Categories Analysis, Consumer

Estee Lauder (EL) lowers full-year 2024 outlook on slow growth in China

Adjusted EPS is expected to be $2.17-2.42 in FY2024

Shares of The Estée Lauder Companies Inc. (NYSE: EL) dived 17% on Wednesday after the company delivered mixed results for the first quarter of 2024 and lowered its outlook for the full year. The stock has dropped 56% year-to-date. The company’s guidance cut is based on a slowdown in growth in China and risks of business disruptions in Israel and other parts of the Middle East.

Revenue and earnings decline

Estee Lauder’s reported net sales in Q1 2024 declined 10% year-over-year to $3.52 billion, narrowly missing estimates. Organic sales fell 11% due to pressures in the Asia travel retail business and the slow recovery of prestige beauty in mainland China. GAAP EPS fell 94% to $0.09 while adjusted EPS fell 92% to $0.11. Despite the decline, adjusted EPS was better than analysts’ projections.

Category and regional performance

In Q1, Estee Lauder recorded sales declines in the Skin Care and Hair Care categories while Makeup and Fragrance witnessed growth. Organic sales declined 21% in Skin Care, mainly due to the afore-stated challenges in Asia travel retail and mainland China, while Hair Care saw a 7% drop due to softness in North America.

Organic sales in the Makeup and Fragrance categories increased 1% and 5% respectively, helped by strong growth in the Americas and Asia/Pacific. Brands such as Le Labo, TOM FORD, and Clinique contributed to the sales growth in these categories during the quarter.  

The beauty company saw organic sales growth in the Americas while sales in the Europe, Middle East and Africa (EMEA), and Asia/Pacific regions declined during the first quarter. Sales grew 6% in the Americas, driven by growth in North America and Latin America.

North America recorded mid-single-digit sales growth, led by the US, with gains in the Fragrance, Makeup and Skin Care categories. Latin America saw high-single-digit sales growth, led by Mexico and Brazil.   

Organic sales fell 27% in EMEA and 3% in Asia/Pacific due to the headwinds in Asia and China. However, growth in markets like the UK, Germany, Japan and Australia helped offset these pressures to some extent.

Guidance cut

Estee Lauder lowered its outlook for full-year 2024 due to headwinds from slower growth in overall prestige beauty in Asia travel retail and in mainland China, and risks of business disruption in Israel and other parts of the Middle East.

The company now expects FY2024 reported sales growth to range between down 2% to up 1%, and organic sales growth to range between down 1% to up 2% versus the prior year. GAAP EPS is expected to be $2.08-2.35 while adjusted EPS is expected to be $2.17-2.42.

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