Disney vs Estée Lauder Stock, Which Is Best?

Inflation has eaten away at a lot of the money that was in consumers’ pockets. Many have had to turn toward more frugal lifestyles to save money and spend on necessities only. So, discretionary items have seen a decline in prospective buyers.

When prices reached their zenith in the summer of 2022, consumer spending went into shock. Overall, people cut back on spending and that in turn affected business margins.

Fast forward two years, the market is doing much better than before. Inflation has come down significantly, and companies have gained back most, if not all, of their lost ground.

The high interest rate, which were a consequence of high inflation, also started to quell. Recently, the Federal Reserve cut its key interest rate by a quarter percentage point. This was also the third consecutive rate cut this year. After a drastic pivot, the Fed has indicated another slow and steady approach next year. Its closely watched “dot plot” showed only two cuts next year.

Furthermore, there are signs that inflation has fallen faster than what the consumers were expecting, so they are essentially stuck making spending decisions based on high prices.

In the fourth quarter last year, consumer optimism reached its highest since before the 2020-21 era. Yet, consumers still show a propensity to spend cautiously, particularly on discretionary items and luxuries. So, although consumers are feeling more optimistic than before, this might not translate into heightened spending.

Below are two stocks that depend on consumers’ discretionary spending, but which one is best to navigate the choppy waters?

Can Walt Disney Reignite the Magic?

Walt Disney (NYSE:DIS) has had a tough time navigating the current climate and trying to scale its streaming business.

Over the past three years, the company’s stock is down close to 25% but it has recently seen a little bit of a reversal in fortunes. Streaming services are finally showing significant gains, and it had a solid summer at the box office last year.

The company’s fiscal 2024 results were quite upbeat after a tough period. Revenues climbed by 3% year-over-year to $91.36 billion and there were significant operating income gains, especially in the entertainment segment, which reported a more than 100% rise from the prior year’s period. The company’s overall EPS on a non-adjusted basis also showed a more than 100% year-over-year growth to $2.72.

The entertainment segment’s gains were not just limited to box-office performance. It was also attributed to direct-to-consumer (DTC) product offerings, which became profitable in the last fiscal year. In essence, Disney+ Hotstar and Hulu streaming services’ subscriber counts grew. They were nominal but notable expansions.

It must be noted, though, that Disney+Hotstar is not really turning out to be as good a revenue generator as hoped by Disney, with its average monthly revenue per paid subscriber on a decline.

Regardless, the company has had a notable summer, which has made it quite optimistic about its future. First, Disney Pixar’s “Inside Out 2” movie became the highest-grossing animated film of all time, while “Deadpool & Wolverine” became the highest-grossing R-rated film of all time. These two films alone added $316 million in operating income in Q4. Disney became the first film studio to cross $4 billion globally in 2024.

There’s also “Moana 2” and “Mufasa” hitting the screens now. Taking this all together, Disney is forecasting a high single-digit adjusted EPS growth for fiscal 2025 and a double-digit growth for the next two fiscal years.

How Can The Estée Lauder Make Up?

Calling itself a “global prestige beauty” leader, high-end beauty items retailer Estée Lauder (NYSE:EL) has had an even tougher time than Disney on Wall Street.

Over the past three years, the company’s stock fell by close to 80%, although it is said to benefit from demographic trends.

It has a favorable market position, with a presence in approximately 150 countries and territories and a record of doing more than 75 years of business. Yet, the company is having a tough time currently. Big picture worries have impacted its business and have essentially led to bump in the road as far as growth is concerned.

In the last reported quarter (first quarter of fiscal 2025, ended in September), Estée Lauder saw year-over-year top line declines across all its product segments and geographies.

China, in particular, has become a thorn in its side. The country’s market is showing worsened consumer sentiments for Estée Lauder’s products as of right now, alongside a softening in Asia travel retail.

Revenues contracted by 4% from the prior year’s period to $3.36 billion and the bottom line also came in the red at a net loss of $156 million, showing a big pivot from the net income in the year-ago period. This huge decrease was associated with the talcum litigation settlement agreements with plaintiff law firms.

Estée Lauder is also going through a restructuring phase under its Profit Recovery and Growth Plan (PRGP), which has charges associated with it. In light of this choppiness, the company took back its fiscal 2025 full-year outlook. It must be said that management is expecting the situation to get a little bit better in China due to the economic stimulus measures that the country is adopting, but it is not expected to have any immediate impact on Estée Lauder.