Undergoing a Strategic Restructuring, the Company Struggles with Asia Sales Slump, Withdraws Annual Forecast
Estée Lauder reported a challenging financial performance for the first quarter of fiscal year 2025, underscoring ongoing difficulties in the Asian market and leading to significant strategic shifts within the company. Net sales reached $3.36 billion for the quarter ending September 30, reflecting a 4% year-on-year decline from $3.52 billion. This performance met Wall Street expectations, but weaker consumer sentiment in China and lower conversion rates in the travel retail sector contributed to a 5% drop in organic net sales.
These results come amid intensified pressures in the Asia travel retail market, where reduced replenishment orders and inventory constraints have dampened sales. CEO Fabrizio Freda attributed part of the loss to greater-than-expected headwinds in China and Asia travel retail, while also noting that the company’s Profit Recovery and Growth Plan did manage to boost gross margins to 72.4% from 69.6% the previous year. However, operating margins fell to -3.6%, compared to 2.8% last year. Freda added, “Our first quarter results are largely aligned with our outlook on an adjusted basis, despite the fact that the expected headwinds in China and Asia travel retail were greater than anticipated.”
Reflecting the uncertainty in the region and upcoming leadership changes, Estée Lauder withdrew its full fiscal 2025 guidance, instead providing a limited outlook solely for the second quarter. The company also announced a dividend reduction aimed at increasing financial flexibility for its incoming CEO, Stéphane de La Faverie, who will assume the role on January 1. The dividend cut, along with Freda’s acknowledgment of the complexities in forecasting recovery in Asia, highlights a cautious stance as the company anticipates continued challenges in the Chinese and Asia travel retail markets.
Amid these shifts, the stock has seen notable volatility, with shares down by 16% in premarket trading following the announcement and down 40% this year. Estée Lauder’s leadership transition marks a historic shift for the company, with Lauder family members stepping back from active management. The incoming CEO is expected to focus on stabilizing and potentially reimagining Estée Lauder’s strategy, with Freda expressing confidence in de La Faverie’s ability to “move us forward with speed and agility” through his experience in the beauty industry.