Estee Lauder (EL): A look at the challenges weighing down this beauty giant

Shares of The Estée Lauder Companies Inc. (NYSE: EL) rose over 2% on Monday. The stock has dropped 19% over the past three months. The beauty company had a disappointing start to fiscal year 2025, with unimpressive results for the first quarter and a bleak outlook for the remainder of the year. Here’s a look at some of the challenges that have been impeding its performance:

Headwinds in China and Asia travel retail

The softness in the prestige beauty industry in mainland China was exacerbated by a further weakening in consumer sentiment in the region during the first quarter of 2025. Conversion rates remained low in Asia travel retail and Hong Kong SAR. These factors, along with low replenishment orders in Asia travel retail, impacted Estee Lauder’s top line. In Q1 2025, net sales decreased 4% year-over-year to $3.36 billion while organic sales fell 5%.

Although the company believes that the new economic stimulus measures in China could bring about a stabilization and even growth in prestige beauty in the medium to long term, it still anticipates strong declines for the industry in the near term. It also does not expect the stimulus measures to benefit its performance for the second quarter of 2025.

Sales declines across segments and regions

In the first quarter of 2025, Estee Lauder witnessed sales declines across all its divisions and geographic regions. Net sales in the Skin Care division decreased 8%, mainly due to the aforementioned headwinds in China, Asia travel retail and Hong Kong SAR.

Sales in Makeup dropped 2%, mainly due to a high single-digit decline in sales for the M.A.C brand caused by soft retail sales in North America and business disruptions in the Middle East, as well as lower sales for the Too Faced brand, mainly in North America. These declines were partially offset by double-digit growth in the Clinique brand.

The Fragrance segment saw sales drop 1%, mainly due to headwinds in the global travel retail business, partly offset by growth in Asia/Pacific and the EMEA markets. Sales in Hair Care fell 6%, mainly due to Aveda and softness in the company’s North America salon channel.

The Americas region saw a 1% drop in sales, mainly due to challenges in North America, partly offset by growth in Latin America. Sales in Asia/Pacific fell 11%, due to headwinds in mainland China and Hong Kong SAR, partly offset by double-digit growth in Japan. Sales in the Europe, Middle East & Africa region decreased 4%, due to a double-digit decline in the company’s global travel retail business.

Bleak outlook

Due to the complexity in the industry landscape, including the difficulty in forecasting when the stabilization and recovery in China and Asia travel retail will take place, Estee Lauder withdrew its fiscal-year 2025 outlook.

The company anticipates the challenges in China, Asia travel retail and Hong Kong SAR to continue in the second quarter of 2025. It expects reported and organic sales to decrease 6-8% YoY in Q2 2025. Reported earnings per share is expected to range between $0.02-0.19. Adjusted EPS is projected to range between $0.20-0.35, representing a decline of 60-77%.