Estée Lauder Faces Steep Headwinds Ahead of Third-Quarter Results Webcast

Estée Lauder Companies (EL) is set to host a webcast on May 1, 2025, to discuss its fiscal 2025 third-quarter results, which are expected to reflect significant challenges in key markets and strategic adjustments under its Beauty Reimagined vision. The outlook, detailed in its recent second-quarter earnings release, paints a picture of a company navigating a turbulent retail landscape, particularly in Asia travel retail, while pursuing aggressive cost-cutting and reinvestment strategies to secure long-term growth.

Financial Outlook: A Double-Digit Sales Decline and Earnings Collapse

The third quarter, ending March 31, 2025, is projected to report a 10% year-over-year decline in net sales (8% on an organic basis), driven by a “strong double-digit net sales decline” in Asia travel retail. Weakness in Korea, where retailers adjusted selling policies, and unfavorable comparisons to the post-pandemic recovery in China’s Hainan duty-free market are key culprits.

Earnings, however, are expected to take a far steeper hit. GAAP diluted EPS is forecasted to plummet to between $0.04 and $0.17, a drop of 96–81% from $0.91 in the prior year. Adjusted EPS, excluding restructuring charges, is projected to fall to $0.20–$0.30, down 79–69% from $0.97. These figures highlight the severity of the operational challenges, exacerbated by restructuring costs totaling up to $1.6 billion pre-tax through fiscal 2026.

Strategic Shifts: Restructuring for Resilience

To counter these headwinds, Estée Lauder is accelerating its Profit Recovery and Growth Plan (PRGP), aiming to deliver $0.8–$1.0 billion in annual savings by 2027. Key actions include:
- Job Cuts: A net reduction of 5,800–7,000 positions to streamline operations.
- Cost Optimization: Outsourcing non-core services, improving procurement, and enhancing supply chain agility.
- Marketing Investments: Boosting consumer-facing spending, partly funded by PRGP savings, to drive brand relevance and demand.

CEO Stéphane de La Faverie emphasized that the plan’s success hinges on stabilizing inventory and retail trends. While the company anticipates “significant retail sales improvement” in non-travel retail channels, Asia’s travel sector—critical for luxury skincare brands like La Mer—remains a drag.

Brand Performance: Mixed Signals Across Segments

• Skin Care: Faces steep declines, particularly in Asia, where Estée Lauder and La Mer are struggling.
• Fragrance: Outperforms, with Le Labo and other niche brands offsetting weaker segments.
• Makeup: Challenges persist at TOM FORD and Too Faced, though Clinique’s resilience provides a modest buffer.

Risks and Impairment Concerns

The company warned of potential further asset impairments, citing $861 million in prior charges related to goodwill and intangible assets in the second quarter. Geopolitical risks, including tariffs and macroeconomic uncertainty, add to the volatility. An elevated ~36% tax rate for the quarter, up from prior periods, also weighs on earnings.

Conclusion: Navigating a Rocky Road to Recovery

Estée Lauder’s third-quarter results will serve as a critical stress test for its turnaround strategy. While the near-term outlook is bleak—sales and EPS declines underscore the depth of Asia’s travel retail crisis—the company’s aggressive restructuring and reinvestment bets could position it for recovery. Key metrics to watch include:
- Asia Travel Retail Stabilization: Can Hainan’s improving trends offset Korea’s weakness?
- PRGP Progress: Are cost savings materializing to offset top-line pressures?
- Brand Relevance: Will marketing investments revive demand for legacy skincare brands?

Investors should also monitor the stock’s valuation. At current levels, the stock trades at a ~10x forward P/E ratio, historically low for luxury goods companies, but risks like further impairments and macroeconomic slowdowns could keep pressure on multiples. If Estée Lauder can demonstrate stabilization in Asia and execute its PRGP efficiently, it may emerge stronger. Until then, the path to profitability remains fraught with obstacles.

The May 1 webcast will be pivotal in gauging management’s confidence and the degree to which its long-term vision can overcome short-term turbulence. For now, the numbers suggest a company fighting to turn the tide.