The Estée Lauder Companies Inc. is finding it difficult to accurately forecast the future. The organization has reported Q1 fiscal 2025 net sales of $3.36 billion, a decrease of 4% year-over-year (organic decline: 5%). The company reported a net loss of $156 million in the period, in part driven by talc settlements, compared with net earnings of $31 million in the prior year. Given the results, challenges with accurate forecasting and amid a top executive shakeup, the company is withdrawing its 2025 forecast.
Top net sales decliners included skin care, down 7% year-over-year, and hair care, down 6%. Makeup sales declined 2% and fragrance fell 1%.
In a familiar theme, weakness in China and low conversion rates in Asia travel retail and Hong Kong SAR are key culprits in the challenged results, per the organization. Timing for stabilizaiton appears uncertain.
Also notable was a softening of prestige beauty growth, especially in North America.
That said, The Estée Lauder Companies has marked growth in Japan and several emerging markets.
In an earning's call, CFO Tracey Travis said, "We now expect organic net sales for our second quarter to decrease 6% to 8% compared to the prior year period, largely due to the ongoing challenges in mainland China and in Asia travel retail. We have discussed as well as persistent low conversion rates by trailing consumers in Hong Kong SAR."
Fabrizio Freda, the company's outgoing president and CEO, said, “Our first quarter results are largely aligned with our outlook on an adjusted basis, despite the fact that the expected headwinds in China and Asia travel retail were greater than anticipated. Our Profit Recovery and Growth Plan drove gross margin expansion, which was partially offset by operating deleverage. Other pillars of our strategic reset also delivered promising initial results."
Freda added, “As we reignite skin care, our night-time innovations proved highly sought after, driving strong organic sales growth for the category in the markets of EMEA as well as strong share gains for the second consecutive quarter in prestige skin care in China, led by La Mer. We advanced our ambitions to capitalize on the multiple growth drivers of fragrance. We expanded consumer reach of our luxury and artisanal portfolio and launched Balmain Beauty, as we aim to strengthen our strategic leadership in luxury fragrance, demonstrated in the quarter by having become the top-ranked company in Japan in the category driven by Le Labo and Jo Malone London. Moreover, we set the stage to reaccelerate our growth in the prestige tier of fragrance. We also made great strides in our pursuit of moving faster to leverage winning channels, most notably in the U.S. having delivered a sequential acceleration of retail sales growth in the first quarter. And, just last week we further demonstrated our execution of this pillar, as our Estée Lauder flagship brand debuted in the U.S. Amazon Premium Beauty store."
The executive concluded, “While we believe the new economic stimulus measures in China present medium- to long-term potential for stabilization and ultimately growth in prestige beauty, we anticipate still-strong declines near-term for the industry in China and Asia travel retail. In the rest of our business, we continue to expect the ongoing normalization of growth in prestige beauty, most notably in North America. With this complex industry landscape, including the particular difficulty in forecasting the timing of market stabilization and recovery in China and Asia travel retail, and in the context of leadership changes, we are solely issuing an outlook for the second quarter and withdrawing our fiscal 2025 outlook. Additionally, we are reducing our dividend to a more appropriate payout ratio, which will also create more financial flexibility for our incoming leadership team to reaccelerate our profitable growth trajectory.”
