Estee Lauder Q3 2024 $EL (+3.76%)

Financial performance

• Net salesEstée Lauder reported net sales of $3.361 billion for the three months ended September 30, 2024, a decrease of 4% compared to the same period in 2023.
• Operating profitThe company reported an operating loss of USD 121 million, a significant decrease from an operating profit of USD 98 million in the previous year.
• Adjusted operating profitAdjusted operating income : On a constant currency basis, adjusted operating income increased by 23% to USD 133 million, indicating improved operational efficiency despite the overall decline in sales.

Balance sheet overview

• Total assetsAs of September 30, 2024, total assets amounted to USD 21.317 billion, a decrease from USD 22.650 billion in the previous year.
• Total liabilitiesTotal liabilities decreased slightly to USD 16.233 billion, compared to USD 16.482 billion in the previous year.
• Shareholders' equityEquity amounted to USD 5.084 billion, compared to USD 5.342 billion in the previous year.

Details of the income statement

• Gross profitGross profit amounted to USD 2.433 billion, with minimal changes compared to the previous year.
• Diluted EPS: Diluted EPS was $(0.43), compared to $0.09 in the prior year, indicating a significant decrease in profitability.

Cash flow overview

• Operating cash flow: Net cash used in operating activities was $670 million, an increase from $408 million in the prior year, indicating higher outflows.
• Capital expenditureCapital expenditure decreased to USD 141 million compared to USD 295 million in the previous year, reflecting a prudent investment strategy.

Key performance indicators and profitability metrics

• Adjusted EPSAdjusted EPS was USD 0.14, an increase of 33% compared to the prior year, highlighting the resilience of the core operations.
• Effective tax rate: The effective tax rate for the second quarter is estimated to be approximately 43%.

Segment information

• AmericasNet sales decreased by 1%, with challenges in North America partially offset by growth in Latin America.
• Europe, Middle East and AfricaNet sales decreased by 4%, mainly due to a decline in the global travel market.
• Asia PacificNet sales fell by 11%, led by declines in Mainland China and Hong Kong SAR.

Competitive position

Estée Lauder continues to face challenges in the prestige beauty segment, particularly in China and the Asian travel market. However, the company sees potential for growth opportunities resulting from new economic stimulus measures in China.

Forecasts and management comments

• Sales forecastThe company forecasts a decline in reported and organic net sales of between 6% and 8% for the second quarter of financial year 2025.
• Earnings guidanceReported diluted net income per common share is estimated to be between USD 0.02 and USD 0.19.

Risks and opportunities

• RisksRisks and opportunities : These include the continued slow growth in the prestige beauty sector in mainland China, the challenging retail environment in the Asian travel market and macroeconomic factors such as currency volatility and inflationary pressures.
• OpportunitiesPotential growth in the medium to long term due to economic stimulus measures in China.

Summary of results

Estée Lauder faced challenges this quarter, resulting in a decline in net sales and an operating loss. The company is navigating through a complex market environment, particularly in China and the Asian travel market, which has negatively impacted its financial performance. Despite these challenges, strategic investments are being made to support future growth and innovation. The reduction of the dividend reflects a prudent approach to maintain financial flexibility. Looking ahead, Estée Lauder aims to capitalize on potential growth opportunities while managing the risks of the current economic environment.

Positive aspects

• Increase in adjusted operating profitAdjusted operating profit increased by 33% to USD 159 million, indicating improved operational efficiency despite the overall decline in sales.
• Growth in Latin AmericaThe Americas region saw growth in Latin America, particularly with high single-digit growth in Brazil, supported by strength in the make-up category.
• Online growth in the USAThe company experienced double-digit online growth in the United States, driven by the launch of seven brands on Amazon's US premium beauty store.
• Strategic product innovation: New product innovations within the Advanced Night Repair and Revitalizing Supreme + product lines contributed to sales growth in Europe, the Middle East and Africa.
• Gross margin expansionThe Profit Recovery and Growth Plan led to an expansion of the gross margin, which is a positive indication of cost management and pricing policy.

Negative aspects

• Decrease in net salesThe company reported a 4% decline in net sales, with significant declines in key regions such as Asia/Pacific, where a decline of 11% was observed.
• Net lossThe company reported a net loss of USD 156 million, mainly due to charges related to Talcum litigation settlements.
• Challenges in China and the Asian travel marketConsumer sentiment in China has deteriorated, leading to a further slowdown in the prestige beauty market and low conversion rates in the Asian travel market and Hong Kong SAR.
• High effective tax rateThe effective tax rate for the second quarter is expected to be around 43%, which will have a negative impact on net profit.
• Withdrawal of the forecast for the full year: Due to increasing uncertainty over the timing of market stabilization in Mainland China and the Asian travel market, the company withdrew its forecast for FY2025, indicating a lack of visibility on future performance.