Macy’s sale could smudge Estee Lauder

July 18, 2007

macyscosmetics.jpgMacy’s Inc. shares hit a high on Wednesday morning after a news report in Women’s Wear Daily that private equity firm Kohlberg Kravis Roberts & Co. is considering a bid for the department store chain.
  Any potential transaction could signal a setback for beauty company Estee Lauder, whose North American department store sales — led by Macy’s stores — account for about 37 percent of revenue, according to Bear Stearns analyst Justin Hott. For the full note, click here.
   Only recently did Estee’s Group President John Demsey say that the company was finally seeing U.S. sales normalizing a year after they started slumping following the Macy’s/May Department Stores consolidation and store closures.
   Though the flip side might be that a turnaround in Macy’s — which itself has reported flagging same-store sales lately — could be good for Estee Lauder under any circumstances, any reexamination of Macy’s business holds many risks of moving in other directions that are detrimental to Estee Lauder, Hott added.
   “Another potential disruption at Estee’s largest partner creates much more uncertainty and volatility,” Hott wrote in a research note. “We do not know if management would change, but there could be entirely new protocols, systems, and methods put in place under new ownership. Changes that take time to implement could slow the timetable for any turnaround by Estee.”
   Estee is trying to convince retailers to join it in spending more on training sales people at beauty counters, in an effort to revive sales. But buyers with a good deal of private equity experience are more likely to choose cutting costs over raising them, Hott wrote.

(Photo. Reuters file)

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