Cosmetics giant Estée Lauder has slashed its fiscal-year forecasts for the third time due to poor sales in travel retail, particularly in Asia, where it hoped for a boost after the easing of some Covid-19 restrictions last year. However, conversion from shopper to consumer in travel outlets continues to be difficult even as foot traffic resumes and the pandemic’s effects on demand are expected to continue until 2023. The US, one of the firm’s key markets, has also been impacted. It has lost market share to smaller rivals and has been affected by a stronger dollar, which has affected its global performance.
Estée Lauder’s Q3 adjusted earnings per share of 47 cents missed expectations of 51 cents, while Q3 net sales came in at $3.75bn, beating analyst expectations but down from the $4.25bn recorded in the same quarter last year. The cosmetics firm is now projecting its net sales for 2023 to fall 10% to 12% YoY after estimating a drop of 5% to 7%. The additional decline is due to issues in Asia and the termination of some licence agreements later this month. The company now expects fiscal 2023 adjusted EPS in the range of $3.29 to $3.39, lower than its earlier range of $4.87 to $5.02. Following this announcement, shares in Estée Lauder fell 20.6% in morning trading.
Chief executive Fabrizio Freda attributed the lacklustre results to the slow resumption of travel in key markets in South Korea and China’s Hainan province. He said the recovery in travel retail for Asia was far more volatile than expected and more gradual than in other regions. The firm’s travel unit in Asia saw net sales drop 8% due to slow resumption of travel in key markets. The company has also been impacted by the termination of licensing agreements for products like Donna Karan and Michael Kors, which is also expected to affect net sales.
Despite the disappointing results, analysts from Barclays, Piper Sandler, and Oppenheimer have all maintained their Overweight and Outperform ratings on Estée Lauder, with price targets ranging from $287 to $290. However, UBS has maintained a Neutral rating on the company with a price target of $278, and Telsey Advisory Group downgraded its action on the company to Outperform with a price target of $320. Traders can stay updated on real-time options trading for Estée Lauder by subscribing to Benzinga Pro.
Estée Lauder Companies’ stock is currently considered expensive compared to the industry average. The ratio of its price-to-earnings (PE) ratio of 57.72x is significantly higher than the industry average of 18.37x, indicating that the stock is trading at a more expensive price relative to its peers. The stock’s high beta factor may suggest the potential for the share price to decline in the future, thus creating a better opportunity for investors to buy in.
In conclusion, Estée Lauder’s growth plans have been thwarted by weak travel retail sales in Asia, with further Covid-19 related impacts expected until 2023. While the company may be overpriced, it is still projected to double its earnings in the short term. Interested parties may want to wait for a potential price drop before buying into the stock.
