternative. Several
recommendations with estimated cost figures are included below. These are not
meant to be undertaken all at once, but rather in stages over the next 5 years.
With Net Income of $450M in fiscal year 2007, these strategies are financially
feasible.
1. Expand further into Eastern Europe in the former communist block nations.
These nations are rapidly growing, have prospects of joining the European Union,
and the people appreciate fashion. Cost of entry/operation is still lower than
many other more developed nations. Build two new factories at a cost of $200M
each. Also, open 25 new retail stores in shopping malls at an initial cost of $500K
each. Total cost of $400M + $12.5M = 412.5M
2. Expand further into China. By some accounts, China is growing at 3 times the
rate of the United States and has a population of over 1B. The same target plan as
for Eastern Europe with total cost of $412.5M.
3. Develop ten new products and initiate an aggressive advertising campaign to
target men in the United States. Estimated cost $200M.
4. Further develop a line of natural skin care products and exfoliaters under a new
catchy brand name. Target these products to older customers and customers who
are into the natural craze look. Estimated cost $200M
For purposes of the EPS/EBIT analysis, it will be assumed Este Lauder builds
one factory, opens 10 new retail stores and fully implements their aggressive
campaign to market to men. Total cost = $405M.
L. EPS/EBIT Analysis
$ Amount Needed: 405M
Stock Price: $40
Tax Rate: 36%
Interest Rate: 5%
# Shares Outstanding: 193M
CommonStockFinancing DebtFinancing
Recession Normal Boom Recession Normal Boom
EBIT $300,000,000 $600,000,000 $1,000,000,000 $300,000,000 $600,000,000 $1,000,000,000
Interest 0 0 0 20,250,000 20,250,000 20,250,000
EBT 300,000,000 600,000,000 1,000,000,000 279,750,000 579,750,000 979,750,000
Taxes 108,000,000 216,000,000 360,000,000 100,710,000 208,710,000 352,710,000
EAT 192,000,000 384,000,000 640,000,000 179,040,000 371,040,000 627,040,000
#Shares 203,125,000 203,125,000 203,125,000 193,000,000 193,000,000 193,000,000
EPS 0.95 1.89 3.15 0.93 1.92 3.25
70PercentStock30PercentDebt 70PercentDebt30PercentStock
Recession Normal Boom Recession Normal Boom
EBIT $300,000,000 $600,000,000 $1,000,000,000 $300,000,000 $600,000,000 $1,000,000,000
Interest 6,075,000 6,075,000 6,075,000 14,175,000 14,175,000 14,175,000
EBT 293,925,000 593,925,000 993,925,000 285,825,000 585,825,000 985,825,000
Taxes 105,813,000 213,813,000 357,813,000 102,897,000 210,897,000 354,897,000
EAT 188,112,000 380,112,000 636,112,000 182,928,000 374,928,000 630,928,000
#Shares 200,087,500 200,087,500 200,087,500 196,037,500 196,037,500 196,037,500
EPS 0.94 1.90 3.18 0.93 1.91 3.22
M. Epilogue
On November 9, 2007, the Este Lauder Companies announced an increase in its
annual dividend on its Class A and Class B Common Stock to $.55 per share. This
amount represents a 10% increase over the previous annual rate of $.50 per share.
The $.55 per share annual dividend on the Class A Common Stock and Class B
Common Stock was paid on December 27, 2007 to stockholders. Additionally, the
company began to repurchase up to another 20.0 million shares of Class A
Common Stock or about 10% of the total outstanding common stock. This
increases the total authorization to 88.0 million shares, of which about 62.5
million have been repurchased to date.
Also on November 9, 2007, the Este Lauder Companies Inc. announced the
appointment of Fabrizio Freda as President and Chief Operating Officer, effective
March 3, 2008. With this move, Chief Executive Officer William P. Lauder has
On August 16, 2007, the Este Lauder Companies Inc. announced that for first
quarter 2008, net sales should increase between 5% and 7% in constant currency
and earnings per share should be between $0.05 and $0.11. For fiscal 2008, the
Company expects net sales to grow between 7% and 9% and EPS to be between
$2.28 and $2.40. According to Reuters Estimates, analysts on average are
expecting the Company to report EPS of $0.33 on revenues of $1.7 billion for first
quarter 2008, and EPS of $2.48 on revenues of $7.4 billion for fiscal 2008.
On July 9, 2007, the Este Lauder Companies Inc. announced that it has agreed to
acquire the Ojon Corporation, a privately-held prestige hair care company based
in Canada. Ojon markets and sells products made with ingredients collected by
the Tawira, an indigenous community living in the Central American rainforest.