estee lauder companies strategic audit powerpoint

Bringing the Best to Everyone We Touch

Corporate and Strategic Analysis

Joshua Dopkowski

Sonoma State University

October 24, 2014

Bringing The Best To Everyone We Touch


General Motors Building, New York City

Corporate Snapshot


Executive Management

Corporate Snapshot

William Lauder

ChairmanCedric Prouvé

Group PresidentJohn Demsey

Group President

Fabrizio Freda

President & CEO

Sara Moss

General Councel

Michael O’ Hare

EVP HR

Greg Polcer

EVP Supply Chain

Tracey T. Travis

CFO

$31.5 Million $9.9 Million $7.9 Million $7.6 Million

$6.6 Million


Corporate Snapshot


The Driving Force

Marketing

• Single greatest expense for the company.

• Marketing departments part of Brand Business Unit.

• Regional marketing groups in USA.

• Domestic Marketing teams report into Brand Business Unit.

• Regional Marketing groups service subsidiaries.

• All Global Marketing teams report into Brand Business Unit.

• In house creative teams report into Brand leadership.


Logistics

Supply Chain

• Multiple production facilities allow for country of origin to be on

the same continent as the customer.

• Suppliers are global, with the majority having operations in the

New York/New Jersey region.


Packaging

Supply Chain

• Vital aspect of cosmetic product production.

• Most expensive aspect of inventory and COGS.

• Entire corporate division dedicated to the development of

product packaging and other materials.

• Separate Corporate Business Unit, broken out by departments

that service the brands (client/agent relationship).

• Heavily regulated and requirements vary greatly between

different countries.


Competitive Analysis

• Largely consolidated, however many small players exist.

• Estimated to exceed $600 Billion USD Globally.

• Cosmetic/Beauty sector $57 Billion USD in United States.

• USA Cosmetics/Beauty industry employs more than 56,000 people.

• L’Oréal is the largest horizontally integrated player at €23 Billion.

• Loosely regulated in USA.

• EU and Canada regulations much stricter.

Personal Care Industry


Competitive Analysis

• L’Oréal (Nestle has controlling share)

• Proctor & Gamble

• LVMH

• Unilever

• Coty

• Chanel

• Revlon

• Avon

• Elizabeth Arden

• L Brands Inc

• Johnson & Johnson

Largest Competitors


Snapshot

Financial Analysis

MACD

STOCHASTICS

VOLUME

PRICE

DJIA

S&P 500

Financial AnalysisConsolidated Statement of Earnings

Financial AnalysisConsolidated Earnings as Percentage of Net Sales

Financial AnalysisYear-Over-Year Comparisons

SELECTED FINANCIAL DATA 2014 2013 2012

Cash and equivalents $1,629.1 $1,495.7 $1,347.7

Accounts receivable $1,379.3 $1,171.7 $1,060.3

Inventory $1,294.0 $1,113.9 $983.6

Current assets $4,825.2 $4,297.2 $3,855.1

Total assets $7,868.0 $7,145.2 $6,593.0

Current liabilities $2,056.7 $1,934.6 $2,125.8

Total liabilities $3,999.4 $3,843.3 $3,845.5

Stockholders' equity $3,869.4 $3,301.9 $2,733.2

Total liabilities & equity $7,868.8 $7,145.2 $6,578.7

Sales $10,968.8 $10,181.7 $9,713.6

Cost of goods sold $2,158.2 $2,025.9 $1,995.8

Gross profit $8,810.6 $8,155.8 $7,717.8

SG&A $6,985.9 $6,597.0 $6,324.8

Operating income $1,827.6 $1,526.0 $1,311.7

Interest expense $50.8 $54.8 $61.1

Income taxes $567.7 $451.4 $400.6

Net income $1,209.1 $1,019.8 $856.9

Financial AnalysisYear-Over-Year Comparisons

KPI 2014 2013 2012

Current ratio 2.35 2.22 1.81

Quick ratio 1.46 1.38 1.13

Accts. receivable turnover 7.95 8.69 9.16

Inventory turnover 1.67 1.82 2.03

Return on assets 16.01% 15.04% 13.92%

Return on equity 31.25% 30.89% 31.35%

Debt to total assets 50.83% 53.79% 58.33%

Dividend payout ratio 0.06% 0.11% 0.06%

Times-interest-earned 35.98 27.85 21.47

Current assets 61% 60% 58%

Long term assets 39% 40% 42%

Current liabilities 26% 27% 32%

Long term liabilities 25% 27% 26%

Stockholders' equity 49% 46% 42%

Gross profit 80% 80% 79%

Operating income 17% 15% 14%

Net income 11% 10% 9%


COGS

Financial Analysis

• FIFO

• Inventory

• Raw Materials

• Direct Labor

• Overhead

• Inbound Freight

• Costs of Purchase Promotions

• Unallocated Overhead


SG&A

Financial Analysis

SG&A BREAKDOWN $ 2014 $ 2013 $ 2012

Advertising and Promotion 2618.1 2754.8 2614.5

Payments to Customers 1410 1412 1343

PP&E Depreciation & Amoritzation 378.1 329.8 286.9

Shipping & Handling 373.6 337.9 312.4

Rent 356.1 332.4 304.9

R&D 157.9 146.8 137.8

Currency Translation Transactions 95.1 -25.6 -154.2

Measurement Charge 38.3 0 0

Foreign Currency Forward Contracts 0.8

Derivatives (AOCI) -2.7

Unaccounted 1470.6

TOTA SG&A 6985.9


PESTLERPOLITICAL ECONOMIC SOCIAL

• Environmental law regarding CPG waste streams

• “Blood” minerals/materials

• Exchange rates

• Income disparity and rising costs of living

• Cultural view of cosmetics and animal testing

• Youthful brands

• Health Conscious Society

TECHNOLOGICAL LEGAL ENVIRONMENTAL

• Digital Marketing

• Supply Chain

• Allows for start ups and small producers.

• Minimal regulation in USA

• Trademark, IP

• M&A

• Raw materials for Product Development

• Waste streams• Marketing opportunities • Different laws exist

globally

GLOBAL REGULATORY

• Extreme disparities between various global regulations leads to highly complex supply chain strategies


SWOTSTRENGTHS WEAKNESSES

• Best skin care products.

• Global supply chain, distribution and market presence.

• Brand equity and reputation.

• Financial and largely recession proof.

• All luxury cosmetic CPG, no vertical integration.

• Inflated SG&A.

• Overpaid executives and culture of Nepotism.

• Political corporate culture.

• Gross Margin not holistic.

OPPORTUNITIES THREATS

• Restructure SG&A and COGS.

• Vertical integration in luxury.

• Enter new markets.

• Industry fragmentation & Wellness trend.

• Digital Marketing.

• Income disparity.


Do Something Now Or Risk Becoming Irrelevant

Strategic Recommendations

Become A Larger Part of Existing Customers Lifestyles

• Maximize presence in the lives of disposable income earners

• Culturally elite

• Wealthy

Enter The Lives Of New Customers

• Wellness market

• Athletic market

• Youth focused markets

Be Acquired

• Proctor and Gamble


Step 1 - COGS


COGS Need To Be Comprehensive:

• Packaging Risks

• Instrument Manufacturing (Die plates, custom tools, etc…)

• Infrastructure Cost in Overhead (Fillers, stamping equipment, storage, etc…)

• Merchandise as a debit to purchases (increase cost of inventory)

• Portion of Payments to Customers (period expenses)

• License agreements/royalties based on net sales

• AUDIT STRUCTURE GAPS IN MOST RECENT ACQUISITIONS AND CONTINUE

PRACTICE WITH NEW ACQUISITONS.


Step 2 - SG&A


SG&A Needs To Be Precise

• Clear breakdown.

• Routine and methodical analysis to identify value opportunities in SG&A.

• Cost reductions.

• Leverage opportunities.

• Synergies.

• Invest in Digital Marketing space.

• Identify more efficient and cost reducing promotional strategies.


Step 3 - Vertical Integration Through Acquisition.


Acquire Business Unit:

• Holistic Beauty & Lifestyle

• Products and services that support a lifestyle

• Do not price out new customers!

Other Possible BU’s:

• Luxury furniture

• Boutique fashion/apparel

• Wine & Spirits

• Jewelry


Corporate and Strategic Analysis

Joshua Dopkowski

Sonoma State University

October 24, 2014

THANK YOU