Estée Lauder Cos.’ profit outlook for the fiscal year was below estimates, a sign the beauty company sees continued struggles in its crucial travel retail business in Asia.
The owner of the MAC and Tom Ford brands said it expects ongoing troubles in its duty-free business to partially offset sales growth this fiscal year in some of its other markets, such as Europe. The company has too much inventory piled up in its travel retail business after executives repeatedly misjudged consumer demand for those products this year in China and South Korea in particular.
“In Asia travel retail, we are taking actions to capture demand from the returning individual travelers and continuing to reduce inventories in the trade as we navigate the current market headwinds,” Chief Executive Officer Fabrizio Freda said in a statement Friday. Analysts and investors will be listening for more granular details on an earnings call that’s set for 9:30 a.m. New York time.
The combination of too much merchandise and sluggish demand in its travel retail business has weighed on Estée Lauder’s results this year, forcing executives to cut guidance in each of the previous three quarters. The duty-free business is primarily in Asia and represents around a third of revenue. The company warned that net sales would decrease 10% to 12% in the current quarter from a year earlier.
Shares fell as much as 7.8%, the most since May 3, in Friday trading in New York. The stock is down 35% this year through Thursday, worse than the 2.1% decline of the S&P 500 consumer-staples index.
Read More: Estée Lauder Is Falling Behind Rivals, Even on Home Turf
Estée Lauder also said a slower-than-anticipated recovery at retailers in the US and Canada contributed to a decline in sales during the three months that ended on June 30. The company has been pivoting away from struggling American department stores in the past couple of years, trying to sell more at retailers such as Ulta Beauty Inc. and LVMH’s Sephora.
Still, that shift hasn’t been enough to stave off a decline in Estée Lauder’s US market share. It’s losing out to rivals like French beauty giant L’Oréal SA. Freda said Estée Lauder is focused on “reaccelerating growth in North America” in the current fiscal year.
Fourth-quarter earnings beat expectations on stronger sales in Europe and Asia despite the drag from travel retail. The beauty company reported adjusted earnings of 7 cents a share for the period ended June 30, compared with the Wall Street estimate for a loss. Revenue also beat expectations.
The company expects fiscal 2024 adjusted earnings of $3.43 to $3.70 a share, below the consensus compiled by Bloomberg. Sales are expected to rise 5% to 7%.
The company said a cybersecurity attack last month will lower earnings by 7 cents a share in the first quarter and fiscal 2024. Hackers infiltrated Estée Lauder’s computer network, forcing the company to shut down its email for several days, delaying some orders.
(Updates with shares in fifth paragraph.)
