Estee Lauder projects weak annual profit on slow recovery in Asia travel retail

By Granth Vanaik and Ananya Mariam Rajesh

(Reuters) -Estee Lauder forecast annual sales and profit below estimates on Friday, indicating a slower-than-anticipated rebound in its travel retail business, mainly in Asia, and waning demand in the United States, sending shares down 3%.

Major global companies have taken a cautious stance on their China recovery, as the world’s second-largest economy struggles to revive demand and battles rising youth unemployment rates and a high cost of living.

Analysts note that the drop in consumer demand in China and a slow recovery in Asia travel retail – sales made at airports or travel destinations like Korea and China’s Hainan – could impact luxury companies like Estee, which makes about 30% of its annual revenue from the Asia Pacific region.

“Pressure in Hainan intensified over the course of the fourth quarter,” said CEO Fabrizio Freda, adding that retail sales trends deteriorated and turned “steeply negative” in May and June.

However, Freda said Estee was on track to recovering growth in Asia travel retail and North America, going forward.

The company’s Americas region reported flat net sales, while Asia Pacific reported a 29% increase in the quarter.

European rival LVMH last month also flagged cooling demand in the U.S., while French cosmetics maker L’Oreal said the Chinese market was not picking up at the speed everyone had hoped for.

Estee’s dour forecast led analysts to raise questions about the continuing uncertainty in Hainan and Mainland China.

“De-stocking and inventory levels in Asian Travel Retail… likely to remain the biggest headwind to growth over the next few quarters,” said Bernstein analyst Callum Elliott.

Estee expects full-year sales to rise between 5% and 7%, compared with an estimated 8.8% increase, according to Refinitiv data.

It sees annual adjusted profit to be between $3.50 and $3.75 per share, compared with an expectation of $4.83.

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