Estee Lauder Earnings Outlook Misses Views Amid Asia Pacific Demand Challenges

Estee Lauder Companies Inc. (EL) has missed analysts' earnings expectations for the fiscal 2025 second quarter, as the company grapples with slowing demand for luxury beauty products in the Asia Pacific region, particularly in China and South Korea. The company reported a net loss of $1.64 per share, compared with diluted net earnings per common share of $.87 in the prior-year period. Adjusted diluted net earnings per common share decreased to $.62, a 29% decline from the prior year.

Estee Lauder's revenue fell to $4 billion, a decline from $4.28 billion in the same period last year. The company's sales were particularly impacted by the slowdown in the Chinese and South Korean markets, where demand for luxury beauty products has weakened due to factors such as high unemployment rates, changing consumer preferences favoring local brands, and reduced discretionary spending. Additionally, China's imposition of new import tariffs on American goods has put further strain on Estee Lauder's ability to compete effectively in the Chinese market, which accounts for nearly 25% of the company's total sales.

The company's operating margin declined to (14.5)% from 13.4% in the prior-year period, primarily reflecting $861 million from goodwill and other intangible asset impairments and $181 million from charges associated with restructuring and other activities. Adjusted operating margin contracted 200 basis points, to 11.5%. The net benefits from the company's Profit Recovery and Growth Plan (PRGP) partially mitigated its sales volume deleverage in the fiscal 2025 second quarter, while the company strategically increased investments in consumer-facing activities.

Estee Lauder's stock took a major hit following the announcement, plunging nearly 15% on Tuesday. The stock price fell by $12.14 per share, reflecting investor concerns over the company's ability to recover and compete in the evolving global beauty landscape. The company also lowered its profit outlook for the current quarter, now expecting earnings between 24 cents and 34 cents per share, significantly below Wall Street's previous estimate of 61 cents, according to FactSet.



In response to these challenges, Estee Lauder plans to undergo a major restructuring that will include job cuts affecting 7,000 employees across different global locations. The company aims to streamline operations, reduce costs, and regain market agility. The restructuring plan is expected to result in cost-saving initiatives estimated to range between $1.2 billion and $1.6 billion before taxes. Additionally, the company is focusing on expanding digital and e-commerce sales to counter declining in-store purchases, strengthening its presence in emerging markets beyond China, such as India and Southeast Asia, revamping product lines to appeal to younger consumers, and enhancing marketing strategies to compete with rising Asian beauty brands.

Estee Lauder's earnings outlook misses views amid Asia Pacific demand challenges, but the company remains one of the biggest names in the luxury beauty industry. As the company navigates the current challenges and implements its restructuring plan, investors will be watching closely to see if Estee Lauder can emerge stronger and more adaptable in a rapidly evolving global market.