Estée Lauder forecasts bigger drop in sales and profit

Estée Lauder on Wednesday forecast a bigger drop in full-year sales and profit, disappointing a Wall Street that was expecting better results on rebounding travel retail after Covid-19 restrictions eased globally and in China.

Shares of the company fell about 16% in premarket trade after Estée cited a slower-than-expected recovery in Asia travel retail and major market China for the latest round of cuts to its annual forecasts.

In contrast, European peers LVMH and L’Oreal saw a rise in first-quarter sales, boosted by a rebound in demand in the Chinese region.

Barclays analyst Lauren Lieberman said in a note that Estée’s profit forecast was the “last thing” expected even by the Street and that comments on Asia travel retail raise doubt on how much “control or visibility” the company has in its end-market sales through this channel.

Estée said while major shopping districts such as Hainan and Korea experienced more traffic, the conversion of travellers to consumers in luxury beauty lagged.

Even though China relaxed pandemic-related restrictions, the company saw January 2023 pressured by low retail traffic and retailers destocking due to an increase in Covid-19 cases.

The MAC lipstick maker’s sales also witnessed an impact in earlier quarters from US retailers tightening inventories of its products, but posted a 6% rise in organic net sales in the Americas, signalling steady demand for its Jo Malone fragrances and Bobbi Brown foundations.

The company’s profit remains squeezed from a stronger dollar since it has sprawling global operations and converts foreign currencies into the greenback.

Estée expects full-year 2023 net sales to fall 10%-12%, compared to its prior forecast of a 5%-7% decrease.

It also forecast adjusted profit per share to fall 50%-51%, compared with a decrease of 27%-29% it expected earlier.

However, the company beat third-quarter sales expectations but missed profit estimates.

Reuters