The Estée Lauder Companies today (November 1) reported financial results for the first quarter ended September 30, 2023, showing a decline in net sales. According to the report, the company reported net sales of $3.52 billion, down 10 percent from $3.93 billion in the same period last year. Organic net sales declined even more, by 11 percent, primarily due to expected pressure on the company’s travel-retail business in Asia and a slower-than-expected recovery in the overall beauty market in mainland China.
However, there were positive aspects within the report. The United States, various Asia/Pacific markets (including Hong Kong SAR and Japan), and several European, Middle Eastern, and African markets (particularly the United Kingdom and Germany) experienced organic net sales growth. Fragrance and Makeup divisions contributed to the overall performance by recording growth, partially offsetting the decline in Skin Care.
The division breakdown reveals that Skin Care recorded $1.638 billion in net sales, representing a 21% year-on-year organic net sales decrease. Estee Lauder said the decline caused by the Company’s Asia travel retail business, primarily due to the Company’s and its retailers’ actions to reset retailer inventory levels . Additionally, the slower-than-anticipated recovery of the overall prestige beauty market in mainland China and changes in government and retailer policies related to unregulated market activity added to the pressures. While Estée Lauder and La Mer experienced a decrease in net sales, there was some growth from The Ordinary and, to a lesser extent, M·A·C, which partially offset the decline.
Makeup division recorded $1.063 billion, reflecting a 1% organic net sales increase, reflecting high-single-digit growth in The Americas and in Asia/Pacific, partially offset by a decline in EMEA due to the challenges in the Company’s Asia travel retail business, as previously mentioned. Increases in net sales from M·A·C, Too Faced, TOM FORD and Clinique were mostly offset by a decrease from Estée Lauder.
Fragrance division reported $637 million, indicating a 5% organic net sales growth, primarily driven by the growth of Le Labo and TOM FORD in The Americas and Asia/Pacific regions. Le Labo achieved strong double-digit growth globally, with growth observed in all regions, including mainland China, thanks to targeted efforts to expand its consumer base. The brand benefited from the success of its popular product franchises, such as Another 13 and Santal 33, as well as its City Exclusives collection.
TOM FORD also contributed to the net sales increase in Fragrance, fueled by successful new product innovations like Café Rose and the continued popularity of hero products like Ombre Leather.
Geographically, North America achieved $1.208 billion in net sales, an 6% organic net sales increase. Europe, the Middle East & Africa recorded $1.252 billion, reflecting a 27% organic net sales decline.
Asia/Pacific reported $1.058 billion, representing a organic net sales 3% decrease, primarily influenced by slower-than-expected recovery of prestige beauty in mainland China, while other markets in the region, including Hong Kong SAR, Japan, and Australia, saw increases.
Fabrizio Freda, President and Chief Executive Officer said, “In the context of a quarter which we anticipated to be challenging, we delivered our organic sales outlook and exceeded expectations for profitability. Momentum continued in many developed and emerging markets around the world.” “This performance partially offset the pressures of Asia travel retail and a slower recovery of overall prestige beauty in mainland China.”
“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, which is currently confirmed in the pre-sale phase of the 11.11 Shopping Festival, and the risks of business disruption in Israel and other parts of the Middle East. We are accelerating and expanding our profit recovery plan, to benefit fiscal years 2025 and 2026, to realize our ambitions to rebuild profitability despite the external headwinds’ increased pressure on the business in fiscal 2024.”