Estée Lauder Companies (EL) shares took a nosedive in premarket trading on Thursday, plummeting over 20% after the cosmetics giant released disappointing first-quarter earnings. The company’s results were marred by a combination of factors, including a weakening retail market, a decline in consumer sentiment in China, and the impact of the ongoing talcum litigation.
Estée Lauder reported adjusted earnings per share of 14 cents, which, although exceeding the Street view of 9 cents, failed to impress investors. The company’s quarterly sales of $3.36 billion fell short of analyst expectations, clocking in at a 4% decline from the previous year. All key segments, including Skin Care, Makeup, Fragrance, and Hair Care, experienced sales declines, with Skin Care taking the biggest hit at 7%.
The company attributed the weak sales performance primarily to declining consumer sentiment in China, which led to weaker prestige beauty sales and low conversion rates in Asia travel retail and Hong Kong SAR. Moreover, the slowing retail market contributed to lower replenishment orders and inventory pressures, further impacting sales.
Adding to the pressure, Estée Lauder reported a net loss of $156 million for the quarter, a stark contrast to the $31 million in net earnings recorded in the prior year. This shift was primarily attributed to charges associated with talcum litigation settlement agreements, totaling $159 million.
In light of the challenging market environment, including the unpredictable recovery timeline for China and Asia travel retail, and the impending leadership change, Estée Lauder made the decision to withdraw its fiscal 2025 outlook, providing guidance only for the second quarter. This decision signifies the company’s cautious approach to navigating the current landscape.
Estée Lauder announced yesterday that Stéphane de La Faverie will assume the role of President and Chief Executive Officer, effective January 1, 2025, succeeding Fabrizio Freda, who is retiring after a sixteen-year tenure. De La Faverie will also join the Board of Directors.
To provide the incoming leadership team with greater financial flexibility to accelerate profitable growth, Estée Lauder announced a reduction in its dividend. The company declared a quarterly dividend of 35 cents per share, payable on December 16.
For the second quarter, Estée Lauder anticipates a decrease in adjusted net earnings per common share between 77% and 60%, ranging from 20 cents to 35 cents. This forecast falls significantly below the consensus estimate of $1.06. The company also projects a decline in both reported and organic net sales between 8% and 6% for the quarter.
The combination of these factors, including the disappointing earnings, the challenging market outlook, and the dividend cut, fueled a significant sell-off in Estée Lauder shares. Investors are closely watching how the company will navigate these challenges and whether its new leadership can restore confidence and reignite growth in the coming quarters.
