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Estée Lauder Stock Falls Due to Weak Outlook


Oct. 31 2019, Updated 12:32 p.m. ET

Estée Lauder (EL) reported better-than-expected results for the first quarter of fiscal 2020, which ended on September 30. However, the stock has fallen 5.2% as of 11:30 AM ET today. The company lowered its fiscal earnings outlook. Several factors triggered the company’s lower outlook including softness in the makeup category and Brexit uncertainty.

Estée Lauder’s fiscal first-quarter sales grew year-over-year 10.5% to $3.90 billion and beat analysts’ expectations of $3.85 billion. The company’s adjusted EPS grew 18.4% to $1.67, which beat analysts’ forecast of $1.60.

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Avon Products (AVP) announced its third-quarter results today. The stock has fallen 1.2% as of 11:30 AM ET today. The stock fell due to a higher-than-expected decline in the company’s revenues. Avon Product’s revenues fell about 17% to $1.19 billion and missed analysts’ forecast of $1.27 billion. The company’s adjusted EPS of $0.11 beat analysts’ forecast of $0.02.

What drove Estée Lauder’s Q1 results?

Estée Lauder’s first-quarter sales growth of 10.5% was better than management’s growth outlook of 9%–10%. The strong rise in the company’s top line was a result of a 24% rise in skincare sales to $1.84 billion. Estée Lauder and La Mer skincare brands were the main growth drivers.

The company’s makeup category rose 2.6% to $1.44 billion. Higher sales for the Estée Lauder, MAC, Tom Ford Beauty, and La Mer brands were partially offset by the performance of the Too Faced, BECCA and Clinique brands.

However, a 2.1% decline in fragrance sales to $462 million and about a 5% drop in hair care products sales to $136 million were a drag on the overall sales.

Looking at geographic results, the Americas region’s sales fell 6.1%. Softness in color cosmetics sales in North America pulled down the Americas region’s top line. Also, North America sales were hit by continued challenges in the brick-and-mortar stores. Customers chose online shopping.

Meanwhile, sales from Europe, Middle East, and Africa region and the Asia-Pacific region grew 17% and 24%, respectively.

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Weak EPS outlook

Estée Lauder continues to expect its fiscal 2020 sales growth to be 7%–8%. Excluding currency headwinds, the company expects sales growth of 8%–9%. However, the company reduced its fiscal 2020 EPS outlook to $5.58–$5.69. Previously, Estée Lauder expected the EPS to be $5.62–$5.74. Now, the company expects its fiscal 2020 adjusted EPS to be $5.85–$5.93 compared to the previous expectation of $5.90–$5.98.

Estée Lauder is concerned that continued weakness in physical stores in the US and UK, Brexit uncertainty in the UK, the trade war, Hong Kong, and a slowdown in China’s sales growth could impact its results this year.

As of Wednesday, Estée Lauder stock has risen 48.6%, while Avon Products stock has risen 180%. On Monday, Piper Jaffray downgraded Estée Lauder stock to “neutral” from “overweight” due to concerns about weak makeup demand.

Ulta Beauty (ULTA) stock has fallen 1.9% year-to-date as of Wednesday. The stock was battered when it reported dismal second-quarter results in August. Continued weakness in the makeup category impacted Ulta Beauty’s performance. The company will announce its third-quarter results on December 5. Analysts expect the company’s third-quarter sales to rise 8.4%, while the EPS could fall about 2%.


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