Estée Lauder (EL, Financial) is trading roughly flat after concluding FY24 on a mixed note. The cosmetics giant posted a strong EPS beat for Q4 (Jun) with modest revenue upside. However, the guidance for Q1 (Sep) and FY25 fell short of expectations, highlighting ongoing issues in mainland China and a decline in Asia travel retail. Additionally, CEO Fabrizio Freda announced his retirement at the end of FY25.
- Despite struggles over the past couple of years, Estée Lauder saw a return to organic net sales growth in the second half of FY24, excluding F/X impacts and royalty revenue from the TOM FORD acquisition. Q4 organic revenue grew 8% year-over-year to $3.87 billion, despite slowdowns in mainland China, Asia travel retail, and North America. EMEA performed strongly in Q4.
- Notably, Estée Lauder experienced organic sales growth across all product areas, led by a 15% year-over-year increase in Skin Care, driven by its global travel retail business. This was an acceleration from the 6% growth in Q3 (Mar). Skin Care remains the largest segment, making its robust growth particularly positive.
- For FY25, Estée Lauder expects global prestige beauty to grow 2-3%, driven by strength in developed and emerging markets, though tempered by declines in mainland China and Asia travel retail. The company anticipates a re-acceleration to mid-single-digit growth in FY26.
- The weak guidance is primarily due to significant exposure to mainland China and Asia travel retail, which accounted for 31% of total sales in FY24. Consumer confidence in China remains low.
- North America also presents challenges, with consumers facing inflationary pressures and a competitive environment. The slowdown in prestige beauty growth, especially in brick-and-mortar channels, has impacted skincare and makeup categories.
Despite weak guidance for Q1, Estée Lauder's stock is holding up better than expected, suggesting much of the negativity is already priced in. The stock has declined from around $150 in early April to approximately $95 currently, indicating investors were bracing for a bleak outlook. Challenges in China and US consumer trends suggest a turnaround will take time. A new CEO could bring fresh perspectives, but this change won't occur until the end of FY25.
