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The cosmetics leader is currently encountering significant obstacles in the Chinese market.
Shares of Estée Lauder (EL -20.73%) experienced a sharp decline recently as the company continues to navigate challenges primarily stemming from a downturn in China. In addition, they announced a reduction in dividends and withdrew their financial outlook for the fiscal year, signaling uncertainty in the market and a critical need to reinvest in their operations.
As of 12:38 p.m. ET, the stock had dropped by 19.3% following these developments.
Continued Struggles for Estée Lauder
Estée Lauder, which includes brands such as Aveda, Clinique, La Mer, and Mac, reported a 5% decline in organic sales and a 4% decrease in revenue, totaling $3.36 billion, closely aligning with the anticipated figure of $3.37 billion.
The company attributed the downturn to declining consumer sentiment in China that impacts the premium beauty sector, coupled with struggles within the travel retail market, particularly in duty-free sales. However, growth was noted in markets like Japan and other emerging regions.
From a generally accepted accounting principles (GAAP) perspective, Estée Lauder incurred a loss of $156 million due to expenses related to a talcum powder litigation settlement. On an adjusted earnings per share (EPS) basis, they reported $0.14, a slight increase from $0.13 during the same quarter last year, and outperforming the expected consensus of $0.09.
Of greater significance was the company’s decision to reduce its dividend from $0.66 to $0.35 per quarter, a move that management explained would allow for greater financial maneuverability while a new leadership team transitions into position.
Furthermore, management highlighted the complexities involved in predicting the potential recovery in both the Chinese market and travel retail in Asia.
Future Outlook for Estée Lauder
While management provided guidance for the upcoming quarter, they retracted their full-year predictions due to the unpredictable economic environment in China.
For the imminent quarter, Estée Lauder anticipates an organic sales decrease of 6% to 8% and adjusted earnings per share of between $0.20 and $0.35, reflecting a significant decline of 60% to 77% compared to the previous year.
Undoubtedly, Estée Lauder faces numerous challenges, with the downturn in China impacting many consumer-focused companies operating in the region. The timeline for a recovery in the Chinese economy remains uncertain, suggesting that Estée Lauder’s stock may not be the best choice for investors until clearer indicators of recovery emerge.
Source
www.fool.com