Estee Lauder pulls annual forecasts on uneven China recovery, new CEO

Estee Lauder shares slumped as much as 27% on Thursday, after it pulled its annual sales and profit forecasts and cut its dividend as it faces an uncertain outlook in China.

The drop in shares would be the largest one-day fall in the stock’s history, as the company aims to kickstart a turnaround with its new CEO Stephane de La Faverie, set to take over on Jan. 1.

Estee Lauder is one of many luxury retailers that bet on China, where economic demand has struggled to match pre-pandemic growth. Other brand names including LVMH, Italy’s Salvatore Ferragamo, and Hermes have also been hit by China’s ongoing slump.

The China government had earlier this month pledged a stimulus package to revive its economy, but Estee Lauder said it does not expect a boost in second-quarter performance from the effort.
“Consumer sentiment in Mainland China weakened further in our first quarter …. we anticipate still strong declines near term for the industry,” outgoing CEO Fabrizio Freda said on a post-earnings call.

The company is the third consumer-facing company in the last two months, after Nike, opens new tab and Starbucks, opens new tab to pull annual forecasts following a change at the helm.

The stock, which has lost 40% this year, was last down 19%.

Last week, European peer L’Oreal also flagged poor spending in China, with CEO Nicolas Hieronimus calling the weakness in travel retail as an “unexpected turbulence”.

Estee Lauder has been suffering from weak Asia Travel retail or sales at airports or travel destinations like Korea and China’s Hainan. Its first-quarter sales in the Asia Pacific region fell 11%, compared to a 3% decline in the prior quarter.

Estee Lauder’s weakness was not limited to China, as Americas sales also declined 2%.

“Competition is fierce for cosmetics and consumers in other important regions such as the US aren’t spending as freely as they’ve done in recent years,” said Dan Coatsworth, investment analyst at AJ Bell.

Estee Lauder expects second-quarter profit per share between 20 cents and 35 cents, compared with estimates of $1.06, according to estimates compiled by LSEG.

It expects net sales to drop between 6% and 8%, compared with a analysts estimate for a 0.24% rise to $4.29 billion.
The company declared a quarterly dividend of 35 cents per share, half of its previous dividend.

“(The dividend cut) further speaks to the difficulty in forecasting the timing of a material improvement in results,” Dana Telsey, analyst at Telsey Advisory Group said.