Estée Lauder Companies reports slight decline in North American sales amidst global challenges

05-Nov-2024 - Last updated on 05-Nov-2024 at 14:51 GMT

"In the rest of our business, we continue to expect the ongoing normalization of growth in prestige beauty, most notably in North America," said Fabrizio Freda, Estée Lauder’s outgoing President and CEO in a company press statement. © Galeanu Mihai Getty Images

Estée Lauder Companies has reported a 4% overall decline in Q1 net sales, with US growth in online channels helping to offset challenges across its North American portfolio, where net sales declined by only 1%.

Estée Lauder reported net sales of $3.36 billion, compared to $3.52 billion in the same period last year. Organic net sales saw a 5% decrease, largely driven by challenges in consumer sentiment across China, low conversion rates in travel retail, and inventory pressures.

Despite these global pressures, North American sales showed slight resilience, declining just 1%, primarily due to softer performance in well-known brands like M·A·C, Aveda, TOM FORD, and Too Faced. This was partially offset by an increase in online sales, attributed to ELC's recent presence on Amazon’s US Premium Beauty store.

Key financials and operational changes

ELC faced a first-quarter net loss of $156 million, a significant shift from a $31 million profit in the previous year. The loss is attributed to talcum litigation settlement agreements costing $159 million, as well as restructuring charges related to the Profit Recovery and Growth Plan (PRGP), which was introduced in November 2023 to help curb costs and improve gross margin.

Adjusted diluted EPS increased to $0.14, a 7% growth in constant currency. The company’s strategic moves for cost reduction, including adjustments to its dividend payout ratio, are aimed at providing “more financial flexibility” for the new CEO, Stéphane de La Faverie, who will assume the role in January 2025.

Fabrizio Freda, Estée Lauder’s outgoing President and CEO, acknowledged in the company's media statement that “expected headwinds in China and Asia travel retail were greater than anticipated.” Nevertheless, the PRGP initiative “drove gross margin expansion,” reflecting a successful first step in the plan’s objectives, according to the press release.

Performance in key product categories

Across ELC's product lines, North American sales in skin care, makeup, and fragrance each faced unique challenges:

Skin care: Global skincare sales dropped 8%, led by double-digit declines in major brands such as La Mer and Estée Lauder, especially in Asian markets. However, innovation within the Advanced Night Repair line helped boost sales within Europe, the Middle East, and parts of the Americas.
Makeup: This category experienced a 2% decline, with notable decreases in M·A·C and Too Faced, especially within North America. According to the release, these declines were driven by “softness in retail sales” and lower replenishment orders in the region. Conversely, Clinique showed growth across all regions, driven by strong demand for its lip products and recent online launches.
Fragrance: Fragrance sales declined by 1% overall, affected by travel retail challenges. However, growth was reported in Asia-Pacific and EMEA markets, alongside a rise in online luxury fragrance sales in North America.

Strategic investments and expanding consumer reach

ELC continues to drive strategic investments in its e-commerce and direct-to-consumer channels, particularly through partnerships and product launches designed to expand reach. In North America, for instance, the company’s accelerated growth in online retail included the debut of seven brands on Amazon’s US Premium Beauty store, which notably supported “double-digit online growth in the United States,” according to the press release.

Freda highlighted the company’s strides in “moving faster to leverage winning channels, most notably in the US,” and stated that ELC's retail sales in the United States “accelerated sequentially” over the quarter.

Withdrawal of fiscal 2025 outlook

Amid heightened market uncertainty, especially in China and Asia travel retail, ELC has withdrawn its outlook for the fiscal year. Freda cited the “complex industry landscape” and the challenges in forecasting recovery timelines as factors behind this decision.

He also emphasized the company’s commitment to adapting to market changes and facilitating a smooth leadership transition.

“We believe the new economic stimulus measures in China present medium- to long-term potential for stabilization and ultimately growth in prestige beauty,” said Freda, though he warned that near-term declines in these markets are expected.

Despite a challenging quarter, ELC remains committed to expanding its consumer base in North America and advancing innovations within skin care and fragrance. The company’s emphasis on cost efficiency and strategic growth initiatives aims to stabilize its performance as it undergoes leadership changes.

As ELC awaits the arrival of its new CEO, the company’s restructured fiscal approach signals a forward-looking strategy to regain profitability and strengthen its market share in the prestige beauty industry.