Challenges arise amid a competitive landscape and supply-chain disruptions
Estée Lauder has reported consistent net sales in its Americas region, while experiencing a 29% surge in the Asia Pacific for the quarter. The company’s CEO, Fabrizio Freda, highlighted, “Asia travel retail impacted results, especially in skincare, coupled with ongoing softness in North America.”
Meanwhile, luxury competitor LVMH and French cosmetics leader L’Oréal both commented on the slowed demand in the US and the less-than-expected pace of China’s market recovery, respectively.
Estée Lauder’s subdued outlook for the upcoming quarter has prompted discussions among analysts regarding uncertainties in both Hainan and Mainland China. The company’s projected annual adjusted profit ranges between $3.50 and $3.75 per share, a notable difference from the anticipated $4.83.
In the competitive landscape, Estée Lauder has seen its market share dwindle in the US. Competitors like L’Oréal have swiftly capitalized on the growing dermatological beauty product market with brands such as CeraVe and SkinCeuticals. Furthermore, critiques suggest that Estée Lauder’s reduced investment in advertising could be a missed opportunity to drive sales. Despite efforts to align with popular retailers like Ulta Beauty Inc. and LVMH’s Sephora, market share challenges persist. Adding to concerns, a recent cyberattack disrupted the company’s email system, which could translate to significant lost sales.
Additionally, the company’s slow adaptation to supply-chain adjustments left it vulnerable during China’s unpredictable reopening. With the Asia-focused travel retail segment accounting for nearly a third of the company’s annual revenue, this was a significant setback.
With the CEO, Freda, being 65 years old and at the helm since 2009, discussions regarding succession are surfacing. Freda’s commitment remains strong, as he plans to continue leading until at least June 30, 2024, when he will receive stock payouts.
Potential successors include Jane Lauder, chief data officer and granddaughter of the founder, Stéphane de la Faverie, one of two executive group presidents, and Tracey Travis, the CFO since 2012. The Lauder family holds considerable influence, with 86% of voting power, but the significant growth under Freda’s leadership from $7.8 billion in 2010 to $17.7 billion in 2022 is undeniable.