02.05.24
The Estée Lauder Companies Inc. reported net sales of $4.28 billion for its second quarter ended December 31, 2023, a decline of 7% from $4.62 billion in the prior-year period.
Organic net sales fell 8%, reflecting the expected challenges in Asia travel retail as well as ongoing softness in overall prestige beauty in mainland China, the company said.
The decrease also reflects a 1% headwind due to business disruptions in Israel and other parts of the Middle East. Partially offsetting these pressures, organic net sales grew in several markets in Asia/Pacific and Europe, the Middle East and Africa, as well as in nearly every market in Latin America.
The company reported net earnings of $313 million, compared with net earnings of $394 million in the prior-year period. The company’s reported effective tax rate was 37.6% in the quarter, compared to 25.4% in the prior-year period. The increase in rate reflects a higher effective tax rate on the company’s foreign operations, due to the change in the company’s geographical mix of earnings for fiscal 2024 as well as the unfavorable impact from previously issued share-based compensation. Diluted net earnings per common share was $.87, compared with $1.09 reported in the prior-year period. Excluding restructuring and other charges and adjustments, adjusted diluted net earnings per common share declined to $.88. The fiscal 2024 second quarter impact of business disruptions in Israel and other parts of the Middle East was $.02 dilutive to net earnings per common share.
“For the second quarter of fiscal 2024, we delivered our organic sales outlook and exceeded expectations for profitability,” said Fabrizio Freda, president and CEO. “The Ordinary and La Mer in skin care, Clinique in makeup and Le Labo and Jo Malone London in fragrance performed strongly. Many developed and emerging markets around the world continued to grow organically and at retail. While mainland China and Asia travel retail declined, our retail sales trended ahead of organic sales, and these businesses are poised to return to organic sales growth in the second half.”
Performance By Category – Skin Care
Skin Care net sales declined 10%, reflecting a decrease in the company’s Asia travel retail business primarily due to the ongoing actions by the company and its retailers to reset retailer inventory levels, including the response to changes in government and retailer policies in the second half of fiscal 2023 related to unstructured market activity, and lower conversion of travelers to consumers. The decline also reflected the impacts from the ongoing softness in overall prestige beauty in mainland China, including lower sales during the 11.11 Global Shopping Festival.
Net sales from Estée Lauder, Clinique and Origins declined, primarily reflecting the aforementioned challenges in Asia travel retail and mainland China. Estée Lauder net sales increased double digits in The Americas, reflecting growth from the Advanced Night Repair product franchise, including the fiscal 2024 launches of Advanced Night Repair Rescue Solution with Bifidus Ferment and Advanced Night Cleansing Balm, and the recent launch of the Nutritious line of products.
These declines were partially offset by double-digit net sales growth from The Ordinary, globally and across all geographic regions, reflected continued strength from hero products, successful innovation, such as the Soothing & Barrier Support Serum, and strong holiday demand; net sales increases from La Mer in every geographic region, benefiting from hero product franchises and commercial activations globally, including for holiday; double-digit net sales growth from MAC was fueled by the successful launch of the Hyper Real franchise line of products; and the decrease of skin care operating income, primarily reflecting the decline in net sales, partially offset by the prior-year period other intangible asset impairment of $100 million relating to Dr.Jart+ and disciplined expense management.
Makeup
Makeup net sales declined 8%, reflecting challenges in the company’s Asia travel retail business. MAC net sales decreased, primarily due to the phasing out of select products in preparation for new product launches and a benefit in the prior-year period as a result of changes to MAC’s take back loyalty program, globally, as well as the challenges in Asia travel retail. Partially offsetting these pressures, net sales increased double digits in Latin America and several markets in Asia/Pacific, benefiting from new product innovation, such as the fiscal 2024 Studio Radiance Foundation and Locked Kiss Ink 24HR Lipcolour.
Net sales from Estée Lauder decreased, primarily due to the challenges in Asia travel retail. These declines were partially offset by strong double-digit net sales growth from Clinique,
benefiting from broad-based growth in the lip, face and eye subcategories and owing to both
continued success of hero products and new product innovation.
Makeup operating results increased, primarily reflecting the prior-year period other intangible asset impairments relating to Too Faced and Smashbox, combined, of $107 million and disciplined expense management, partially offset by the decrease in net sales.
Fragrance
Fragrance net sales were flat, as increases from luxury brands Le Labo and Jo Malone London were offset by a decline from Estée Lauder.
Net sales from Le Labo grew strong double digits, primarily due to robust consumer demand for the brand’s hero product franchises, such as Santal 33 and Another 13, its City Exclusives collection and strong holiday performance. In Asia/Pacific, net sales more than doubled, benefiting from targeted expanded consumer reach, including in mainland China, Thailand and Malaysia.
Jo Malone London net sales increased, owing to compelling holiday offerings and social media activations. Net sales in The Americas grew double digits, benefiting from the Cologne Intense collection, and grew high-single-digits in Asia/Pacific, primarily driven by continued success of the English Pear & Freesia product franchise.
Estée Lauder net sales declined, primarily due to the timing of holiday shipments compared to the prior-year period. Fragrance operating income declined, primarily driven by strategic investments to support growth, including for holiday.
Hair Care
Hair Care net sales decreased 6%, primarily driven by Aveda reflecting softness in North America. Hair care operating results decreased, primarily driven by the decline in net sales.