Company Analysis and Valuation Project December 10, 2014

ESTÉE LAUDER
COMPANIES

Stock snapshot Company Overview

The Estee Lauder Companies is a beauty company based in the
Estée Lauder Companies Inc. - United States. It was founded in 1946 by Mrs. Estee Lauder and her
NYSE
husband, Joseph Lauder. It is headquartered in New York City, New
73.45 1.19(1.59%)- Dec.10 York and employed about 42,400 people as of June 30, 2014. Its
Day’s Range 73.42 - 74.44 products are sold in over 150 countries and territories under a
52wk Range 63.63-77.66 number of well known brand names including: Estée Lauder, Aramis,
Market Cap 27.88B Clinique, Origins, MAC, Bobbi Brown, La Mer and Aveda. For fiscal
P/E (ttm) 25.41 2014, net sales were $10.97 billion, an increase of 7.7% percent over
EPS (ttm) 2.89 FY 2013 and net earnings were $1.2 billion.
1y Target Price 85

Opinion Buy
Key Ratios
Estee Lauder’s Business Model
Estee Lauder’s main business is manufacturing and marketing all
2013 2014 their products and licenses. The company's manufacturing
Revenue growth 4.8% 7.7% operations are primarily conducted in the US, Belgium, Switzerland,
the UK and Canada. Estee Lauder utilizes third parties on a global
Net Margin 10.02% 10.98%
basis for finished goods production.
Asset Turnover 1.48 1.46

Leverage Ratio 2..28 2.10

Estee Lauder conducts its operations through a single business
segment of beauty products and operates across the following
ROE 35.10 34.33
product categories: skin care, makeup, fragrance, hair care and
Group member other products.

Jieshan Peng The principal raw materials used in the manufacture of the
company's products are essential oils, alcohols and specialty
jxp133830@utdallas.edu
chemicals. Estee Lauder's centralized global supplier relations
department procures these required raw materials for all its
Jia Heng
manufacturing facilities.
jxh135830@utdallas.edu
Estee Lauder has a well-balanced portfolio geographically. The
Xiaoqing Xu company markets products that they know will sell in each country
xxx132030@utdallas.edu depending on research that has previously been conducted. The

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Revenue by
Americas (primarily the US) are the
Geography Revenue by Catergory
company's largest market, representing
37% of sales. Europe, the Middle East &
Africa accounts for more than a third. 1%
5%
21%
Estée Lauder has also expanded its
42% 43%
distribution channels to include mass 38%
merchandisers and salons. The company
has been gradually shifting business from 37% Skin Care
13% Fragrance
department stores to its own stores and
Make Up
other outlets. Its online Origins presence A&P
Hair Care
has expanded, too. Clinique, M.A.C, Eur/MEA
Other
Origins, and Bobbi Brown sell products N&S Am
online.

The fiscal year 2014 Skin Care accounted for 43% of net sales, Make Up accounting for 38%, Fragrance
13%, and Hair Care representing 5% of net sales.

Estee Lauder’s strategy

Our analysis reveals that Estee Lauder is a product/service differentiation company. Its ability to stand out
from other competitors is crucial to its financial performance.

Diverse product brand portfolio

Estee Lauder, focusing solely on prestige beauty, is a global company with a global strategy to follow. They
aim to target different market niches in each region. Their business is balanced by product category. Their
strategy of “Bringing the Best to Everyone We Touch and Being the Best in Everything We Do” is quite
easy to achieve with their vast market appeal.

The Skin care brands Clinique and Origins are marketed to appeal to customers that want natural,
organic, and allergen-free products. Makeup lines MAC and Bobbi Brown are targeted for the higher end
fashion savvy customer. These brands appeal to both teen and middle aged market and offer professional-
grade makeup and tools. La Mer and Darphin Paris are targeted at their high-end market and have
substantial brand recognition as the prestigious skin care and makeup brands. In late 2014, Estée Lauder
acquired Le Labo, which specializes in distinctively French high-end fragrance and sensory items that
have earned a loyal consumer following for its exclusivity and personalized service. In offering a product
to nearly every market niche, Estee Lauder has been able to get through the global economic downturn
while still generating profits each year.

Innovation & Creativity

Estee Lauder are focused on creating fewer, but more successful products. They are motivated to be
“creativity-driven and consumer-inspired.” Their muse is the consumer, who is used to create beauty

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products that they couldn’t have imagined needing. Estee

Lauder’s overall strategy also includes heavily investing in
Research and Development. In order to have the most
advanced products that consumer’s desire they feel that this is
a necessary expense. As of June 30, 2014 Estee Lauder had
approximately 700 employees engaged in R&D costing 157.9
million dollars.

Global distribution channel

Estee Lauder has a well-balanced portfolio geographically. The
Company sells its products principally through distribution
channels to complement the images associated with its
brands. Some of the channels include department stores,
specialty retailers, pharmacies, and salons. As August 14, 2014,
Estee Lauder directly operated approximately 940 retail
stores. Additionally, they also sell their brands through e-
commerce in the United States, Canada, The UK, France,
Germany, Australia, Korea, China, and Japan from selling
products through own and authorized dealer websites, stores
on cruise ships, direct response television, in-flight and duty
free shops, and some self-select outlets. Recently, Estee
Lauder also opened shop on Tmall, which contributed to their
e-commerce business in China more than doubling.

‘High-Touch’ service model

Advertising and promotions are key in the ultra competitive
personal care products market. Estée Lauder advertises on TV, in
magazines and newspapers, on digital and social media sites, and on billboards and via direct mail.
Promotional activities include in-store displays. The company's largest customer is department store
operator Macy's, representing about 10% of consolidated net sales for fiscal 2014. The company's
marketing creed is to provide "high-touch" service to build customer loyalty. Estee Lauder connects with
consumers online through e-commerce, social networking and interactive tools. They implement a
customized educational approach that comes from beauty advisors and makeup artists. They have also

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adapted it for online use, using direct response television and self-assisted formats as well. For example,
on the Estée Lauder brand’s website, visitors can upload a photo and use a “makeup widget” to
experiment with the latest colors and get a virtual makeover, on their time and in the comfort of their
home.

SWOT Analysis
Estee Lauder is a globally recognized manufacturer and marketer of makeup, skin care, fragrances and
hair care products. The company's wide geographical presence reduces the business risk due to diversified
revenue stream and enables participation in fast growing developing markets. However, intense
competition in the beauty market may adversely affect the company's market share.

The Estee Lauder Companies, Inc., SWOT Analysis

Strength
Strong Brand and Product Portfolio
Geographic Lanscape
In-house research and development facilitates
high consumer acceptance and quick market
penetration

Weakness
Legal Issues
Limited distribution strategy increases
dependency on specific channels

Opportunities
Growth Prospects: E-Commerce
Positive outlook for the market in China
Consumer Demand Fueling Cosmetic Trends
Retail environment in emerging economies
provides strong growth potential

Threats
Highly Competitive Market
Increase in counterfeit Goods Market may hurt
Changing Consumer Preferences
Increasing labor cost in the US and Europe

Competition:
Estée lauder’s brands face severe competition in the cosmetics industry. The company faces strong
competition from established international as well as regional and local players. The competitors of the
company include L'Oreal, Shiseido Company, Coty, Procter & Gamble, and Avon Products. Estee Lauder
also faces competition from independent brands and some retailers that have developed their own beauty
brands. Some of these competitors have greater resources than Estee Lauder and may be able to respond
quickly to the changing economic environmental needs. Brand recognition, quality, performance and price
are factors on basis of which the companies compete. Other factors such as advertising, promotion,
merchandising, the pace and timing of new product introductions, and line extensions also impact

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consumers' buying decisions. In particular, the fragrance product line in the US has been influenced by
the high volume of new product launches by diverse companies across different distribution channels.

Furthermore, the trend toward consolidation in the retail trade in developed markets such as the US and
Western Europe, has made the company increasingly dependent on key retailers, including large-format
retailers. This affects the company's bargaining power and has added to its risk related to the
concentration of customers. Therefore, increasing competition could adversely affect the company's
market share.

Main competitors are displayed:

L'Oreal S.A.
Coty Inc

Procter & Gamble
Elizabeth Arden,
Unilever
Johnson & Johnson
Shiseido Company,

P&G is the global leader in prestige fragrances due to the success of its highly lucrative Dolce &
Gabbana, Gucci and Hugo Boss fragrance brands. Additionally, the company owns Olay, the top facial
skin care brand in the world.

L'Oreal is known for its mass-market cosmetics and hair color products sold under a variety of other well-
known industry brands, such as Garnier, Maybelline, Lancome, Kiehl's and The Body Shop. In June 2014,
L'Oreal announced its intention to acquire Los Angeles-based NYX Cosmetics for an undisclosed sum. In
addition to directly competing with Estee Lauder's MAC Cosmetics line. So M.A.C. and Bobbi Brown
face significantly more competition because both of the companies target same specialized clientele.

Unilever is in the process of expanding its previously male-oriented Axe deodorant brand into hair care
and women's products. The company is also entering the natural and organic segment of the industry. So
Estée Lauder’s all-natural products will face competition . Moreover, its mid-end products compete
against Revlon, Avon, and Elizabeth Arden. We believe the rivalry level between existing firms and
substitute product is quite high.

Due to the diverse product brand portfolio, we believe that threat from new entries is moderate.
Although industry has moderate barriers to entry, only undifferentiated products with low price can lead
downstream buyers to choose one brand over another. For high-quality, niche products, price is less of a
competitive factor as consumers purchase the product based on its promised performance. Besides,
quality is another important basis of competition for industry participants. High-quality items (or those
perceived as such) carry a price premium, which boosts company revenue and profit. So during the past
five years, middle-tier product manufacturers have invested money in appearance to attract consumers on
the basis of perceived high quality.

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Financial Analysis

DuPond Analysis

By decomposing return on equity ratio into its component parts (DuPond Analysis), we can get
a rough idea of Estée Lauder’s financial performance. Each of the component ratios shown
below is an indicator of a distinct aspect of a company’s performance. DuPond Analysis can be
more helpful when taking target company’s competitors into consideration. In this case,
Procter & Gamble Co., Coty Inc., and Elizabeth Arden Inc. are Estée Lauder’s important
peers.

DuPont Analysis EL PG COTY RDEN At first glance, Estée

12 Months Ending 2014-06-30 2014-06-30 2014-06-30 2014-06-30 Lauder had relatively
high net profit margin,
Net Profit Margin 10.98 14.02 -2.14 -12.52
and low leverage ratio.
Asset Turnover 1.46 0.59 0.70 1.08 Also, it outperformed all
Leverage Ratio 2.10 2.10 5.59 2.44 its three competitors in
Return on Equity 33.68 17.25 -8.33 -32.89 management efficiency.

Profitability

For year 2014, Estée Lauder experienced a 19.76% surge in sales income, maintained a favorable
level of gross margin at around 80% for recent three years and succeeded in a slight increase in
net profit margin. Although Estée Lauder earned less percentage of net profit than Procter &
Gamble Co., it did outperform the industry average.

Profitability EL EL EL PG COTY RDEN

12 Months Ending 2012-06-30 2013-06-30 2014-06-30 2014-06-30 2014-06-30 2014-06-30
Gross Margin 79.45 80.10 80.32 48.88 59.01 40.34
Operating Margin 13.50 14.99 16.66 18.41 0.56 -5.54
Net Income Margin 8.82 10.02 10.98 14.02 -2.14 -12.52
Income Growth 20.41 16.34 19.76 6.69 Negative Negative

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Solvency

Solvency EL EL EL PG COTY RDEN

12 Months Ending 2012-06-30 2013-06-30 2014-06-30 2014-06-30 2014-06-30 2014-06-30
EBITDA/Interest Paid 21.43 21.81 33.52 26.86 4.34 -0.29
EBIT/Interest Paid 17.49 17.87 27.69 22.29 0.40 -2.79
Long-Term Debt/Equity 38.91 40.16 34.24 28.31 339.38 94.66
Total Debt/Equity 46.88 40.71 34.71 50.61 342.86 116.02

Solvency refers to the ability to meet company’s financial obligations over long term. The year
2014 witnessed both increase in interest coverage and decrease in financial leverage, which
also beat most competitors.

Liquidity

Liquidity EL EL EL PG COTY RDEN

12 Months Ending 2012-06-30 2013-06-30 2014-06-30 2014-06-30 2014-06-30 2014-06-30
Cash Ratio 0.63 0.77 0.79 0.32 0.78 0.21
Current Ratio 1.81 2.22 2.35 0.94 1.74 2.22
Quick Ratio 1.13 1.38 1.46 0.51 1.19 0.79

Liquidity refers to the ability to meet short-term financial commitments, focusing the
company’s ability to convert assets to cash and to pay for operating needs. All these ratios
above shows that Estée Lauder had an adequate liquidity level, which is also more healthier
than its peers.

Efficiency

ROA measures how well a company's management uses its assets

to generate profits. It is a better measure of operating efficiency
than ROE, which only measures how much profit is generated
on the shareholders equity but ignores debt funding. Estée
Lauder had much higher ROA and ROE than other companies
in the same sector, indicating its efficiency and superior ability to
operate profitably.

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Efficiency EL EL EL PG COTY RDEN

12 Months Ending 2012-06-30 2013-06-30 2014-06-30 2014-06-30 2014-06-30 2014-06-30
Return on Assets 13.32 14.85 16.04 8.21 -1.49 -13.46
Return on Equity 31.96 33.88 33.72 17.24 -8.33 -32.89

Working Capital Management

Compared to other companies in the same sector (refer table below), we find that Estée Lauder
had average level of receivables turnover and payables turnover. However, it had a much lower
level of inventory turnover, i.e, a much longer days for inventories, which resulted into a long
period of cash conversion cycle. Long cash conversion cycle implies that the company must
finance its inventory and accounts receivable for a longer period of time, possibly indicating a
need for a higher level of capital to fund current assets. Therefore we believe plans to reduce
inventory could be particularly meaningful.

Working Capital Mgt EL EL EL PG COTY RDEN

12 Months Ending 2012-06-30 2013-06-30 2014-06-30 2014-06-30 2014-06-30 2014-06-30
Receivable Turnover 9.69 9.12 8.60 12.88 7.07 6.25
Days Sales Outstanding 37.79 40.01 42.44 28.33 51.62 58.40
Inventory Turnover 2.02 1.93 1.79 6.21 3.04 2.14
Days Inventory Outstanding 181.48 188.95 203.61 58.75 119.89 170.71
Payable Turnover 4.22 4.42 4.65 4.91 2.46 3.65
Days Payables Outstanding 86.76 82.57 78.53 74.35 148.14 100.14
Cash Conversion Cycle 132.51 146.39 167.53 12.72 23.37 128.97

Fortunately, EL said that it has long-term plans to de-stock

and practice tighter working capital management. One of
these important plans is Strategic Modernization Initiative
program (refer Appendix), which will enable the company to
improve service levels, enhance operating efficiencies,
improve inventory management, as well as provides a leaner
supply chain.

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Company Analysis and Valuation Project December 10, 2014

Income Statement Chart

Companies like Estée Lauder have quite low level of cost of goods sold but high level of selling
expenses. They spent a lot on advertising and promotion in order to enhance their market share
and differentiate themselves from other brands. (Refer Appendix for peers’ charts.)

Balance Sheet Chart

It is straightforward to take a look at this chart and learn more about Estée Lauder. For
example, We can see the company financed mainly by shareholder equity (49.17%) and long-
term debt (16.83%). It also hold an adequate level of cash, etc.

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Company Valuation
Been public since 1995, Estée Lauder’s share price went from $7.27 to $73.45 on Dec.9.2104, showing a
strong growth compare to market in past 5 years. The excellent performance of EL’s share price reflects its
long history of identifying where the best growth opportunities exist, creating desire and excitement
through the power of the outstanding prestige brands, and managing resources with the focus and agility
required to achieve success in a dynamic global marketplace.

The Estée Lauder Companies Inc. (EL) -NYSE 80

73.45 1.19(1.59%)- Dec.10, 2104
60
Prev Close 73.45

Open 74.23
40
Day’s Range 73.42 - 74.44

52wk Range 63.63-77.66 20

Market Cap 27.88B

EL P/E EL Adj Close Price S&P
0
P/E (ttm) 25.41
12/11/09 12/10/10 12/9/11 12/7/12 12/6/13 12/5/14
Source: Yahoo Finance

Prospect: Many Engines of Growth

Estée Lauder’s share is currently trading at 25x NTM vs HPC at 18x, which is justified by its attractive
growing compare with competitors. In fiscal 2014, EL achieved record sales of $10.97 billion, an increase
of 8% over the prior year, outpacing global prestige beauty once again. By maintaining its financial
discipline, EL’s operating margin rose 170 basis points, and diluted earnings per share increased 19%.

12 20 3.5

3
10 15
2.5

2
8 10
1.5
Net Sale (In Billions) Operating Margin (%) Diluted EPS
6 5 1
'10 '11 '12 '13 '14 '10 '11 '12 '13 '14 '10 '11 '12 '13 '14

Source: Estée Lauder’s 2014 Anual Report


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Many parts of the company contributed to Estée Lauder’s

success in fiscal 2014, highlighted by some standout categories,
brands, products and distribution channels:

• Makeup & luxury fragrances were especially strong.

• Emerging markets, such as China and Brazil, also contributed,

as did important heritage markets, like the United States and
the United Kingdom.

• Strong growth showed in e-commerce, m-commerce and Travel

Retail, and continued focus on creativity and innovation
resulted in successful new products and reformulations across
brand portfolio.

• In addition, A breaking barriers movement by signing 19-year-old model Kendall Jenner, who shows
strength of character & authenticity that resonates with Millennials and could help transform the
brand, especially in the U.S., where it’s lagged.

Thus, based on historical date, our forecasted revenues of EL in next 4 years are as follow:

Revenue Forcast
Jun-10 Jun-11 Jun-12 Jun-13 Jun-14 Jun-15 Jun-16 Jun-17 Jun-18

$millions FY10A FY11A FY12A FY13A FY14A FY15E FY16E FY16E FY16E

Revenue Build-Up

Net revenues $7,812 $8,815 $9,716 $10,183 $10,969 $10,759 $11,479 $12,171 $12,910

% reported 6.50% 12.80% 10.20% 4.80% 7.70% -1.90% 6.70% 6.00% 6.10%

Revenue Breakout

Americas $3,442 $3,796 $4,101 $4,303 $4,572 $4,525 $4,802 $5,045 $5,293

Europe, ME & Africa 2,859 3,258 3,603 3,759 4,164 4,044 4,354 4,631 4,937

Asia Pacific 1,510 1,761 2,011 2,122 2,233 2,190 2,323 2,495 2,680

Skin care 3,227 3,719 4,225 4,465 4,770

Makeup 2,978 3,371 3,697 3,877 4,210

Fragrance 1,137 1,236 1,271 1,311 1425

Hair care 414 432 462 489 516

Multiple-Based Valuation
As the cosmetic and beauty industry is relatively diversified, and there are only several companies listed
on North American stock markets, so it is hard for us to find a comparable company with similar scale.
Thus, we choose P&G, who is the flagship of the industry, and date from Bloomberg Peers, which include
more than 20 competitors listed globally, as the market multiples.


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Meanwhile, to rule out any exception, we use Revenue (ttm), EPS (ttm), and EBIT (ttm) as performance
measures which are easy to access and commonly used to measure a mature manufacture company.And
the Valuation outcome shows as below:
Multiple-Based Valuation Model
Estée Lauder P&G Bloomberg Peers Average

# of share (million) 379.61

Revenue (ttm): 10,920 83,020

P/S (ttm): 2.59 2.94 2.28

Vluation 1 74.50 84.57 65.59 74.89

EPS (ttm): 2.89 3.66

P/E (ttm): 25.68 24.78 24.91

Vluation 2 74.22 71.61 71.99 72.61

EBITDA (ttm): 2,120 19,180

EV/EBIT 13.26 14.03 13.80

Vluation 3 74.05 78.35 77.07 76.49

Average 74.26 78.18 71.55 74.66

source: Bloomberg

From the valuation results, we can see that the average estimated stock price is $74.66, which is almost
the same as Estée Lauder’s current stock price. It is because the average estimated stock price comes
from Bloomberg Peers is $71.55, which is relatively low for EL. Even using P&G’s data as market multiple,
a price of $78.18 isn’t high for EL, as EL is doing much better than P&G in the perspective of growth
potential according to our financial analysis above. Since EL outperforms most of its competitors on the
market, it maybe inappropriate to value its equity by using industry average data. Also, those trailing
twelve months (ttm) performance measures don’t take future growth in to consideration. So, we have to
change to other valuation method.

Operating-Income-Based Valuation

In order to better estimate Estée Lauder’s share price, we

Weight Cost Multiple
use the residual operating income (ROPI) model to give EL
a new valuation. ROPI model focuses on net operating
95.50% 9.30% 8.88%
profit after tax (NOPAT) and net operating assets (NOA). Equity
This means it uses key measures from both the income Debt 4.50% 1.80% 0.08%

statement and balance sheet in determining firm value, and 0.00% 0.00% 0.00%
Preferred Equity
also consider future growth by discounting forecast future
ROPI at company’s WACC.
WACC 8.96%

According to the revenue forecast above, we start ROPI 
 source: Bloomberg

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Company Analysis and Valuation Project December 10, 2014

model from revenue. We give EL’s a 6% revenue growth rate for the first 5 years considering EL’s
successful performance recently, and a 4% terminal growth rate which is subtracted from Equity Research
Report issued by BITG on Dec 5 2014. And then compute NOPBT as a percentage of revenue at around
19% for terminal. Also we get effective tax rate from EL’s annual report and WACC at 8.96% from
Blommberg. Combine with our forecast balance sheet, we get the estimated NOA and then calculate
ROPI =NOPAT - (NOAbeginning * Rw). As the calculation shows below, we finally narrow the target share
price for EL at $84.63, which is more reliable than what we get from multiple-based valuation.


Residual Operating Income Valuation Model

Jun-14 Jun-15 Jun-16 Jun-17 Jun-18 Jun-19 Terminal

Revenue $10,969 $10,759 $11,479 $12,171 $12,910 $13,685 $14,232

NOPBT 1,828 1,649 1,930 2,146 2,353 2600 $2,704

Tex expense 568 505 597 668 736 806 838

Effective tax rate 31.10% 31.50% 31.50% 31.50% 31.50% 31.50% 31.50%

Pretaxed nonoperating exp. 51 47 37 29 19 15 10

Tax on operating profit 584 520 609 677 742 811 841

NOPAT 1,244 1,129 1,321 1,469 1,611 1,789 1,863

NOA 1,139 1,023 1,057 1,047 1,111 1,177 1,224

ROPI 1,027 1,230 1,374 1,517 1,690 1,757

Rw 8.96%

Discount Factor 1.0000 0.9177 0.8423 0.7730 0.7094 0.6511

PV of ROPI 943 1,036 1,062 1,076 1,100

Horixon $5,216.87

Terminal 23,053.23

NOA 1,139.40

Total firm value 29,409.50

Less NNO -2,715.50

Firm equity value $32,125.00

share outstanding 379.61

Share Price $84.63

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Compare With Market Estimates

Compare with other analyst estimates, our target price $85 is Price Target Summary
more prudent as it is below the average target. But we think
Mean Target: 91.3
although Estée Lauder has enjoyed a long and glorious history in
cosmetic and beauty industry, the market is becoming more and Median Target: 91.5

more diversified and competitive. New brand and new trends come High Target: 105

and go, and reputation building and safety issue are always crucial to Low Target: 73
company like Estée Lauder. Thus, we can’t be too optimistic about No. of Brokers: 20
the long-term prosperous, and we think $85 is a more realistic price
Our 1 Year Target 85
for EL in the foreseeable future.

Conclusion
In our view, EL has been executing well on its strategy, and we think its
brands' prestige positioning will serve it well in international markets as well as
in the U.S. We see the combination of a mix shift favoring higher-margin skin
care, led by the Asia-Pacific region, which is disproportionately skin-care driven,
and continued operational improvements boosting margins long term. In near
term, we think strong new product momentum and market share gains will drive
results, despite slowing growth in China and sluggish demand in Europe.

Risks to our recommendation and target price include a slowdown in the economies of EL's major
country markets, slow consumer acceptance of new products, and unfavorable foreign exchange
translation. We also have concerns about corporate governance practices given the majority voting power
of insiders.

Our 12-month target price of $85 reflects a P/E multiple of 26.5X applied to our FY 15 EPS estimate.
Our P/E multiple represents a 10% premium to its ten-year average, which we believe is warranted as
benefits from market share gains, despite near term shifts in sales and EPS caused by technology
upgrades. So comparing with the current share price of $73.45, we give EL’s share a BUY opinion.

Wall Street Opinion

Current 1 Month 1 Months 3 Months
Month Ago Ago Ago
Strong Buy 6 7 7 7

Buy 5 5 5 5
Hold 13 12 13 13
Underperform 1 1 1 1
Sell 0 0 0 0

Mean Rating 2.3

Source: Yahoo Finance

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Appendix
Estee Lauder Cos Inc/The (EL US) - Multiples
12 Months Ending 2010-06-30 2011-06-30 2012-06-30 2013-06-30 2014-06-30
P/E 19.17 27.62 23.63 24.60 23.84
Average 30.69 27.42 28.76 27.19 26.46
High 43.29 36.16 34.32 31.35 28.72
Low 18.72 19.16 22.11 22.08 23.84
P/Book 5.66 7.89 7.70 7.76 7.38
Average 5.96 8.09 8.22 8.86 8.35
High 8.39 10.67 9.81 10.22 9.06
Low 3.63 5.65 6.32 7.19 7.38
P/Free Cash Flow 16.06 30.65 29.80 33.31 27.98
Average 23.41 23.00 31.93 34.29 35.81
High 33.01 30.65 38.09 39.53 38.88
Low 14.28 16.05 24.54 27.84 27.98
EV/Sales 1.43 2.35 2.16 2.49 2.57
Average 1.42 2.04 2.42 2.49 2.67
High 1.96 2.68 2.88 2.87 2.87
Low 0.89 1.43 1.87 2.02 2.45
EV/EBITDA 10.58 14.98 13.06 13.63 12.73
Average 15.43 15.06 15.38 15.04 14.61
High 21.37 19.82 18.31 17.35 15.70
Low 9.72 10.58 11.92 12.20 12.73
Dividend Yield 0.99 0.71 0.97 1.64 1.05
Average 1.17 0.72 0.69 0.85 1.53
High 1.82 0.99 0.97 1.64 1.67
Low 0.79 0.52 0.57 0.73 1.05
Price/Share 27.87 52.60 54.12 65.77 74.26
High 35.65 53.29 65.60 72.70 77.34
Low 15.00 27.31 40.76 49.81 63.63
Enterprise Value 11,143.8 20,734.7 21,001.8 25,382.0 28,161.5
Average 10,390.7 15,891.3 21,300.9 24,189.7 27,238.3
High 14,366.1 20,880.0 25,330.4 27,894.4 29,251.0
Low 6,534.7 11,145.2 16,491.4 19,618.4 24,962.4

Estée Lauder Companies Inc. (The) 1

 Company Analysis and Valuation Project December 10, 2014

Estee Lauder Cos Inc/The (EL US) - Contractual Obligations

In Millions of USD except Per Share FY 2010 FY 2011 FY 2012 FY 2013 FY 2014
12 Months Ending 2010-06-30 2011-06-30 2012-06-30 2013-06-30 2014-06-30
Debt Schedule
Debt Schedule - Total Debt 1,228.4 1,218.1 1,288.1 1,344.3 1,343.1

Capital Leases Schedule

Total Future Value of Capital Leases 0.0 0.0 0.0 0.0 0.0
Present Value of ST Capital Leases 0.0 0.0 0.0 0.0 0.0
Present Value of LT Capital Leases 0.0 0.0 0.0 0.0 0.0
Total Present Value of Capital Leases 0.0 0.0 0.0 0.0 0.0

Operating Leases Schedule

Rental Expense - Year 1 200.2 247.7 266.6 280.2 291.7
Rental Expense - Year 2 175.7 218.7 243.5 241.0 274.0
Rental Expense - Year 3 152.3 182.6 209.3 210.9 240.5
Rental Expense - Year 4 131.9 153.1 182.8 176.5 215.9
Rental Expense - Year 5 115.8 129.3 153.5 146.1 190.6
Rental Expense - Years 2 - 3 328.0 401.3 452.8 451.9 514.5
Rental Expense - Years 4 - 5 247.7 282.4 336.3 322.6 406.5
Rental Expense - Years 2 - 5 575.7 683.7 789.1 774.5 921.0
Rental Expense Beyond Year 5 427.4 433.0 482.2 480.0 797.9
Future Min Oper Lease Obligations 1,203.3 1,364.4 1,537.9 1,534.7 2,010.6

Contractual Obligations Schedule

Contractual Obligations - Year 1 1,627.9 1,273.6 1,683.7 1,802.3 1,464.1
Contractual Obligations- Years 2-3 1,002.6 1,198.8 1,201.6 1,283.7 1,815.1
Contractual Obligations- Years 4-5 751.3 645.2 1,028.5 1,011.5 777.3
Contractual Obligations - Years 2 - 5 1,753.9 1,844.0 2,230.1 2,295.2 2,592.4
Contractual Obligations - Beyond Year 5 2,148.3 2,184.6 1,870.3 2,506.1 2,565.9
Total Contractual Obligations 5,530.1 5,302.2 5,784.1 6,603.6 6,622.4

Purchase Obligations 2,212.9 1,881.5 2,178.6 2,681.7 2,280.1

Estée Lauder Companies Inc. (The) 2

Company Analysis and Valuation Project December 10, 2014

Income Statement Chart

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Estée Lauder Companies Inc. (The) 3

Company Analysis and Valuation Project December 10, 2014

Balance Sheet Chart

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Estée Lauder Companies Inc. (The) 4

Company Analysis and Valuation Project December 10, 2014

Strategic modernization initiative program

As part of long-term efforts to enhance information systems and increase productivity, Estee
Lauder is implementing Strategic Modernization Initiative (SMI). This initiative includes an
enterprise-wide global program that will deliver a single set of integrated data, processes and
technologies, which, in turn, would be scalable and used to standardize business processes
across brands, operating units and sales locations. The objective of this initiative is to
streamline Estee Lauder’s operations, create transparency, and renew all facets of the company’s
business. This initiative was first deployed in the company’s North American and UK
manufacturing facilities and created the North American financial foundation. During 2010–12,
this initiative was deployed globally, adding affiliates and brands to existing facilities. Currently,
more than 60% of the company’s sales are SMI-enabled, this includes majority of the
company’s global brands and more than half of its affiliate sales volume. As a result of this SMI
program, Estee Lauder improved its productivity in Korea; customer ordering improved by
four times; labeling is now nearly 30% more efficient; and picking accuracy improved from 97%
to 98.6%. At Smashbox, the time it takes from receiving retail order until delivery decreased
from 10 days or more to six days.

The multiyear investment in SMI includes installing new systems and software. Estee Lauder
focuses on three significant areas under SMI program. These include people, who are expected
to adapt to new ways of working; processes, leading to new systems and capabilities that focus
on speed and agility; and technology, including new SAP software to automate processes,
improve transparency and gain efficiencies. The areas of business using SMI processes and SAP
technology include the company’s manufacturing facilities in North America and the UK, as
well as 15 affiliates including Italy, Spain, Germany, Singapore, Korea, Australia and Thailand.
Further in January 2012, 13 sites began using SMI processes and SAP technology, including eight
affiliates, two global brands, Bumble and bumble and Smashbox, some third-party
manufacturing, as well as key account planning for North America. Further, as part of SMI, the
company intends to migrate majority of its operations to SAP through FY2013.

Therefore, SMI program will enable the company to improve service levels, enhance operating
efficiencies, improve inventory management, as well as provides a leaner supply chain.

Estée Lauder Companies Inc. (The) 5