JaguarConsumer Weekly Callouts – July 9 (EL, OXM, WW)
Estee Lauder (EL) is one of the most debated stocks in the Beauty category right now and JPMorgan recently provided updates via read-throughs from two of their international analysts.
To begin, their China consumer team led by Kevin Yin covers several consumer names, and under his team George Hsu and Cecilia Tan have direct coverage of the China Tourism Group – CTG (largest Asian travel operator with strong presence in China including HK, Macau and Hainan). Based on their channel checks, after the weak Labor Day holiday, the company continues to increase promotions which did help it gain market share in Hainan during May and June thus far. However, the overall consumption in May in China was weak, and barely improved in June, while they don’t see a strong rebound in DFS shopping (despite CTG market share gains). CTG used to have >50% of sales in cosmetics and beauty products. And this year, they expect the contribution from this category may decreased to low 40%, while the luxury and accessories may increase from 20% to >30%. Despite that, the team highlighted that retailers in Hong Kong have mentioned that the competition from Hainan has intensified and price gaps have widened between Hainan and HK.
Separately, Youna Kim, who is their Korea Consumer Equities Analyst, notes similar trends in Korea. DFS sales recovery is lagging behind the tourist traffic recovery vs. 2019. Tourist traffic for inbound and outbound recovered to 54% and 67% each, but the DFS revenue only recovered 48% and 56% respectively. Korea DFS revenue is down -28% Y/Y in 2023 YTD and down -51% vs. 2019 level. The weakness is mainly due to unfavorable FX for outbound tourists, group tourism from China not resuming as of yet, and Korea DFS operators’ strategic focus shifting to profitability from top line growth since January 2023. Along with soft end demand in China and existing inventory at Daigous and end-consumers, less discount to Daigou is causing a delay in product sourcing. In addition, according to their channel checks with industry experts, end demand is relatively better for makeup and sun care in Korea TR, thanks to reopening in China and low base, while demand for luxury skin care is softer due to pull forward revenue in previous years and less Daigou traffic.
Following meetings with Oxform Industries (OXM), one key takeaway that Piper Sandler mentioned was that the company’s Merlin Bar presents a unique growth vehicle.
“We think a combined food/beverage and retail offering provides a highly differentiated experience for consumers. Tommy has had a food/beverage offering for many years (the 22 stores with F&B represent 25% of Tommy Bahama merchandise sales), but the Marlin Bar presents an opportunity to drive strong results in a more capital efficient manner. Marlin Bar gross capex is approximately $3.5mm, with tenant allowances providing up to $1mm in offset. In recent Marlin Bar openings, retail sales are up 2x+ versus previous standalone retail sales (Jacksonville and Estero, FL) in addition to $1mm+ in F&B sales. OXM has been working to expand the pipeline and plans to open 3-4 Marlin Bar locations per year.”
WW International (WW), formerly known as Weight Watchers, is having a tremendous year, already up 113%.
Morgan Stanley was out highlighting that after pulling back on marketing in Q1, Q2 app download trends were the best in 3 years. After app downloads declined -18% Y/Y in Q1, according to Sensor Tower, as WW pulled back on marketing, download trends have improved to just a -1% Y/Y decline in Q2, its best quarterly result since Q1 2020. Although this was helped in part by easier compares, it does appear the company’s refreshed strategy has enabled stabilization in core trends even as attention has shifted to GLP-1s.
Back on April 10th, WW completed its acquisition of Sequence, a subscription telehealth platform offering access to healthcare providers specializing in chronic weight management. Morgan Stanley, in their note last week, said that they are incrementally optimistic on the early Sequence trends they’re observing, with web traffic up ~2x since the acquisition. “June has been particularly strong delivering the highest traffic month ever, suggesting a strong exit rate. In addition, WW also began offering limited cross-sell testing and select Sequence promotions to WW members (Exhibit 6) during the quarter along with building out Sequence conversion funnels on its core website. Although full integration plans/strategies have yet to be announced, we are incrementally more confident in Sequence delivering on its FY23target of ~100K ending subs.”
