Estee Lauder, a luxury cosmetics company, reported its Q2 earnings for the fiscal year 2024. The company's adjusted earnings per share (EPS) came in at $0.88, beating analysts' expectations of $0.55. Estee Lauder's Q2 revenue also exceeded expectations, reaching $4.28 billion, compared to the estimated $4.19 billion.
The company's net sales decreased by 7% to $4.28 billion, compared to $4.62 billion in the same period last year. This decline was primarily due to the expected challenges in Asia travel retail and ongoing softness in overall prestige beauty in mainland China. Additionally, the company experienced a 1% headwind due to business disruptions in Israel and other parts of the Middle East.
Estee Lauder reported net earnings of $313 million for Q2, compared to $394 million in the same period last year.
The company's reported effective tax rate was 37.6%, compared to 25.4% in the prior-year period. The increase in the effective tax rate reflects a higher rate on the company's foreign operations, primarily due to the change in the company's geographical mix of earnings for fiscal 2024 and the unfavorable impact from previously issued share-based compensation.
Diluted net earnings per common share was $0.87, compared to $1.09 in the prior-year Adjusted diluted net earnings per common share declined to $0.88, excluding restructuring and other charges and adjustments. The fiscal 2024 second quarter impact of business disruptions in Israel and other parts of the Middle East was $0.02 dilutive to net earnings per common share.
Net sales in North America decreased by 1%, primarily due to the United States, where the decline was driven by the take-back loyalty program and Aveda softness. This was partially offset by double-digit growth from The Ordinary and Jo Malone London, which drove growth in Skin Care and Fragrance, respectively. The performance in North America also reflected double-digit growth in specialty-multi, which was more than offset by declines in other channels of distribution, primarily department stores.
In Latin America, net sales increased in nearly every country, led by the emerging markets of Brazil and Mexico, and across Makeup, Skin Care, and Fragrance. Operating results in The Americas increased, primarily due to the prior-year period other intangible asset impairments of $107 million relating to Too Faced and Smashbox, combined, partially offset by $85 million of lower intercompany royalty income due to the decline in income from the company's travel retail business.
Net sales in Europe, the Middle East, and Africa (EMEA) decreased by 14%, primarily due to the company's Asia travel retail business and a 2% headwind from business disruptions in Israel and other parts of the Middle East.
Global travel retail net sales decreased double digits, primarily due to the ongoing actions by the company and its retailers to reset retailer inventory levels, including the response to changes in government and retailer policies in the second half of fiscal 2023 related to unstructured market activity, and lower conversion of travelers to consumers. These actions and changes led to lower product shipments compared to the prior-year period. In EMEA, mixed performance by market led to flat growth. Operating income decreased, driven by the decline in net sales, partially offset by $85 million of lower intercompany royalty expense due to the decline in income from the company's travel retail business and lower cost of sales.
Net sales in Asia Pacific decreased by 7%, driven by the impacts from ongoing challenges in mainland China, as previously discussed, partially offset by growth across several other markets, led by Hong Kong SAR. In mainland China, net sales declined primarily due to Skin Care, reflecting lower sales and mixed performance during the 11.11 Global Shopping Festival. The company's 11.11 net sales growth on Douyin more than doubled, led by Estee Lauder and La Mer, and was more than offset by the net sales decline on Tmall.
The decrease in Skin Care was partially offset by strong growth in Fragrance, driven by the launch of Le Labo in the fourth quarter of fiscal 2023 and double-digit growth from Jo Malone London and TOM FORD, and in Hair Care, due to Aveda. Net sales in Hong Kong SAR increased by strong double digits, benefiting from the reopening of borders and the corresponding resumption of travel leading to the return of brick-and- mortar traffic compared to the prior-year period. Operating income increased, driven by the increase in net sales.
In conclusion, Estee Lauder reported strong Q2 results, with adjusted earnings per share and revenue beating analyst expectations. The company's performance was mixed, with declines in mainland China and North America offset by growth in Latin America and Hong Kong.
The company's operating results were affected by the ongoing challenges in Asia travel retail and the decline in income from the company's travel retail business. Despite these challenges, Estee Lauder remains optimistic about its prospects for the second half of the fiscal year, with CEO Fabrizio Freda calling the bottom.
Shares of EL have rallied 15% following the news. The stock is rallying into resistance at its 200-sma ($161). It has not traded above its 200-day since May 2. The stock was hit hard when it fell short of earnings.
Overall, Estee Lauder's Q2 results were a mixed bag, with the company facing challenges in mainland China and North America but seeing growth in Latin America and Hong Kong. The company's operating results were affected by the ongoing challenges in Asia travel retail and the decline in income from the company's travel retail business. Despite these challenges, Estee Lauder remains optimistic about its prospects for the second half of the fiscal year, with CEO Fabrizio Freda calling the bottom. Investors should keep an eye on the company's performance in the coming quarters, as it will be crucial for the stock to sustain its recent momentum. With the stock testing key resistance levels, the next few trading sessions could be crucial for the stock's longer-term outlook.