Estée Lauder stock suffering record selloff after profit miss, slashed outlook

Estée Lauder stock suffering record selloff after profit miss, slashed outlook

Skin care sales tumbled 20% and makeup sales fell about 2%, while fragrance and hair-care sales edged up

Shares of Estée Lauder Cos. plunged toward their worst-ever one-day performance Wednesday, after the beauty products company missed fiscal third-quarter profit expectations, amid a big drop in skin-care sales, and slashed its full-year outlook.

“As the shape of recovery from the pandemic for Asia travel retail comes into better focus, it is proving to be both far more volatile than we expected and more gradual relative to what we experienced in other regions,” said Chief Executive Officer Fabrizio Freda. “We are, therefore, lowering our organic sales and EPS [earnings per share] outlook for fiscal 2023 to reflect significantly greater headwinds in our fourth quarter than we expected in February.”

The stock (EL) dove 20.6% in morning trading to the lowest price seen since Nov. 3, 2022. The decline was on track to surpass the current record one-day selloff on a closing basis of 13.5% on March 16, 2020.

For fiscal 2023, which ends in June, the company chopped its guidance range for adjusted EPS, which excludes nonrecurring items, down to between $3.29 and $3.39 from between $4.87 and $5.02. The company now expects net sales to fall between 12% and 10% from the previous year, compared with previous guidance of a decline between 7% and 5%.

“[W]e are obviously not satisfied by the profitability in our revised outlook for fiscal year 2023,” Freda said on a post-earnings conference call with analysts, according to a FactSet transcript.

In addition to the slower-than-anticipated recovery in Asia, the company also said it expects a negative effect of 1% from the termination of license agreements for the Donna Karan New York, DKNY, Michael Kors, Tommy Hilfiger and Ermenegildo Zegna product lines, effective June 30.

For the fiscal third quarter to March 31, net fell to $156 million, or 43 cents a share, from $558 million, or $1.53 a share, in the same period a year ago. Excluding restructuring and other charges, adjusted EPS fell to 47 cents from $1.90, and missed the FactSet consensus of 51 cents.

Sales fell 11.6% to $3.75 billion, but topped the FactSet consensus of $3.71 billion.

Skin care sales dropped 19.7% to $1.92 billion, below the FactSet consensus of $1.94 billion; makeup sales slipped 2.3% to $1.09 billion but topped expectations of $1.06 billion; fragrance sales rose 1.0% to $585.0 million, above expectations of $573.8 million; and hair care sales grew 1.4% to $149.0 million, just above expectations of $148.5 million.

While sales fell, cost of sales increased 16.6% to $1.16 billion, as gross margin contracted to 69.1% from 76.6%.

CEO Freda said on the post-earnings conference call with analysts, according to a FactSet transcript, that strategic and necessary long-term investments in manufacturing, research and development and information technology were pressuring margins.

The stock has tumbled 21.5% year to date, while the Consumer Staples Select Sector SPDR exchange-traded fund (XLP) has gained 3.4% and the S&P 500 index has advanced 7.6%.

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