Cosmetics giant Estee Lauder (EL) reported Q1 earnings that beat estimates but fell short of expectations, while also lowering its guidance for Q2 and FY24. The company cited a slower pace of recovery in net sales and margins due to incremental external headwinds, including a slowdown in the expected growth rate of overall prestige beauty in mainland China.

In Q1, Estee Lauder reported earnings of $0.11 per share, excluding non-recurring items, which was $0.32 better than the FactSet Consensus of ($0.21). However, revenues fell 10.6% year-over-year to $3.52 billion, which was basically in line with estimates of$3.53 billion. The company also issued downside guidance for Q2, predicting EPS of $0.48-0.58, excluding non-recurring items, versus the $1.21 estimate. Reported net sales are forecasted to range between a decrease of 2% and an increase of 1% versus the prior year.

The company also lowered its outlook for FY24, predicting EPS of $2.17-2.42, excluding non-recurring items, versus the $3.60 estimate. Reported net sales are forecasted to range between a decrease of 2% and an increase of 1% versus the prior year. The full-year outlook reflects a return to net sales growth in the second half of fiscal 2024, driven by strategic price increases, discount reductions, and lower obsolescence charges. The company also expects progressive operating margin improvement throughout the second half of fiscal 2024 due to the improvement of the Asia travel retail business and in mainland China.

Despite the lowered outlook, the company remains optimistic about its long-term prospects, with a full-year effective tax rate of approximately 28% and expectations for continued growth in the beauty industry. However, the company faces several challenges, including potential risks of further business disruptions in Israel and other parts of the Middle East, as well as currency headwinds.

In conclusion, Estee Lauder's Q1 earnings report was a mixed bag, with a beat on earnings but a narrow miss on revenues, and a lowered outlook for Q2 and FY24. While the company faces several headwinds, it remains optimistic about its long-term prospects and expects to see progressive improvement throughout the second half of FY2024.

Shares have fallen over 17% in Wednesday morning action following the premarket release.