Estée Lauder Cos Inc, a renowned beauty and skincare company, has disappointed investors by projecting a larger decline in sales and profit for the full year of 2023. This comes as a surprise, as many investors had anticipated stronger results due to the recovery of travel retail after the easing of Covid-19 restrictions globally and in China. As a result of this announcement, the company’s shares fell approximately 16 percent in premarket trading.
In contrast to Estée Lauder, its European competitors such as LVMH and L’Oréal experienced a rise in first-quarter sales, benefiting from increased demand in China. However, Estée Lauder reported a slower-than-anticipated recovery in Asia travel retail and the Chinese market, leading to a further reduction in its annual forecasts.
Barclays analyst, Lauren Lieberman, expressed concerns about Estée Lauder’s level of control or visibility in its end-market sales through the Asia travel retail channel. The company acknowledged that although major shopping districts in Hainan and Korea had witnessed more foot traffic, the conversion of travelers into luxury beauty consumers remained sluggish. In January 2023, despite the relaxation of pandemic-related restrictions in China, Estée Lauder faced challenges due to low retail traffic and destocking by retailers as a result of an increase in Covid-19 cases.
Additionally, the company’s sales were impacted by US retailers reducing their inventories of Estée Lauder products in previous quarters. However, there was a 6 percent increase in organic net sales in the Americas, indicating steady demand for its Jo Malone fragrances and Bobbi Brown foundations.
One significant factor affecting Estée Lauder’s profitability is the strength of the US dollar. As the company operates globally, it must convert foreign currencies into the US dollar, which puts pressure on its profitability.
Estée Lauder has revised its projections for the full year of 2023. It now expects a net sales decline of 10 percent to 12 percent, compared to its previous forecast of a 5 percent to 7 percent decrease. Likewise, the company also anticipates a decrease in adjusted profit per share of 50 percent to 51 percent, whereas it had earlier projected a decrease of 27 percent to 29 percent.
While Estée Lauder managed to beat sales expectations for the third quarter, it fell short of profit estimates. This news is disappointing for investors who were hoping for better results given the global recovery and increased travel retail opportunities.
Useful links:
1. Official Estée Lauder Website
2. Estée Lauder profile on Reuters
