Estee Lauder sinks after dour 2023 view on slow Asia travel retail

By Ananya Mariam Rajesh

(Reuters) -Estee Lauder Cos Inc on Wednesday forecast a bigger drop in full-year sales and profit, disappointing the Wall Street that was expecting better results on rebounding travel retail after COVID-19 restrictions eased globally and in China.

Shares of the company fell about 16% in premarket trade after Estee cited a slower-than-expected recovery in Asia travel retail and major market China for the latest round of cut to its annual forecasts.

In contrast, European peers LVMH and L’Oreal saw a rise in first-quarter sales, boosted by a rebound in demand in the Chinese region.

Barclays (LON:) analyst Lauren Lieberman said in a note that Estee’s profit forecast was the “last thing” expected even by the Street and that comments on Asia travel retail raises doubt on how much “control or visibility” the company has in its end-market sales through this channel.

Estee said while major shopping districts such as Hainan and Korea saw more traffic, the conversion of travelers to consumers in luxury beauty lagged.

Even though China relaxed pandemic-related restrictions, the company saw January 2023 pressured by low retail traffic and retailers destocking due to an increase in COVID-19 cases.

The MAC lipstick maker’s sales had also witnessed an impact in earlier quarters from U.S. retailers tightening inventories of its products, but posted a 6% rise in organic net sales in Americas, signaling steady demand for its Jo Malone fragrances and Bobbi Brown foundations.

The company’s profit remains pressured from a stronger dollar since it has sprawling global operations and convert foreign currencies into the greenback.

Estee expects full-year 2023 net sales to fall between 10% and 12%, compared to its prior forecast of a 5% and 7% decrease.

It also forecast adjusted profit per share to fall between 50% and 51%, compared with a decrease between 27% and 29% it expected earlier.

However, the company beat third-quarter sales expectations but missed profit estimates.