Estée Lauder Shares Sink 20% After Slower China Demand Hits Earnings, Guidance

Estée Lauder (EL) shares tumbled as much as 20% in intraday trading Wednesday after the beauty products maker said current-quarter profits could be less than half what analysts had expected, citing slow recovery after last year's strict pandemic lockdowns hobbled demand for beauty products in China.

Slower demand from China also hurt the company's first quarter fiscal year 2024 earnings. Net sales for the quarter ended September fell 10% from a year ago to $3.52 billion. Net income, at $31 million, fell more than 90% from the year-ago quarter's $489 million, but surprised analysts who had forecast a net loss.

The company's stock price has tumbled almost 60% so far this year, and is trading roughly 70% below its all-time highs from late 2021.

Why Does China Matter To Estée Lauder?

Roughly 30% of Estée Lauder's $3.5 billion in sales in the latest quarter came from the Asia-Pacific region, of which China accounts for a sizable portion. Total sales in the region were down 6% from a year ago in the quarter ended September.

And that's why as demand trends failed to take off, the company was forced to cut back on its guidance for the last three months of the year.

Net sales are forecast to decline between 9% and 11% from the same period last year, while adjusted earnings per share (EPS) are expected to plunge by up to 66%. At a range of 48 cents to 58 cents, the outlook for EPS is less than half the $1.21 per share analysts expected, according to estimates compiled by Visible Alpha.

"While we had a better-than-expected first quarter, we are lowering our fiscal 2024 outlook given incremental external headwinds, namely from the slower growth in overall prestige beauty in Asia travel retail and in mainland China," Estée Lauder President and CEO Fabrizio Freda said in a press release.