Q1 Net Sales Fall 11% at The Estée Lauder Companies

The Estée Lauder Companies Inc. (ELC) today reported net sales of $3.93 billion for its first quarter ended September 30, 2022, a decline of 11% from $4.39 billion in the prior-year period, including negative impacts from foreign currency. Organic net sales fell 5%, in line with the company’s expectations, despite pressures which intensified as the quarter progressed.

ELC said covid restrictions in China presented a greater challenge than expected. Tourism to Hainan was largely curtailed, which led to strict inventory management by certain retailers in travel retail, and traffic in brick-and-mortar in the rest of China was limited. These greater pressures were offset by several markets in Asia/Pacific, as well as many emerging and developed markets in the west, which delivered strong organic net sales growth. Organic net sales in both fragrance and hair care grew double digits, said the New York-based beauty giant.

The company reported net earnings of $489 million, compared with net earnings of $692 million in the prior-year period2. Diluted net earnings per common share was $1.35, compared with $1.88 reported in the prior-year period. Excluding restructuring and other charges, adjusted diluted net earnings per common share declined 28% to $1.37, decreasing 24% in constant currency, better than the Company’s expectations. This decline includes a negative impact of 4% from certain foreign currency transactions in key international travel retail locations.

“For the first quarter, we delivered organic sales in line with our outlook and adjusted EPS ahead of it even as the transitory external pressures of COVID-19 restrictions in China, high inflation globally, and a strong US dollar intensified. Our multiple engines of growth strategy empowered us to seize prevailing growth opportunities amid the complexity,” said Fabrizio Freda, president and CEO.

Freda said fragrance and hair care each rose double digits organically, and “makeups renaissance continued to realize its promise in markets reopening.” Skin care was the most challenged by covid restrictions in China, which significantly impacted the category in travel retail.

“All told, 13 brands grew organically, as MAC excelled in makeup, La Mer in luxury skin care, Jo Malone London in fragrance, and Aveda in hair care. Encouragingly, we realized strong double-digit gains in many large developed and emerging markets around the world,” the CEO said when the financial results were released today.

Freda concluded, “For fiscal 2023, we are lowering our outlook primarily to reflect tighter inventory management in Asia travel retail, given reduced traffic as a result of covid restrictions, tightening of inventory by some retailers in the US, and a greater negative impact from the far-stronger US dollar. We anticipate sequential acceleration to strong organic sales and adjusted EPS growth in the second half of our fiscal year as these pressures begin to abate, momentum continues to build in other areas of our business, and our ongoing investments in innovation and advertising drive growth. Our optimism in the long-term growth opportunities for our brands and for prestige beauty remains intact. Reflecting our confidence, today we raised our quarterly dividend.”

Skin Care

Skin care net sales declined 11%, primarily reflecting the impacts of the prolonged covid-related restrictions in Hainan, including the tightening of inventory by certain retailers, and in mainland China. The tightening of inventory by certain retailers in the United States also negatively impacted the category’s growth. Net sales growth from La Mer, Bobbi Brown and The Ordinary was offset by declines from Estée Lauder, Dr.Jart+ and Origins. Growth from La Mer reflected increases in hero products, including the upgrade to The Treatment Lotion and Crème de la Mer, and targeted expanded consumer reach. Bobbi Brown net sales grew double digits across every region, driven by increases in hero products, including Soothing Cleansing Oil and Vitamin Enriched Face Base, and targeted expanded consumer reach. Hero products drove net sales growth from The Ordinary.

ELC said strong innovation from Estée Lauder, including the launches of Re-Nutriv Ultimate Diamond Transformative Brilliance Serum and the new Advanced Night Repair Eye Supercharged Gel-Creme Synchronized Multi-Recovery Eye Cream, partially offset the decline in net sales.

Skin care operating income decreased, reflecting the decline in net sales, partially offset by disciplined expense management.

Makeup

Makeup net sales decreased 6%, primarily reflecting the ongoing covid-related restrictions impacting travel retail in Hainan and mainland China, partially offset by the progression of the makeup renaissance as usage occasions increased in many markets. The decline in net sales also reflected a difficult comparison due to the timing of shipments in the prior-year period when certain retailers secured earlier shipments for holiday. Net sales growth from MAC was offset by declines from Estée Lauder and Tom Ford Beauty.

MAC high single-digit net sales growth was driven by hero products, such as Studio Fix foundation and Matte Lipstick, the recent launches of MACStack mascara and Powder Kiss Velvet Blur Slim Stick lipstick, and the recovery in brick-and-mortar, as the brand’s high-touch services drove conversion. Net sales from Estée Lauder and Tom Ford Beauty were negatively impacted by the decline in retail traffic and travel due to the covid-related restrictions. Net sales grew strong double digits in both Southeast Asia and in the emerging markets in Europe, the Middle East and Africa.

Makeup operating income decreased, primarily reflecting lower net sales, partially offset by disciplined expense management.

Fragrance

Net sales grew in every region and across all brands that sell fragrances, driven by continued desirability of the company’s luxury and artisanal fragrance portfolio and strategic expansion of freestanding stores. The Company achieved strong growth despite global supply constraints, particularly of glass. The license terminations related to certain of the company’s designer fragrances was dilutive to reported net sales growth by approximately 12 percentage points. Tom Ford Beauty net sales grew strong double digits, powered by launches, such as Noir Extreme Parfum and Ebene Fume, as well as organic growth in existing hero franchises like Oud Wood and Ombre Leather. Jo Malone London net sales grew high single digits primarily driven by strength in colognes, particularly in hero franchises, as well as strength in home and bath and body. The Night Collection and the fiscal 2022 Brit Collection also contributed to growth. Net sales from Le Labo rose strong double digits, primarily reflecting growth in brick-and-mortar, and targeted expanded consumer reach. Growth was driven by hero fragrances, such as Santal 33, as well as the annual City Exclusives collection.

Increased productive distribution in select retailers and the success of the Clinique Happy franchise line of products drove double-digit growth from the brand.

ELC said fragrance operating income increased, driven primarily by disciplined expense management.

Hair Care

Hair care net sales rose 11%, reflecting growth in every region and brand. Aveda’s net sales growth reflected strength in Europe, the Middle East and Africa, the launch of the brand in mainland China, the continued success of its hero franchises, including Botanical Repair, and the launch of the Color Control franchise line of products. Net sales from DECIEM benefited from the recent launch of The Ordinary’s hair care products.

Hair care operating results decreased, reflecting strategic investments to support innovation, partially offset by higher net sales, noted ELC.