Estée Lauder profits down and sales forecast is cut

By Simon Pitman

- Last updated on GMT

Estée Lauder profits down and sales forecast is cut

Related tags Economy of the people's republic of china Revenue

The Estée Lauder Companies have reported a significant drop in its first quarter sales and net profit, leading it to reduce its outlook on future revenues.

The company said that first quarter net sales fell by 2% to $2.63bn, a figure that represented a fall of 1% when factoring in the negative currency translation against a strong US dollar.

Breaking the revenue figures down by sector, the biggest fall in reported sales was seen in its mainstay skin care category, where sales fell 7% to $1.09bn, whereas the four other categories – make-up, fragrance, hair care and specialized – all saw gains.

Europe, Middle East and Africa only region to see overall gains

On a regional basis, the strongest performance in reported sales were seen in the Europe, Middle East and Africa markets, where sales were up 6% to $942.2m, thanks to double-digit gains in emerging markets such as Russia, South Africa, Turkey and Central Europe.

In the Americas, reported sales dropped by 7% to $1.11bn, while in the Asia Pacific market, slowing sales growth in China meant that region-wide reported sales fell by 1% to $574.0m.

Net income for the period fell by 24%, to reach $228.1m, a figure that was slightly above market expectations, but one that nevertheless caused the company’s share price to fall by 4% in early trading this morning.

Accelerated fourth quarter sales impact results

The company said that the drop in sales was partly attributable to accelerated orders in the preceding fourth quarter, ahead of the implementation of its strategic modernization initiative, which accounted for additional sales of $178m.

The company said that the fall in skin care sales was largely attributable to accelerated fourth quarter orders.

Factoring in these additional sales to the current quarter, the company estimated that its net sales in constant figures would have increased by 5%.

Weakness in China and Hong Kong as growth slows

But the performance also underlined weaknesses in other areas of the business, particularly in Hong Kong and China, where the company has increased its footprint significantly in recent years, and where growth has slowed considerably in recent quarters on the back of falling economic output.

“While our current business is solid, we recognize the recent challenges around the globe, including the strength of the U.S. dollar, geopolitical tensions and soft retail environments in certain important markets, like Hong Kong,”​ said Fabrizio Freda, president and CEO of Estée Lauder Companies.

In view of the performance in the first quarter, the company has now chosen to lower its earnings expectations as well as trim its sales growth expectations for the full year from 3 – 4% down to 2 – 3%.

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