Estee Lauder posts Q1 earnings beat, lowers full-year forecasts

The conglomerate, which operates brands including Clinique, MAC and Jo Malone London, reported net income of $489m, or $1.35 per share, for the three months ended 30 September, which was down from $692m and $1.88 per share year-on-year.

Adjusted earnings per share, excluding non-recurring items, came in at $1.37 per share, which was ahead of the $1.31 analysts had pencilled in.

Total sales were down 10.5% at $3.93bn, in line with forecasts, with the strong dollar weighing the result down by about 4%.

“For the first quarter, we delivered organic sales in line with our outlook and adjusted earnings per share ahead of it, even as the transitory external pressures of Covid-19 restrictions in China, high inflation globally, and a strong US dollar intensified,” said president and chief executive officer Fabrizio Freda.

“Our multiple engines of growth strategy empowered us to seize prevailing growth opportunities amid the complexity.

“Fragrance and hair sare each rose double digits organically, and makeup’s renaissance continued to realise its promise in markets reopening.”

Freda said skin care was the “most challenged” by Covid restrictions in China, which significantly impacted the category in travel retail.

“All told, 13 brands grew organically, as MAC excelled in makeup, La Mer in luxury skin care, Jo Malone London in fragrance, and Aveda in hair care.

“Encouragingly, we realised strong double-digit gains in many large developed and emerging markets around the world.”

Looking to the key holiday quarter and beyond, however, Estee Lauder warned that high inflation, supply chain difficulties, the risk of a global recession, the strong dollar, and ongoing Covid-19 restrictions in China could affect performance.

The company said second quarter adjusted earnings of between $1.19 and $1.29 per share, well below the $2.80 anticipated by Wall Street before the results were released.

Its sales were set to shrink by between 17% and 19%, meanwhile, compared to consensus expectations for a narrowing of 2.9%.

Looking at the 2023 financial year as a whole, Estee Lauder said adjusted earnings per share would come in at between $5.25 and $5.40, significantly below the $7.35 that was already pencilled in by the market.

Despite the downbeat outlook, the company still hiked its dividend by 10%, to 66 cents per share, making for an annual yield of around 1.28% based on Tuesday’s closing price.

“For fiscal 2023, we are lowering our outlook primarily to reflect tighter inventory management in Asia travel retail, given reduced traffic as a result of Covid-19 restrictions, tightening of inventory by some retailers in the United States, and a greater negative impact from the far-stronger US dollar,” Fabrizio Freda added.

“We anticipate sequential acceleration to strong organic sales and adjusted earnings per share growth in the second half of our fiscal year as these pressures begin to abate, momentum continues to build in other areas of our business, and our ongoing investments in innovation and advertising drive growth.

“Our optimism in the long-term growth opportunities for our brands and for prestige beauty remains intact.”

At 0806 EDT (1206 GMT), shares in the Estee Lauder Companies were down 10.02% in pre-market trading.

Reporting by Josh White for Sharecast.com.