Estée Lauder Cos. Inc. (NYSE:EL)

The analysis of the financial percentages relative to net sales over the six-year period reveals several key trends and fluctuations in the company’s profitability and expense structure.

Cost of sales and gross profit

Cost of sales as a percentage of net sales generally increased from -20.78% in 2018 to a peak of -28.69% in 2023, indicating rising direct costs relative to revenue. Correspondingly, gross profit declined from 79.22% in 2018 to 71.31% in 2023, showing a compression of the gross margin over the period.

Selling, general and administrative expenses (SG&A)

SG&A expenses fluctuated but exhibited a general decrease from -62.53% in 2018 to a low of -55.75% in 2022, before rising again to -60.18% in 2023. This suggests some efficiency improvements until 2022, followed by increased expenses relative to sales in the most recent year.

Restructuring and impairment charges

Restructuring and other charges decreased over time, from -1.69% in 2018 down to -0.35% in 2023, indicating lower costs associated with restructuring activities. Notably, goodwill impairment and impairments of other intangible and long-lived assets showed significant spikes in 2020 (-5.68% and -4.3% respectively), likely reflecting exceptional write-downs during that year. These impairments diminished substantially in the following years.

Operating expenses and operating income

Total operating expenses as a percentage of net sales showed volatility, peaking at -70.91% in 2020 before declining to approximately -61.83% in 2023. Operating income mirrored this pattern, falling sharply in 2020 to 4.24%, but rebounding strongly to 17.87% in 2022, then decreasing to 9.48% in 2023. This indicates a sharp impact on operating profitability in 2020, followed by a recovery and subsequent partial decline.

Interest and other income components

Interest expense remained relatively stable between -0.94% and -1.6%, with a slight increase noted in 2023. Interest income and net investment income decreased over time, except for a notable rise to 0.82% in 2023. Other income was volatile, with a considerable peak in 2021 of 5.22% before declining to near zero afterward.

Earnings before income taxes and net earnings

Earnings before income taxes showed variability, declining sharply in 2020 to 7.32% from over 14% in earlier years, then recovering strongly to 20.54% in 2021, followed by a decline to 8.78% in 2023. Provision for income taxes decreased over the period, especially notable in 2023 at -2.43%. Net earnings reflected the earnings before taxes trend, with a low of 4.87% in 2020 and a peak of 17.73% in 2021, followed by a decrease to 6.35% in 2023.

Net earnings attributable to controlling interests

The portion of net earnings attributable to the company’s shareholders followed similar trends to total net earnings, fluctuating between 4.79% (2020) and 17.7% (2021), then reducing to 6.32% in 2023. Earnings attributable to noncontrolling interests remained minimal throughout the period.

Overall, the data indicates a significant negative impact on profitability in 2020, likely driven by increased costs and large impairments. Subsequent years showed recovery in operating and net profitability until 2022, but there was a noticeable decrease in 2023. The rising cost of sales and higher operating expenses in the latest year contributed to shrinking margins. Although interest expenses remained stable, volatility in other income components may have affected net profitability. Tax provisions decreased over time, supporting net earnings retention. The trends suggest challenges in cost control and margin management in recent years despite periods of recovery.