Estée Lauder’s sales in travel category fail to take off in Asia post-pandemic, US retail growth stunted

21 Aug 2023 --- Estée Lauder Companies annual net sales have dropped 10% from US$17.74 billion in the prior year, with the company disclosing overall sales of US$15.91 billion for its fiscal year ended June 30, 2023. Organic net sales fell 6%, driven by Asia travel retail in Hainan and Korea, partially offset by growth in nearly every market in Asia-Pacific, Europe and the EMEA. 

In the US, organic net sales growth was “unfavorably impacted” by the slower-than-anticipated pace of the company’s improvement at retail and the tightening of inventory by certain retailers in the first half of fiscal 2023. 

Inflationary pressures and recession concerns were cited as the main triggers for this.

Estée Lauder’s stock dropped 7.8% this month, the largest decline seen since May 3, as trading commenced last Friday in New York. However, it later managed to recover most of these losses. Over the course of this year until last Thursday, the stock declined by 35%, which is notably worse than the 2.1% dip observed in the S&P 500 consumer-staples index.

“We returned to organic sales growth in the fourth quarter, delivering our outlook. Momentum continued in the markets of EMEA and Latin America, and accelerated strongly in Asia/Pacific led by mainland China and Hong Kong,” comments Fabrizio Freda, president and CEO.

Net sales declined for specifically Estée Lauder, La Mer and Dr.Jart+, partially offset by strong growth from The Ordinary, MAC Cosmetics and Bobbi Brown Cosmetics (Image credit: The Ordinary).“For full-year fiscal 2023, we delivered organic sales growth and prestige beauty share gains in many developed and emerging markets, but Asia travel retail pressured results, particularly in Skin Care, and we continued to experience softness in North America.”

The owner of the MAC and Tom Ford brands reports net earnings of US$1.01 billion, a dip from net earnings of US$2.39 billion in the prior year. 

Travel retail weighted post-pandemic
For the full fiscal year ended June 30, 2023, Estée Lauder’s operating environment continued to be disrupted by the impact of the COVID-19 pandemic, particularly on travel retail. The company’s travel retail business represented a fifth of total sales in its last fiscal year.

Most notably, the pace of recovery in Asia travel retail and mainland China was slower than anticipated.

In Hainan, prolonged store closures initially presented a headwind and, thereafter, low levels of conversion occurred when travel resumed. Inventory tightening by certain retailers compounded this.

In Korea, the travel retail business slowed during the transition to post-COVID-19 regulations. In addition, the slower-than-anticipated resumption of international flights, granting of visas and organized group tours further challenged the Asia travel retail recovery. 

As a result, the company’s Asia travel retail business was challenged throughout the fiscal year by the slower-than-anticipated recovery.

In mainland China, the company’s performance in the first half of fiscal 2023 was hindered by low retail traffic as a result of COVID-19-related restrictions and the rise in viral cases.

Despite these headwinds, Estée Lauder’s net sales grew in “nearly all markets in Asia/Pacific and EMEA.”

Elsewhere, the recovery from the COVID-19 pandemic progressed across markets globally over the course of the fiscal year as restrictions were lifted. 

In the West, the company’s recovery from the pandemic continued with strong organic net sales growth in nearly all markets in EMEA and in Latin America.

Meanwhile, total organic net sales in the company’s Emerging Markets and in its Fragrance categories each rose double digits. While Fragrance was up double digits in every region, Freda highlights Makeup improved sequentially to double-digit growth in the fourth quarter as more markets recovered post-pandemic.

Category performances
In the fiscal 2023 fourth quarter, net sales returned to growth, increasing 1% on a reported basis and 4% organically, reflecting growth in Estée Lauder’s Makeup, Fragrance and Hair Care categories.

Net sales growth in the Makeup category from MAC Cosmetics and Clinique were offset by declines from Estée Lauder, Tom Ford and La Mer (Image credit: MAC Cosmetics).The decline in Skin Care net sales (-14%) primarily reflected the ongoing challenges in the company’s Asia travel retail business, including the slower-than-anticipated recovery from the COVID-19 pandemic. 

Net sales declined for specifically Estée Lauder, La Mer and Dr.Jart+, partially offset by strong growth from The Ordinary, MAC Cosmetics and Bobbi Brown Cosmetics.

Makeup net sales were virtually flat compared to the prior year and performance increased sequentially each quarter, to growth of 13% in the fiscal 2023 fourth quarter, reflecting growth in most markets as they continued to evolve in recovery and as usage occasions increased, offset by the challenges in Asia travel retail.

Net sales growth in the Makeup category from MAC Cosmetics and Clinique were offset by the declines from Estée Lauder, Tom Ford and La Mer.

Fragrance net sales rose 14%, reflecting double-digit growth across every region and led by Tom Ford, Estée Lauder and Le Labo.

Meanwhile, Hair Care net sales rose 6%, primarily reflecting growth from both The Ordinary, due to the recent launch of the brand’s hair care products, and Aveda.

Forward-looking statements
For fiscal year 2024, the beauty giant expects to return to organic sales growth. 

“We are focused on driving momentum in markets that are thriving and re-accelerating growth in North America,” says Freda. “In Asia travel retail, we are taking actions to capture demand from the returning individual travelers and continuing to reduce inventories in the trade as we navigate the current market headwinds.”

“In this new fiscal year, we also intend to set the stage for a stronger fiscal year 2025 acceleration, with a very robust innovation pipeline planned across the two years and progressive margin rebuilding plans.”

By Benjamin Ferrer