Professional Documents
Culture Documents
A. Case Abstract
Estée Lauder produces a diverse line of shampoos, perfumes, lip gloss, and other
skin care products. A small sampling of the brand names marketed by Estée
Lauder include Estée Lauder, Clinique, American Beauty, and Flirt. The products
are sold through various distribution channels, including specialty stores,
department stores, pharmacies, the and Web. Estée Lauder operates in the
Americas, Europe, the Middle East, Asia, and Africa. The company has over
28,000 employees and is led by CEO William Lauder whose base pay was over
$5.0 M in 2021(an estimate). The firm’s two major competitors are
conglomerate giants Procter & Gamble and L’Oreal. (150-200 words)
B. Vision Statement
Estée Lauder is committed to providing the best quality skin care products in the
world (15 words)
C. Mission Statement
Our mission is to deliver the highest quality skin care products, fragrances,
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 the
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 spirit of our customers’ minds, bodies, and souls
to continue from generation to generation (5). By hiring the most experienced
chemists (9) to design new products that are safe and effective, we strive to
continue growing our product line. We strive to be socially conscious by
providing products that are environmentally safe and free from animal testing (8).
(133) (Maximum of 130)
1. Customer
2. Products or services
3. Markets
4. Technology
D. External Audit
Opportunities
Threats
E. Internal Audit
Strengths
Weaknesses
1. In 1990, 75 nameplate department stores sold Estée Lauder; today that number
is only 17.
2. Stock price has been stuck between $25 and $50 trading range since 1996.
3. Estée Lauder lacks a clear mission and vision statements.
4. Confusing organizational structure; it is unclear whether group presidents
have control over the product lines or geographic areas.
5. Net sales of fragrance products decreased 4 percent to $1.2B as the company
continues to struggle in this segment.
6. Company does not offer enough brand names tailored to lower budget
consumers.
Financial Ratio Analysis (June 2007)
Growth Rates % Estée Lauder Industry SP-500
Sales (Qtr vs year ago qtr) 7.30
Net Income (YTD vs YTD) -32.60
Net Income (Qtr vs year ago qtr) -32.60
Sales (5-Year Annual Avg.) 8.36
Net Income (5-Year Annual Avg.) 18.81
Dividends (5-Year Annual Avg.) 20.11
Price Ratios
Current P/E Ratio 20.8
P/E Ratio 5-Year High NA
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).
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
FS
Conservative Aggressive
6
CA IS
-6 -5 -4 -3 -2 -1 1 2 3 4 5 6
-1
-2
-3
-4
-5
-6
Defensive Competitive
ES
Financial Strength (FS) Average 4.0 Environmental Stability (ES) Average -4.0
Competitive Advantage (CA) Average -1.8 Industry Strength (IS) Average 4.4
Quadrant II Quadrant I
Weak Strong
Competitive Competitive
Position Position
Medium IV V VI
The EFE Total 2.0 to 2.99
Weighted Score
Estée Lauder
J. QSPM
Strategic Alternatives
Introduce new Continue to expand
products for non into new
traditional geographic 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.
For purposes of the EPS/EBIT analysis, it will be assumed Estée 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
M. Epilogue
On November 9, 2007, the Estée 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
Also on November 9, 2007, the Estée 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
created a succession plan that anticipates Freda becoming Chief Executive Officer
within 24 months.
On August 16, 2007, the Estée 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 Estée 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.