Estee Lauder Feels Bite From Reduced Retail Inventory

Cosmetics giant Estee Lauder said Wednesday (Nov. 2) a reduction in the level of makeup, skin and hair care products that retailers are willing to hold on their shelves and in warehouses led to an 11% drop in worldwide sales last quarter as well as a reduced forecast for the coming months.

The update came as part of the New York-based company’s fiscal first-quarter earnings results for the three months ending Sept, 30, which also reflected the cost of continued headwinds from China and currency-related issues.

“For fiscal 2023, we are lowering our outlook primarily to reflect tighter inventory management in Asia travel retail, given reduced traffic as a result of COVID-19 restrictions, tightening of inventory by some retailers in the United States, and a greater negative impact from the far-stronger U.S. dollar,” Estee Lauder CEO Fabrizio Freda told investors on the company’s call.

While Freda said he expects the mix of pressures will ease and sales and earnings growth to return in the second half of its fiscal year (which begins Jan. 1) the news saw shares of Estee Lauder trading lower by as much as 10% in early going, extending a year-long slump that has now cut the company’s valuation in half to $69 billion.

Shifts to Essentials

Estee Lauder’s woes come at a time when consumers are scaling back purchases of discretionary items in favor of more essential goods and services, including personal care products.

However, with its global Skin Care sales down 14% and Makeup revenue down 10% last quarter, that defensive assumption may no longer be as clear cut as it once was. That is particularly important since those two categories are its largest and account for roughly 80% of worldwide sales.

“What’s impacting us at the beginning of this [fiscal] year are significant, unanticipated impacts to the business,” Estee Lauder Chief Financial Officer Tracey Travis said on the call, noting that the slowdown began at least six months ago.

At the same, sales at the company’s smallest and other two business units, Fragrance and Hair Care, were flat and up 7%, respectively.

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