EL falls 20% after cutting dividend, suspending guidance
2min read Estée Lauder (EL) reported disappointing Q1 results, with adjusted earnings per share (EPS) of $0.14, exceeding the FactSet estimate of $0.09, but net sales of $3.36 billion, slightly below expectations of $3.37 billion, down 4% year-over-year. Amid worsening consumer sentiment in China and a sluggish travel retail sector, the company withdrew its full-year guidance and slashed its quarterly dividend from $0.66 to $0.35, intending to enhance financial flexibility for incoming leadership. The results have pushed the stock down 20%, marking its lowest price since 2014, with concerns about the company’s uncertain near-term outlook in key markets.
Sales declines were notable across regions, especially in the Asia-Pacific segment, where revenue fell by 11% year-over-year, primarily due to low conversion rates in China and travel retail headwinds. The company cited improvements in markets such as Japan and certain emerging markets, yet challenges remain in achieving a broader recovery amid ongoing geopolitical and economic concerns in Asia. Despite some regional growth, Estée Lauder faces significant obstacles in reviving consumer demand in its major Asian markets, prompting cautious outlooks among analysts.
Estée Lauder's largest segment, Skin Care, saw an 8% decline, impacted by reduced consumer sentiment in China and slowed replenishment orders, particularly affecting the La Mer and Estée Lauder brands. Offsetting these declines, Europe, the Middle East, and Africa (EMEA) saw modest growth from products like the Advanced Night Repair line. In contrast, Makeup sales decreased by 2%, driven by softness in M·A·C and Too Faced, though Clinique posted strong gains, supported by recent product launches.
In Fragrance, sales dropped 1%, reflecting challenges in global travel retail, though growth from luxury brands like Le Labo and Jo Malone offered some support. Meanwhile, the Hair Care segment declined 6%, with Aveda impacted by weak North American salon performance. The company’s attempts to bolster direct-to-consumer channels through premium brands were tempered by ongoing issues within the travel retail landscape, showing the segment’s reliance on international tourism.
CEO Fabrizio Freda commented on the challenging economic backdrop in China, noting potential medium- to long-term benefits from new stimulus but recognizing short-term demand pressures. With China’s uncertain recovery timeline and travel retail headwinds, the company has issued guidance only for the current quarter, projecting a 6%-8% decline in organic net sales and EPS of $0.20-$0.35, below analyst estimates of $1.06.
The management transition to incoming CEO Stephan de La Faverie, effective January 1, has left some analysts concerned, with Stifel and Oppenheimer downgrading or maintaining neutral ratings on the stock. Analysts indicate that investors had hoped for an external hire to bring fresh strategic changes, given widespread market share losses in the weak prestige beauty market. Stifel’s Mark Astrachan noted that the company may face ongoing challenges to improve performance, requiring time and careful strategy adjustments.
Analysts also warn of valuation risks, given Estée Lauder’s sharp decline and uncertainties about an Asia recovery and the dividend cut. Despite these hurdles, the stock’s high short interest and recent earnings momentum leave it vulnerable to a short squeeze, making it a precarious choice for bearish investors in the near term.
