The bond of the American cosmetics group Estée Lauder has reached its lowest level since the beginning of 2023 in recent days, at 86% of par. This is a much lower price than the one reached at the beginning of February, i.e. almost 90%. Explanations.
Estée Lauder is in trouble since the pandemic and 2023 is not getting any better. Indeed, the cosmetics group’s bond, which has a remaining maturity of six years, is trading at around 86% of par on the secondary market. The annual yield of the bond, which indicates how much it pays, is thus 4.91%.
Not to be confused with a stock, a bond is a debt security with a promise to pay interest. Here, the one in question is the Estée Lauder 2.375%-2029 $2,000 bond, meaning that the $2,000 bond will expire in 2029.
The coupon rate, on the other hand, is the interest rate applied to the price of the bond to calculate the amount of the coupons, i.e. 86%, while the secondary market represents the market where previously issued bonds are “traded” (bought and resold).
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Stubborn inflation
This decline in the cosmetics group’s bond prices can be explained by the general rise in borrowing rates seen in the bond market during February. Investors were finally betting on further rate hikes by the Fed to combat more stubborn inflation than expected. As the price and yield of the bond move in the opposite direction, the yield on the Estée Lauder bond has risen.
The yield and risk premium also take into account the ratings, which are respectively “A+” by Standard & Poor’s and “A1” by Moody’s, two of the leading financial rating companies.
Estée Lauder still behind L’Oréal
The group is number 2 worldwide in cosmetics after L’Oréal and number 3 worldwide in the luxury goods industry behind LVMH and Kering, according to the Global Power of Luxury Goods 2022 ranking by Deloitte. The U.S. group operates in about 150 countries and markets more than 25 prestige brands, including M.A.C. cosmetics, Clinique and La Mer facials, Aveda hair care, and since last November, Tom Ford Beauty, worth $2.3 billion.
Employing more than 60,000 people worldwide, Estée Lauder had sales of nearly $18 billion for its last fiscal year ending June 30, 2022. That’s a 9% year-over-year increase. Skin care and makeup products contributed 82% of sales.
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Featured photo : © Estée Lauder
