Release Date: October 31, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- The Estee Lauder Companies Inc (EL, Financial) reported adjusted gross margin expansion by over 300 basis points, driven by strategic initiatives.
- The company achieved adjusted EPS of $0.14, exceeding the initial outlook for the quarter.
- Estee Lauder gained prestige beauty share in Japan, driven by strong performance in the fragrance category.
- The company saw high single-digit organic sales growth in skin care in EMEA markets, supported by new product launches.
- Estee Lauder's strategic reset is showing initial positive results, with improvements in operational efficiency and market share gains in key regions.
Negative Points
- Organic sales decreased by 5%, primarily due to double-digit declines in Mainland China and global travel retail.
- The company is facing greater macroeconomic headwinds than expected, leading to the withdrawal of its fiscal year 2025 outlook.
- Prestige beauty industry retail sales in Mainland China weakened further, with a mid-teens percentage decrease.
- The US prestige beauty industry retail sales growth decelerated from high single-digit to mid-single-digit growth.
- The Estee Lauder Companies Inc (EL) reduced its quarterly dividend from $0.66 to $0.35 per share to create more financial flexibility.
Q & A Highlights
Q: Given the worsening external circumstances in the beauty category, particularly in China and Asia Travel Retail, what internal actions are being taken to address these challenges?
A: Tracey Travis, CFO, mentioned that they are evaluating additional actions related to the PRGP and beyond, given the continued pressure on the business. They have identified some additional cost savings to offset volume pressure and are protecting investments in consumer-facing areas like marketing and advertising. Fabrizio Freda, CEO, added that improving the quality and return on investments, particularly in digital and social media marketing, is a focus to enhance productivity.
Q: Can you provide insights into your market share across key markets and expectations for the second quarter?
A: Tracey Travis, CFO, noted that while they don't typically provide regional guidance, they expect continued pressure from China and Travel Retail. Fabrizio Freda, CEO, highlighted market share gains in China and Japan, driven by strategic focus on skincare and fragrance, respectively. In the US, retail trends improved, with Clinique showing strong market share gains.
Q: What is the rationale behind the dividend cut, and how should investors interpret this decision?
A: Tracey Travis, CFO, explained that the dividend cut is not an indication of their long-term growth outlook but a response to current pressures and uncertainty. The decision was made to rightsize the dividend, ensuring financial flexibility for additional actions under the PRGP and investments to support growth.
Q: What qualities and skill sets were prioritized in selecting new leadership amidst the management changes?
A: Fabrizio Freda, CEO, emphasized the need for leadership with a deep understanding of global market dynamics, consumer trends, and brand building. The focus is on accelerating strategic initiatives, increasing organizational speed and agility, and effectively allocating resources to growth opportunities.
Q: How are you managing inventory levels in Asia Travel Retail, and what progress has been made in reducing inventory?
A: Tracey Travis, CFO, stated that inventory levels in Asia Travel Retail are lower than last year, with progress made in reducing trade inventory. However, due to market volatility, further destocking is expected, and they aim to continue aligning inventory with current market trends.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
