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Shares of The Estee Lauder Companies Inc. (NYSE: EL ) was down more than 1% on Wednesday. Shares are down 12% over the past 12 months and 4% year-to-date. The company’s most recent quarter was challenging and we expect the headwinds to remain in the near term. Here are three factors that this beauty product manufacturer does not agree with:
Sales and earnings are down
Estee Lauder experienced a decline in sales and profits for the most recent quarter. Net sales in the second quarter of 2023 fell 17% year over year to $4.62 billion according to the report, while organic net sales fell 11%. GAAP EPS fell 63% to $1.09 while adjusted EPS fell 49% to $1.54.
The company’s performance during the quarter was affected by COVID-related headwinds, particularly in China, as well as the shipment of refill orders in the US and a stronger US dollar. However, better-than-expected performance from many developed and emerging markets helped to partially offset these challenges.
Category performance
In the second quarter of 2023, Estee Lauder reported a decline in net sales in all categories except Hair Care, which increased by only 1%. Sales in the Skin Care category fell due to strong COVID-related headwinds in China and refill orders in the US. On an organic basis, Skin Care and Makeup experienced a decline in sales while Fragrance and Hair Care increased.
The company experienced a decline in sales, both on a reported and organic basis, across all geographies during the quarter. Sales in the Americas declined 3% organically due to replenishment orders in the US while sales in Europe, the Middle East & Africa (EMEA) and Asia/Pacific were hurt by the impact related to COVID.
Gloomy sight
Estee Lauder expects sales to decline for the third quarter as well as the full year of 2023. It also expects certain headwinds to continue, thereby delaying growth for another quarter. The company expects net sales for the third quarter of 2023 to decline 12-14% on a reported basis and 8-10% on an organic basis. Adjusted EPS is expected to be between $0.37-0.47, which is below the consensus estimate of $0.51.
For FY2023, net sales are expected to decline 5-7% on a reported basis, while organic net sales are expected to decline 2% compared to last year. Adjusted EPS is expected to be between $4.87-5.02.
Estee Lauder lowered its full-year guidance due to higher-than-expected inventory levels in Hainan caused by travel disruptions and staffing levels at stores, as well as pressure from the proximity of duty-free Korea. This has created larger-than-expected headwinds for the third quarter, offsetting the positive impact of renewed international travel by Chinese customers as well as strong performance in several global emerging and emerging markets. As a result of all these factors, the company now expects to see more growth in the fourth quarter than in the third quarter.
Click here to read the full transcript of the Estee Lauder Q2 2023 earnings conference call
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