Estee Lauder tempers sales view despite US, China recovery

By Ananya Mariam Rajesh

(Reuters) -Estee Lauder lowered its annual organic sales estimate on persistent softness in mainland China’s prestige beauty space, even as a demand rebound in the U.S. and Asia-Pacific markets drove a profit forecast raise.

Shares of the New York-based company dropped 5% on Wednesday.

The Clinique skincare maker also beat Wall Street targets for third-quarter results, hinting at a recovery in demand for beauty and cosmetic products in the U.S. after a long bout of inflation had pressured sales of luxury items in the world’s biggest economy.

A pick-up in China demand after several quarters of weakness underscored customer willingness to splurge on “affordable luxuries” such as fragrances and make-up products.

Third-quarter organic net sales in the Americas grew 1%, with a 3% rise in the Asia Pacific region.

Mainland China’s net sales grew in the low single digits but was partially offset by subdued consumer confidence and softness during holiday and key shopping periods in the region.

“ Estee Lauder (NYSE:)’s management might have taken the view it is better to be cautious now and over-deliver than continue with high expectations and fail to sell enough products,” said Dan Coatsworth, investment analyst at AJ Bell.

The company expects annual organic sales to fall 1% to 2%, compared with its previous forecast of a 1% decrease to a 1% increase.

Estee, however, sees full-year 2024 adjusted profit per share between $2.14 and $2.24, compared with a prior forecast of $2.08 to $2.23.

Net sales rose 5% to $3.94 billion, compared with LSEG estimates of $3.91 billion. Adjusted profit of 97 cents per share surpassed expectations of 49 cents.

Last month, European rival L’Oreal also beat sales expectations and eased concerns about waning demand in the U.S. and China – the two biggest beauty markets.

“The sector has held better than I expected and the question really around luxury and personal luxury goods is whether 2024 will be a hard or soft landing … so far it speaks to the narrative of a soft landing,” said Javier Gonzalez Lastra, luxury-focused portfolio manager at Tema ETFs.