Estee Lauder Companies Inc (EL) shares traded slightly lower after the company released its fourth-quarter earnings report. While the company surpassed analyst estimates on sales, exceeding $3.87 billion in revenue, its profitability fell short of expectations. Sales growth was driven by a 7% year-over-year (Y/Y) increase, with organic net sales growing 8% Y/Y. This growth was fueled by strong performance across all product categories, particularly in Skin Care, driven by the company’s global travel retail segment. However, sales in the Americas declined 5% while Europe, Middle East & Africa saw a 32% surge and Asia/Pacific sales decreased 4%.
Despite the sales growth, Estee Lauder’s operating loss reached $233 million, compared to a $5 million loss in the previous year. This was primarily due to rising operating expenses, which increased 23% Y/Y. However, the company’s adjusted earnings per share (EPS) of $0.64 beat analyst expectations of $0.27.
Looking ahead, Estee Lauder forecasts a challenging year for its prestige beauty segment in China, citing persistent weak sentiment among Chinese consumers. This outlook has led to a more conservative expectation for fiscal 2025, with the company anticipating a moderate pace of operating margin expansion. The company expects organic and reported revenue growth of 1% to 2% and adjusted EPS between $2.75 and $2.95, significantly lower than analyst consensus estimates.
In addition to the challenging market conditions, Estee Lauder announced that President and CEO Fabrizio Freda will retire at the end of FY25. The company’s Board of Directors is actively engaged in the CEO succession process, considering both internal and external candidates.
Despite the short-term challenges, Estee Lauder remains committed to its long-term growth strategy. The company plans to focus on reigniting growth in its Skin Care segment, capitalizing on the expanding high-end Fragrance market, and enhancing its precision marketing capabilities. Estee Lauder believes that these efforts, combined with its strong brand portfolio and talented workforce, will position the company for future success.
Investors interested in gaining exposure to Estee Lauder can consider investing in the KraneShares Global Luxury Index ETF (KLXY) and the VanEck Morningstar Wide Moat Growth ETF (MGRO).
