U.S. prestige beauty group Estée Lauder, which announced the appointment of a new CEO in January, continues to be negatively impacted by the drop in consumption in Asia, especially in China. In this context, the group announced the withdraw of its fiscal year 2025 outlook and its share price has seen a record drop at the New York Stock Exchange on Thursday, October 31.
“For the first quarter, we anticipated a challenging start to fiscal year 2025. Our results today are largely consistent with the outlook for the quarter we offered in August,” commented the group’s current CEO, Fabrizio Freda, during an audio conference with analysts.
In August, the group warned that results for the delayed 2025 financial year would be lower than expected. Indeed, the company reported net sales of USD 3.36 billion for its first quarter ended September 30, 2024, a decrease of 4% from USD 3.52 billion in the prior year (-5% at constant exchange rates).
Market context worsens in China
The situation in China, which has been problematic for Estée Lauder for many months now, “worsened” in the first quarter and sales fell by more than 10%.
These difficulties have “drove further softening in overall prestige beauty in mainland China and low conversion rates in Asia travel retail and Hong Kong SAR,” said The Estée Lauder Companies in a statement.
The company said its results were also impacted by its restructuring plan and a USD 159 million charge related to a settlement in talcum litigations. Excluding these charges, it would have posted a net profit of USD 52 million.
Strategic reset
“While we are not satisfied with performance, we are encouraged by initial results from several pillars of our strategic reset that we announced in August,” Mr. Freda told analysts.
According to the CEO, the way quarter evolved and through October made it “increasingly apparent that we are facing greater macro headwinds for fiscal year 2025 than we expected in August,” in particular in China.
“We believe the new economic stimulus measures in China present medium- to long-term potential for stabilization,” highlighted the CEO. However, “we anticipate still-strong declines near-term for the industry in China and Asia travel retail.”
Analysts at TD Cowen said while Estee Lauder has solid brand foundations, there is a pressing need for the company to adapt and evolve.
This summer, Mr Freda, 67, who has been heading The Estée Lauder Companies for 16 years, announced his intention to retire. The group announced on Wednesday that Stéphane de la Faverie, currently executive chairman, would take over from him on 1 January.
Chief Financial Officer Tracey Travis, who is also retiring, told analysts the group was continuing “to explore additional savings initiatives to offset some of the impacts from the incremental sales pressure” the group is experiencing globally.
