Standard & Poor's Ratings Services said Tuesday it revised its outlook on Estée Lauder Cos. to "negative" from "stable" amid a tough economy that has dampened demand for cosmetics.
Last week, Estee Lauder said fiscal second-quarter profit fell 30 percent, hurt by the stronger dollar and weak consumer spending. The company will also cut 2,000 jobs as part of a restructuring.
"The primary drivers of the outlook revision are the very difficult retail environment and the company's recent results for the fiscal quarter ended Dec. 31, which reflected a very challenging holiday quarter," said Standard & Poor's credit analyst Susan H. Ding.
S&P said conditions in the U.S. cosmetics industry have been challenging because of high competition, retailer consolidation and a weak economy that has hurt consumer spending, especially at department stores.
S&P said it might revise the outlook to "stable" if the company can improve credit measures to historical levels and underlying business improves.
Similarly, shares of Avon Products Inc. slipped on Tuesday with the broader market as an analyst warned that 2009 will be a "difficult year" for the cosmetics maker.
Last week, Avon said fourth-quarter profit rose 80% as year-ago results included big restructuring charges.
But results missed Wall Street expectations as the stronger dollar made the company's products more expensive to overseas customers. In 2008, Avon recorded $2.49 billion in North American revenue, compared with $8.20 billion combined in its other markets.
Avon has already raised prices and cut jobs, expecting savings of about $430 million a year, once the restructuring is complete, by 2011 or 2012.
BMO Capital markets analyst Connie Maneaty expects Avon to discuss cost savings, its exposure to currency and more restructuring charges when executives speak at the Consumer Analyst Group of New York conference in Florida next week.