New York, NY – Shares of Estée Lauder have experienced a significant decline in value over the past year, with a drop of nearly 50%. The trend continued on Wednesday as the company provided weak guidance, leading to a further 10% decrease in share price. Despite previous advice to sell shares, investors have seen a 37% decrease in stock value since that recommendation, significantly underperforming the S&P 500’s 38% rally during the same period. Although valuation may eventually reflect this decline, current evaluation suggests that Estée Lauder shares are still pricey.
In the fiscal third quarter, Estée Lauder reported adjusted earnings per share of $0.97, surpassing expectations by $0.47 as revenue increased by 5% from the previous year. However, the positive earnings were overshadowed by a disappointing outlook for the upcoming quarter, with projected adjusted EPS of $0.18-$0.28 falling well below the anticipated $0.75. Concerns regarding weak performances in China and other international markets persist, with organic net sales growing by 6%, primarily driven by Europe and the Middle East, while Asian travel demand showed improvement. Yet, these sales figures have not translated into substantial profit growth for the company.
With the majority of its sales coming from overseas markets, Estée Lauder is susceptible to fluctuations in the value of the U.S. dollar, impacting its financial performance when revenues are converted back into USD. The company faced a 1.4% headwind from foreign currency in the third quarter, resulting in a $0.05 hit to earnings per share. As the U.S. dollar continues to strengthen, this trend is expected to persist, posing a challenge to the company’s international sales. Amidst a global economic landscape where the U.S. is outperforming, Estée Lauder’s business model, heavily reliant on international markets, may face headwinds despite domestic economic gains.
Furthermore, consumer behavior trends suggest a shift towards cost-consciousness, particularly in light of ongoing inflationary pressures. As consumers prioritize savings, spending on certain discretionary items, including higher-end beauty products, may decline. The company’s skincare segment experienced growth across all regions, driven by routine use products that are viewed as less discretionary. Makeup and fragrance sales showed mixed results, with fluctuations in profit margins indicating challenges in certain product categories. Despite these challenges, Estée Lauder has been successful in controlling costs and improving gross margins through strategic initiatives.
Looking ahead, Estée Lauder’s cost-cutting measures are expected to drive profitability in the coming years, although uncertainties surrounding global economic growth and consumer spending patterns remain. As the company navigates these challenges, maintaining a balance between cost management and revenue generation will be crucial for sustaining long-term growth and profitability.
