Estée Lauder Cos. Inc. (NYSE:EL)

Based on: 10-K (reporting date: 2023-06-30), 10-K (reporting date: 2022-06-30), 10-K (reporting date: 2021-06-30), 10-K (reporting date: 2020-06-30), 10-K (reporting date: 2019-06-30), 10-K (reporting date: 2018-06-30).

Estée Lauder Cos. Inc., profit margin by reportable segment

	Jun 30, 2023	Jun 30, 2022	Jun 30, 2021	Jun 30, 2020	Jun 30, 2019	Jun 30, 2018
Skin Care	14.68%	27.85%	32.01%	28.79%	29.38%	27.01%
Makeup	-0.49%	2.85%	-9.14%	-30.00%	7.47%	9.75%
Fragrance	17.52%	18.18%	11.16%	1.09%	7.77%	9.64%
Hair Care	-5.21%	-4.44%	-3.33%	-3.69%	6.68%	11.23%
Other	11.11%	0.00%	-4.44%	10.00%	17.39%	13.43%

The analysis of segment profit margins reveals a divergent performance trend across product categories, characterized by a significant decline in previously dominant segments and a strong recovery in others between 2018 and 2023.

Skin Care: This segment consistently maintained the highest margins for the majority of the period, peaking at 32.01% in 2021. However, a substantial contraction is observed in 2023, where the profit margin decreased sharply to 14.68%, representing the lowest point in the six-year period.
Makeup: The makeup segment exhibited extreme volatility, most notably a severe collapse to -30.00% in 2020. Although a marginal recovery occurred in 2022 with a profit margin of 2.85%, the segment returned to a negative position of -0.49% by 2023, indicating persistent instability in profitability.
Fragrance: A strong positive trajectory is evident in the fragrance segment. Despite a significant dip to 1.09% in 2020, margins expanded aggressively over the subsequent three years, reaching 18.18% in 2022 and remaining high at 17.52% in 2023, suggesting a successful pivot or increased demand in this category.
Hair Care: A sustained downward trend is observed in hair care. After starting at 11.23% in 2018, the margin turned negative in 2020 and remained consistently in deficit through 2023, closing at -5.21%, which indicates a long-term decline in segment profitability.
Other: The other segment demonstrates inconsistent results, fluctuating from a peak of 17.39% in 2019 to a low of -4.44% in 2021, before recovering to 11.11% in 2023.

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Segment Profit Margin: Skin Care

Estée Lauder Cos. Inc.; Skin Care; segment profit margin calculation

	Jun 30, 2023	Jun 30, 2022	Jun 30, 2021	Jun 30, 2020	Jun 30, 2019	Jun 30, 2018
Selected Financial Data (US$ in millions)
Operating income (loss) before charges associated with restructuring and other activities	1,204)	2,753)	3,036)	2,125)	1,925)	1,511)
Net sales	8,202)	9,886)	9,484)	7,382)	6,551)	5,595)
Segment Profitability Ratio
Segment profit margin¹	14.68%	27.85%	32.01%	28.79%	29.38%	27.01%

¹ 2023 Calculation
Segment profit margin = 100 × Operating income (loss) before charges associated with restructuring and other activities ÷ Net sales
= 100 × 1,204 ÷ 8,202 = 14.68%

The Skin Care segment experienced a period of consistent growth in both revenue and profitability from 2018 through 2021, followed by a marked decline in financial performance during the 2022 and 2023 fiscal years. The trajectory is characterized by an initial expansion phase and a subsequent sharp contraction in operating efficiency.

Net Sales Performance: Net sales demonstrated a steady upward trajectory from June 30, 2018, to June 30, 2022, rising from 5,595 million USD to a peak of 9,886 million USD. However, this growth trend reversed in 2023, with sales decreasing to 8,202 million USD, representing a significant retraction from the previous year's high.
Operating Income Trends: Operating income before restructuring charges followed a similar growth pattern to net sales, increasing from 1,511 million USD in 2018 to a peak of 3,036 million USD in 2021. A decline began in 2022, culminating in a sharp drop to 1,204 million USD by June 30, 2023, which is lower than the levels recorded in 2018.
Segment Profit Margin Analysis: The segment profit margin remained relatively stable and healthy between 27.01% and 32.01% from 2018 to 2022, reaching its maximum efficiency in 2021. A critical downturn occurred in 2023, where the margin collapsed to 14.68%. This indicates that the decline in operating income significantly outpaced the decline in net sales, suggesting a substantial increase in operating costs or a decrease in pricing power during the final reported period.

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Segment Profit Margin: Makeup

Estée Lauder Cos. Inc.; Makeup; segment profit margin calculation

	Jun 30, 2023	Jun 30, 2022	Jun 30, 2021	Jun 30, 2020	Jun 30, 2019	Jun 30, 2018
Selected Financial Data (US$ in millions)
Operating income (loss) before charges associated with restructuring and other activities	(22)	133)	(384)	(1,438)	438)	549)
Net sales	4,516)	4,667)	4,203)	4,794)	5,860)	5,633)
Segment Profitability Ratio
Segment profit margin¹	-0.49%	2.85%	-9.14%	-30.00%	7.47%	9.75%

¹ 2023 Calculation
Segment profit margin = 100 × Operating income (loss) before charges associated with restructuring and other activities ÷ Net sales
= 100 × -22 ÷ 4,516 = -0.49%

The Makeup segment's financial performance from 2018 to 2023 is characterized by significant volatility in both top-line revenue and bottom-line profitability. A period of relative stability was followed by a severe contraction, with subsequent efforts toward recovery failing to return the segment to its historical margin levels.

Net Sales Trends: Net sales peaked in 2019 at 5,860 million US dollars before experiencing a sharp decline over the following two years, reaching a low of 4,203 million US dollars in 2021. Although a partial recovery was observed in 2022 as sales rose to 4,667 million US dollars, this momentum was not sustained into 2023, where sales decreased slightly to 4,516 million US dollars.
Operating Income Performance: Operating income before restructuring charges showed a drastic reversal in 2020, shifting from a profit of 438 million US dollars in 2019 to a substantial loss of 1,438 million US dollars. While losses narrowed in 2021 and the segment returned to a positive operating income of 133 million US dollars in 2022, the performance regressed in 2023, resulting in an operating loss of 22 million US dollars.
Segment Profit Margin Analysis: The segment profit margin exhibited a steep downward trajectory, falling from 9.75% in 2018 to a nadir of -30.00% in 2020. A recovery phase followed, with the margin improving to -9.14% in 2021 and reaching 2.85% in 2022. However, the margin returned to negative territory in 2023, closing at -0.49%, indicating an inability to maintain a stable positive margin profile following the 2020 collapse.

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Segment Profit Margin: Fragrance

Estée Lauder Cos. Inc.; Fragrance; segment profit margin calculation

	Jun 30, 2023	Jun 30, 2022	Jun 30, 2021	Jun 30, 2020	Jun 30, 2019	Jun 30, 2018
Selected Financial Data (US$ in millions)
Operating income (loss) before charges associated with restructuring and other activities	440)	456)	215)	17)	140)	176)
Net sales	2,512)	2,508)	1,926)	1,563)	1,802)	1,826)
Segment Profitability Ratio
Segment profit margin¹	17.52%	18.18%	11.16%	1.09%	7.77%	9.64%

¹ 2023 Calculation
Segment profit margin = 100 × Operating income (loss) before charges associated with restructuring and other activities ÷ Net sales
= 100 × 440 ÷ 2,512 = 17.52%

The Fragrance segment experienced a period of significant volatility between 2018 and 2020, followed by a robust recovery and expansion in both scale and profitability from 2021 through 2023.

Revenue and Operating Income Trends: Net sales showed a downward trajectory starting in 2019 and reaching a trough of US$ 1,563 million in 2020. This decline was accompanied by a severe contraction in operating income, which fell from US$ 176 million in 2018 to US$ 17 million in 2020. A strong reversal occurred starting in 2021, with net sales climbing to US$ 2,512 million by 2023 and operating income peaking at US$ 456 million in 2022.
Segment Profit Margin Analysis: The segment profit margin exhibited extreme fluctuation, declining from 9.64% in 2018 to a critical low of 1.09% in 2020, indicating a substantial compression of operating efficiency. This was followed by a rapid expansion, with the margin rebounding to 11.16% in 2021 and reaching a high of 18.18% in 2022, representing a significant improvement in the segment's ability to convert sales into operating profit.
Recent Performance Stabilization: As of June 30, 2023, the segment entered a phase of stabilization. While net sales remained nearly flat compared to the previous year at US$ 2,512 million, operating income declined slightly to US$ 440 million. Consequently, the segment profit margin saw a marginal contraction to 17.52%, remaining substantially higher than the pre-2021 levels.

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Segment Profit Margin: Hair Care

Estée Lauder Cos. Inc.; Hair Care; segment profit margin calculation

	Jun 30, 2023	Jun 30, 2022	Jun 30, 2021	Jun 30, 2020	Jun 30, 2019	Jun 30, 2018
Selected Financial Data (US$ in millions)
Operating income (loss) before charges associated with restructuring and other activities	(34)	(28)	(19)	(19)	39)	64)
Net sales	653)	631)	571)	515)	584)	570)
Segment Profitability Ratio
Segment profit margin¹	-5.21%	-4.44%	-3.33%	-3.69%	6.68%	11.23%

¹ 2023 Calculation
Segment profit margin = 100 × Operating income (loss) before charges associated with restructuring and other activities ÷ Net sales
= 100 × -34 ÷ 653 = -5.21%

The Hair Care segment experienced a significant deterioration in profitability between fiscal years 2018 and 2023, transitioning from a positive margin to a sustained operating deficit. While net sales demonstrated resilience and eventual growth, this revenue expansion failed to translate into operational profitability, resulting in a widening negative margin.

Revenue Performance: Net sales exhibited a fluctuating but generally upward trajectory over the analyzed period. After an initial increase from 570 million USD in 2018 to 584 million USD in 2019, a contraction occurred in 2020, with sales dropping to 515 million USD. However, a consistent recovery followed, with sales increasing annually to reach 653 million USD by June 30, 2023, marking a net increase in top-line growth since 2018.
Operating Income Trends: Operating income before restructuring charges shows a stark contrast to the sales trend. The segment moved from a profit of 64 million USD in 2018 to a loss of 34 million USD in 2023. The transition to a loss-making position occurred in 2020, with operating losses deepening from 19 million USD in 2020 and 2021 to 28 million USD in 2022 and 34 million USD in 2023.
Segment Profit Margin Analysis: The segment profit margin declined sharply from 11.23% in 2018 to 6.68% in 2019, before collapsing to -3.69% in 2020. Despite the recovery in net sales from 2021 onward, the margin remained negative and continued to erode, reaching -5.21% by 2023. This divergence indicates that operating expenses increased at a rate exceeding revenue growth, leading to persistent margin compression.

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Segment Profit Margin: Other

Estée Lauder Cos. Inc.; Other; segment profit margin calculation

	Jun 30, 2023	Jun 30, 2022	Jun 30, 2021	Jun 30, 2020	Jun 30, 2019	Jun 30, 2018
Selected Financial Data (US$ in millions)
Operating income (loss) before charges associated with restructuring and other activities	6)	—)	(2)	4)	12)	9)
Net sales	54)	49)	45)	40)	69)	67)
Segment Profitability Ratio
Segment profit margin¹	11.11%	0.00%	-4.44%	10.00%	17.39%	13.43%

¹ 2023 Calculation
Segment profit margin = 100 × Operating income (loss) before charges associated with restructuring and other activities ÷ Net sales
= 100 × 6 ÷ 54 = 11.11%

The financial performance of the Other segment is characterized by significant volatility in both revenue and profitability between 2018 and 2023, with a notable period of contraction followed by a gradual recovery.

Net Sales Trends: Net sales remained relatively stable between 2018 and 2019, peaking at 69 million USD. A sharp decline occurred in 2020, where sales dropped to 40 million USD. From 2021 through 2023, a consistent upward trajectory is observed, with sales recovering to 54 million USD by the end of the period.
Operating Income and Profitability: Operating income before restructuring charges followed a volatile pattern, increasing from 9 million USD in 2018 to a peak of 12 million USD in 2019. Profitability declined sharply in 2020 to 4 million USD and shifted to a loss of 2 million USD in 2021. By 2023, the segment returned to positive territory with an operating income of 6 million USD.
Segment Profit Margin Analysis: The segment profit margin mirrored the volatility of operating income, rising from 13.43% in 2018 to a high of 17.39% in 2019. A significant erosion of margins occurred over the following two years, falling to 10.00% in 2020 and reaching a low of -4.44% in 2021. The margin recovered to 11.11% by 2023, although it remained below the 2018 and 2019 levels.

The correlation between the decline in net sales and the subsequent margin contraction suggests that the segment experienced significant operational headwinds between 2020 and 2021. The recovery observed in 2023 indicates a stabilization of operations and a return to positive profitability, albeit at a lower efficiency level than seen in the 2018-2019 period.

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Net sales

Estée Lauder Cos. Inc., net sales by reportable segment

US$ in millions

	Jun 30, 2023	Jun 30, 2022	Jun 30, 2021	Jun 30, 2020	Jun 30, 2019	Jun 30, 2018
Skin Care	8,202)	9,886)	9,484)	7,382)	6,551)	5,595)
Makeup	4,516)	4,667)	4,203)	4,794)	5,860)	5,633)
Fragrance	2,512)	2,508)	1,926)	1,563)	1,802)	1,826)
Hair Care	653)	631)	571)	515)	584)	570)
Other	54)	49)	45)	40)	69)	67)
Returns associated with restructuring and other activities	(27)	(4)	(14)	—)	(3)	(8)
Total	15,910)	17,737)	16,215)	14,294)	14,863)	13,683)

Total net sales demonstrated a general upward trajectory between 2018 and 2022, increasing from US$ 13,683 million to a peak of US$ 17,737 million, before experiencing a contraction to US$ 15,910 million in 2023. This overall volatility is primarily driven by shifting performance dynamics across the core reportable segments.

Skin Care Segment: Skin Care emerged as the primary revenue driver, exhibiting aggressive growth from US$ 5,595 million in 2018 to a peak of US$ 9,886 million in 2022. This represents a substantial expansion of the segment's contribution to total sales, although a notable correction occurred in 2023, with net sales decreasing to US$ 8,202 million.
Makeup Segment: A sustained downward trend is observed in the Makeup segment. From a high of US$ 5,633 million in 2018, sales declined sharply by 2020 and failed to recover to previous levels, ending the period at US$ 4,516 million in 2023. This indicates a long-term erosion of sales volume or pricing power within this category.
Fragrance Segment: The Fragrance segment showed resilience and growth over the long term. Despite a dip to US$ 1,563 million in 2020, the segment entered a period of accelerated growth starting in 2021, reaching US$ 2,512 million by 2023. This segment now provides a more significant portion of the total revenue mix than it did at the start of the analyzed period.
Hair Care and Other Segments: Hair Care maintained a trajectory of steady, incremental growth, rising from US$ 570 million in 2018 to US$ 653 million in 2023. The Other segment remained relatively marginal and stable, with values fluctuating between US$ 40 million and US$ 69 million.
Restructuring Returns: Returns associated with restructuring and other activities remained relatively low throughout the period, with the exception of a significant increase in 2023, where returns reached US$ -27 million. This increase contributed to the overall decline in total net sales for the final year of the period.

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Operating income (loss) before charges associated with restructuring and other activities

Estée Lauder Cos. Inc., operating income (loss) before charges associated with restructuring and other activities by reportable segment

US$ in millions

	Jun 30, 2023	Jun 30, 2022	Jun 30, 2021	Jun 30, 2020	Jun 30, 2019	Jun 30, 2018
Skin Care	1,204)	2,753)	3,036)	2,125)	1,925)	1,511)
Makeup	(22)	133)	(384)	(1,438)	438)	549)
Fragrance	440)	456)	215)	17)	140)	176)
Hair Care	(34)	(28)	(19)	(19)	39)	64)
Other	6)	—)	(2)	4)	12)	9)
Total	1,594)	3,314)	2,846)	689)	2,554)	2,309)

Total operating income before restructuring charges exhibited significant volatility between 2018 and 2023. After an initial increase and a sharp contraction in 2020, total operating income reached a peak of 3,314 million US$ in 2022 before declining to 1,594 million US$ in 2023. This overall trajectory highlights a heavy reliance on the Skin Care segment to offset losses and volatility in other product categories.

Skin Care Segment: This segment serves as the primary driver of profitability. Operating income grew steadily from 1,511 million US$ in 2018 to a peak of 3,036 million US$ in 2021. However, a sharp downward trend followed, with income falling to 1,204 million US$ by 2023, marking a significant reduction in the segment's contribution to total operating income.
Makeup Segment: The Makeup segment displayed extreme volatility. A substantial operating loss of 1,438 million US$ was recorded in 2020, representing the most significant single-segment deficit in the period. Although the segment returned to a positive position in 2022 with 133 million US$, it reverted to an operating loss of 22 million US$ in 2023.
Fragrance Segment: A positive recovery trend is observed in the Fragrance segment. Despite a decline to 17 million US$ in 2020, the segment experienced robust growth over the subsequent years, peaking at 456 million US$ in 2022 and remaining relatively stable at 440 million US$ in 2023. This indicates a strengthening of the segment's profit margins over the six-year period.
Hair Care Segment: The Hair Care segment showed a consistent deterioration in performance. After reporting positive income in 2018 and 2019, the segment entered a period of sustained losses beginning in 2020. These losses expanded progressively, reaching 34 million US$ by June 30, 2023.
Other and Aggregate Performance: Operating income from other activities remained marginal, fluctuating within a narrow range between -2 million US$ and 12 million US$. The aggregate results demonstrate that the overall decline in total operating income in 2023 was primarily driven by the contraction in the Skin Care segment and the inability of the Makeup and Hair Care segments to maintain profitability.

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