Lauder Shares Fall on Outlook
● Despite a strong quarter, Lauder saw its shares fall sharply as it slashed its sales projection due to fears about China.
The Estée Lauder Cos. posted another quarter of strong growth, but saw its shares dive on Tuesday after it sharply revised its outlook downward on concerns over the ongoing COVID-19 lockdowns in China.
Lauder decreased its financial outlook for fiscal 2022. Last quarter, the company projected a sales increase of between 13 and 16 percent for fiscal 2022, but on Tuesday it cut that growth forecast in half and is now projecting sales will increase by between 7 and 9 percent.
The Lauder stock dropped as much as
12.3 percent on the news and ultimately closed down 5.8 percent to $245.52.
The downward revision comes as there are growing concerns among observers over the outlook for the global economy and consumer demand, given spiraling inflation and ongoing supply chain shortages, and they forecast slower economic growth in the U. S., Europe and China.
“We expect to deliver a record year in fiscal 2022 despite temporary COVID19-driven headwinds that reduced our fourth-quarter outlook,” Lauder president and chief executive officer Fabrizio Freda said. “We are confident that our business in China will rebound when COVID-19 abates.”
A key question is when that might be. There are an estimated 350 million people in China under some form of lockdown as COVID-19 cases spread throughout the country, and are now in the capital of Beijing. The Chinese government has yet to impose a lockdown there, however.
Overall, Estée Lauder reported $4.25 billion in net sales for the quarter ended March 31, a 10 percent uptick from the prior-year period. Net earnings were $573 million.
“Every category grew organically, led by fragrance's outstanding performance globally and the makeup renaissance in Western markets. Eleven brands contributed double-digit organic sales growth and further demonstrated our diversification, empowered by our multiple engines of growth strategy,” said Freda on a call with Wall Street analysts. “Consumer demand remained robust even in this more inflationary environment.”
All beauty categories grew sales, but fragrance numbers soared 28 percent year- over-year in the quarter to $579 million, up from $454 million. Skin care sales were up 6 percent from the prior-year period, to nearly $2.4 billion; makeup sales were up 9 percent, to about $1.1 billion, and hair care sales were up 15 percent, to $147 million.
The company named MAC, Estée Lauder, Clinique, Jo Malone London, Tom Ford Beauty, Aveda and Bobbi Brown as having grown double-digits in the quarter.
Skin care, Lauder's largest category, was impacted by the challenges in China. The Estée Lauder brand saw a decline in the quarter because of logistics headwinds there, the company said. However, La Mer saw growth, as "did sales in the Americas and Europe, the Middle East and Africa.
“We're seeing strong growth [in Europe, the Middle East and Africa],” said Tracey Travis, Lauder's executive vice president and chief financial officer. “In emerging markets like Turkey and India, and that will continue as we navigate through the short-term disruptions we're seeing in the East.”
Makeup sales increased due to recovery in Western markets, the company said. Sales were led by MAC Cosmetics,
Estée Lauder and Clinique; MAC's MACStack mascara sales “far exceeded expectations,” per Freda.
Jo Malone London, Tom Ford Beauty, Le Labo and Estée Lauder contributed to the fragrance category's strong growth. Fragrance sales were up across all brands and regions, the company said.
Both Aveda and Bumble and bumble grew hair care sales, the company said.
During the quarter, the Americas saw a 15 percent year-over-year sales uptick, to more than $1 billion, thanks to increased foot traffic and makeup's comeback.
EMEA posted a 17 percent sales increase from the prior year, to nearly $2 billion, partially due to a recovery in the U.K.
The Asia-Pacific region's sales dipped 4 percent from the prior year, to $1.2 billion.
“Our freestanding stores are coming back strongly in the U.S., and the profitability is much stronger with the recovery in those doors,” Travis said. “The flow of traffic is really coming back quite strong. We've resumed services in our stores, and we're seeing people more and more utilize them.”
Travis added that department store performance is also on the incline in the U. S., though specialty retail is up “quite strongly.
“We have the addition of the Ulta stores within Target, and in the Sephora stores within Kohl's… we're seeing very strong, strong growth,” Travis said.
Lauder has suspended all commercial activity in Russia and Ukraine due to Russian President Vladimir Putin's invasion of Ukraine, and sales in those regions have declined.
In China, Lauder saw reduced retail traffic as well as limited distribution capacity at its Shanghai distribution facilities due to compliance with temporary restrictions to prevent the spread of COVID-19.
“We had a number of stores closed, and part of Shanghai, where our distribution campus is for brick-and-mortar as well as online, was very restricted. We had workers who couldn't get to the distribution center,” Travis said.
Although logistical challenges hampered store traffic, online sales in China still grew 25 percent in the quarter.
“It's a temporary situation. When the COVID[-19] restrictions abate, we expect — given the strong demand we had leading up to this — a resurgence in growth,” Travis said.
For the nine-month period ending March 31, Lauder posted net sales of $14.2 billion, up 15 percent from the prior-year period, with net earnings of $2.34 billion.