Story was updated at 5:15 p.m. on Nov. 1.
The Estée Lauder Cos.’ much-awaited recovery has been pushed further into the long grass, triggering a double-digit fall in its share price to a six-year low.
The global beauty giant, whose brands include Clinique, MAC, Tom Ford and Jo Malone, has lowered its full-year forecast as troubles in its China business continue, combined with the potential risks of further business disruptions in Israel and other parts of the Middle East.
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Fabrizio Freda, president and chief executive officer, said, “While we had a better-than-expected first quarter, we are lowering our fiscal 2024 outlook given incremental external headwinds, namely from the slower growth in overall prestige beauty in Asia travel retail and in mainland China, which is currently confirmed in the pre-sale phase of the 11.11 Shopping Festival, and the risks of business disruption in Israel and other parts of the Middle East.”
Net sales are now forecasted to range between a decrease of 2 percent and an increase of 1 percent versus the prior year, after previously anticipating a rise of between 5 percent and 7 percent. Adjusted diluted net earnings per common share are expected to decrease between 33 percent and 25 percent.
The news sent its share price down by around 19 percent to close at $104.51. Since the beginning of the year it has fallen around 59 percent.
Timing of when a recovery may happen remained uncertain.
Mark Astrachan, an analyst at Stifel Financial Corp., said: “We view another quarter of reduced or below consensus guidance as disappointing and partly reflective of overly ambitious assumptions about the pace of recovery. We anticipate EL shares underperform on the guidance reduction and lack of internal/external visibility.”
Lauder laid out plans for a 2025 and 2026 profit recovery plan, through which it expects to drive $800 million to $1 billion of incremental operating profit. The plans include making changes to its innovation pipeline and product offering among other areas.
Chief financial officer Tracey Travis also detailed that there may be a shift in where growth comes from in terms of Asia travel retail.
“We’re not counting on travel retail to get back to prior levels,” she said. “If it does, that’s great. But our profit recovery program combined with some of the growth plans that we have for our markets and brands going forward are not relying on that to return to the profit margins that we had previously.”
For the first quarter ended Sept. 30, the company reported net sales of $3.51 billion, a decline of 10 percent from $3.93 billion in the prior year. Analysts had forecast $3.52 billion.
Net earnings were $31 million, compared with $489 million in the prior year. Adjusted diluted net earnings per common share declined to $0.11, but above Wall Street expectations for a loss.
Within that, skin care net sales were down 21 percent, reflecting a decline in Asia travel retail business. Estée Lauder and La Mer net sales fell, while those from The Ordinary increased strong double digits.
Makeup net sales increased 1 percent, while fragrance rose 5 percent, boosted by performances at Le Labo and Tom Ford. Hair care net sales decreased 7 percent.
Travel retail sales, meanwhile, plunged 51 percent.