Estée Lauder Q1 profit beats estimates but guides Q2 below consensus

The Estée Lauder Companies Inc. (NYSE: EL) reported a 19% jump in earnings for the first quarter of 2020 due to higher revenue. The results exceeded analysts’ expectations. However, the company lowered its fiscal 2020 earnings guidance and guided second-quarter earnings below the Street’s view.

Net income climbed by 19% to $595 million or $1.61 per share. Adjusted earnings increased by 19% to $1.67, or grew 20% in constant currency.

Net sales grew by 11% to $3.9 billion, driven by growth in its international markets, particularly in China and its other emerging markets, the skincare category, the travel retail and online channels globally, Estée Lauder brand and several luxury brands. Excluding adjustments, net sales increased by 12%.

Looking ahead into the second quarter, the company expects net sales growth in the range of 7% to 8% and earnings in the range of $1.75 to $1.79 per share. Adjusted earnings are anticipated to be in the range of $1.83 to $1.86 per share.

For fiscal 2020, the company still predicts net sales growth in the range of 7% to 8% versus the prior-year period, which includes the unfavorable impact from currency translation. The earnings guidance is lowered to the range of $5.58 to $5.69 per share from the previous range of $5.62 to $5.74 per share, and adjusted EPS outlook is reduced to the $5.85 to $5.93 range from the prior range of $5.90 to $5.98.

The company continues to see strong consumer demand for its high-quality products, and for the fiscal year expects to grow ahead of the industry and to continue building global share. The company expects global prestige beauty to grow about 5% to 6% during the fiscal year, assuming no additional geopolitical risks materialize.

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For the first quarter, revenue from skincare jumped by 24% as all regions showed growth led by Estée Lauder and La Mer. Clinique and Origins also grew globally. Makeup revenue rose by 3% on increases from Estée Lauder, M•A•C, Tom Ford Beauty, and La Mer.

However, fragrance revenue declined by 2% as growth at Jo Malone London and Tom Ford Beauty was offset by lower net sales of certain designer fragrances. Haircare revenue fell by 5% due to lower net sales from Bumble and bumble, primarily in North American salon and specialty-multi channels, and difficult comparisons at Aveda.

Geography-wise, revenue from The Americas fell by 6% due to soft color cosmetics sales. However, revenue from Europe, the Middle East & Africa jumped by 17% driven by strong double-digit gains in travel retail and online. Revenue from Asia/Pacific climbed by 24% as growth was broad-based, with nearly every market in the region growing and more than half growing double-digits in constant currency.

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