What happened
Shares of Estee Lauder (EL -1.09%), the global cosmetics giant, were sliding today after the company cut its guidance for 2023 due to a weak recovery in Asia.
As of 12:02 p.m. ET, the stock was down 16.1%.
Image source: Getty Images.
So what
Estee Lauder, the parent of brands like MAC, La Mer, and Clinique, had thrived during the pandemic in part due to strong sales of its skin care products in Asia.
However, the company has struggled more recently due to lockdowns and slow consumer demand in China and now challenges in the Asia travel retail market.
In the fiscal third quarter, revenue fell 12% to $3.75 billion, which still topped estimates at $3.71 billion.
Organic sales, which had a negative impact from currency translation, were down 8% in the quarter due to pressure in the Asia travel retail market.
The company also blamed weakness in the Asia travel market for a 24% decline in sales in the Europe, Middle East, and Africa region.
Further down the income statement, gross margin fell sharply due to those headwinds, declining from 76.6% to 69.1%, and operating income plunged 60% to $297 million.
Adjusted earnings per share were down 74% to $0.47, missing the consensus at $0.51.
CEO Fabrizio Freda said,
In the context of a quarter which we anticipated to be challenging, we are pleased to have delivered the high-end of our outlook for the third quarter of fiscal 2023. Our developed and emerging markets grew strongly and exceeded our expectations to offset an even slower-than-expected recovery in Asia travel retail.
Now what
For the fourth quarter, Estee Lauder expects organic revenue growth to return but said it would still see headwinds from the Asia travel retail market.
For the full year, it lowered its revenue-growth guidance to a decline of 10% to 12%, compared to a previous forecast of a 5% to 7% decline, reflecting the slow recovery in the Asia travel retail market.
It also slashed its adjusted earnings per-share forecast of $3.29 to $3.39, down from a previous range of $4.87 to $5.02.
While the profit cut is due to temporary headwinds, it's clear why the cosmetics stock is down double digits on the news, as it was already expensive coming into today's report.
