Estée Lauder Companies sales drop 11% as China recovery slows, Israel-Hamas war affects FY24 projection

02 Nov 2023 --- The Estée Lauder Companies (ELC) has reported net sales of US$3.52 billion for its first quarter ended September, a decline of 10% from US$3.93 billion in the prior year. 

Organic net sales declined 11%, primarily by expected pressures in the company’s Asia travel retail business, as well as incremental headwinds from a slower-than-expected recovery of overall prestige beauty in mainland China.

These challenges were partially offset by organic net sales growth in the US, many markets across Asia-Pacific — led by Hong Kong and Japan — and nearly all markets in Europe and EMEA, led by the UK and Germany. 

Fragrance and makeup categories lead
The company reported net earnings of US$31 million, compared with net earnings of US$489 million in the prior year. Organic net sales in Fragrance and Makeup grew, partially offsetting the decline in Skin Care.

Total reported operating income was US$98 million, an 85% decrease from US$661 million in the prior year. In constant currency, adjusted operating income decreased 83%, reflecting lower net sales and higher operating expenses and cost of sales. 

Net sales declined from Estée Lauder and La Mer, partially offset by growth from The Ordinary and, to a lesser extent, MAC Cosmetics (Image credit: MAC Cosmetics).This excludes the unfavorable impact of foreign currency translation of US$6 million, and the impacts from restructuring and other charges and the change in fair value of DECIEM acquisition-related stock options.

“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,” comments Fabrizio Freda, president and CEO.

“We are accelerating and expanding our profit recovery plan, to benefit fiscal years 2025 and 2026, to realize our ambitions to rebuild profitability despite the external headwinds’ increased pressure on the business in fiscal 2024.”

“Encouragingly, we returned to growth in the US, with Fragrance, Makeup and Skin Care all contributing. This performance partially offset the pressures of Asia travel retail and a slower recovery of overall prestige beauty in mainland China,” he adds.

Skin Care inventory lags
ELC’s Skin Care net sales decreased 21%, reflecting a decline in the company’s Asia travel retail business, primarily due to the company’s and its retailers’ actions to reset retailer inventory levels. 

The decline also reflected the pressures of incremental headwinds from a slower-than-expected recovery of overall prestige beauty in mainland China and the changes in government and retailer policies related to unstructured market activity. Net sales declined from Estée Lauder and La Mer, partially offset by growth from The Ordinary and, to a lesser extent, MAC Cosmetics.

Estée Lauder and La Mer net sales declined, primarily driven by the aforementioned challenges in Asia travel retail and in mainland China. Net sales from Estée Lauder increased in The Americas due to the Advanced Night Repair product franchise, including the fiscal 2024 launches of Advanced Night Repair Rescue Solution with Bifidus Ferment and Advanced Night Cleansing Balm.

Net sales from The Ordinary increased strong double digits globally and in every geographic region, reflecting continued strength from hero products and successful new product innovation, such as the Soothing & Barrier Support Serum, as well as targeted expanded consumer reach.

MAC net sales grew double-digits globally and across every geographic region, owing to the launch of the Hyper Real product franchise in the third quarter of fiscal 2023.

Skin Care operating income decreased, primarily due to the decline in net sales, along with the change in channel mix, as well as higher excess and obsolescence and under-absorption of overhead costs.

Hair Care net sales decreased 7%, driven by Aveda and Bumble and bumble primarily due to softness in North America. Hair Care operating results decreased, due to the decline in net sales.

Makeup shows resilience
Makeup net sales increased 1%, reflecting high-single-digit growth in the Americas region and in Asia-Pacific, partially offset by a decline in EMEA due to the challenges in the company’s Asia travel retail business, as previously mentioned. Increases in net sales from MAC, Too Faced, Tom Ford and Clinique were mostly offset by a decrease from Estée Lauder.

Increases in net sales from MAC, Too Faced, Tom Ford and Clinique were mostly offset by a decrease from Estée Lauder (Image credit: Tom Ford).MAC net sales increased, reflecting new product innovation, including the fiscal 2024 launches of Studio Radiance Foundation and Locked Kiss Ink 24HR Lipcolour, as well as continued growth from the core Studio Fix product franchise. Net sales also benefited from commercial activities globally.

Net sales from Too Faced increased double digits, benefiting from growth across the eye, face and lip subcategories, innovation, such as the brand’s new mascara primer, as well as compelling social media activations.

Tom Ford net sales rose strong double digits, primarily driven by growth from the lip subcategory, including the fiscal 2024 launch of Ultra-Shine Lip Color, and the eye subcategory, as well as brand campaigns particularly in Asia-Pacific to support the ongoing makeup recovery.

Net sales growth from Clinique reflected continued strength from hero products, such as Almost Lipstick in Black Honey, and the fiscal 2024 launch of High Impact High-Fi Full Volume Mascara.

In The Americas, Estée Lauder grew mid-single-digits, reflecting strong growth in the face, lip and eye subcategories.

Makeup operating income decreased, reflecting higher cost of sales, as well as an increase in investments in advertising in support of new product launches and promotional activities and higher in-store staffing expenses, partially offset by the increase in net sales.

Fragrance outperforms Makeup
Fragrance net sales rose 5%, reflecting increases from Le Labo and Tom Ford, owing to double-digit growth in the Americas and Asia-Pacific.

Le Labo net sales grew strong double digits, reflecting growth in every region and benefiting from targeted expanded consumer reach, including in mainland China. Growth was driven by the brand’s hero product franchises, such as Another 13 and Santal 33, as well as its City Exclusives collection.

Net sales increased from Tom Ford, fueled by successful new product innovation, such as Café Rose, and continued strength from hero products, such as Ombre Leather.

Fragrance operating income decreased, reflecting strategic investments in advertising and promotional activities and higher in-store staffing expenses, partially offset by the increase in net sales.

By Benjamin Ferrer