Estee Lauder Forecast Lags Estimates on Currency, Tourism

Updated on
  • Company says economic challenges are hurting consumers abroad
  • Cosmetics maker is in midst of multiyear restructuring project

Estee Lauder Cos. provided a full-year profit forecast that trailed analysts’ estimates, citing economic turbulence and a stronger dollar that are hurting its sales overseas.

Profit will be $3.38 to $3.44 a share, excluding some items, in the year through June, the New York-based company said Friday in a statement. Analysts projected $3.53, on average.

“The world is very volatile, and we’re going to have many years of a lot of social and political problems around the world,” Chief Executive Officer Fabrizio Freda said in an interview. He cited the uncertainty from Britain’s departure from the European Union and the U.S. presidential election as weighing on consumer sentiment.

The beauty company is going through a multiyear restructuring that entails cutting as many as 1,200 jobs to free up resources that it can invest in research and development as well as new technology. It’s also cautious about a decline in traffic at midtier department stores in the U.S. as fewer tourists visit the country.

Estee Lauder may be hurt by the planned closure of 100 stores of Macy’s Inc., its biggest customer, which contributed about 10 percent of sales in the past few years, said Stephanie Wissink, an analyst at Piper Jaffray Cos. The company will work with its retail partner to draw foot traffic with in-store events, Freda said on a conference call Friday.

The shares fell 3.2 percent to $92.08 at 2:06 p.m. in New York. Estee Lauder had gained 8 percent this year through Thursday.

Fourth-Quarter Results

While Estee Lauder’s outlook was glum, its fourth-quarter profit topped analysts’ expectations. Earnings were 43 cents a share, excluding some items, beating the 40-cent average estimate. Revenue was $2.65 billion, just missing the $2.66 billion average projection, hurt by a 0.7 percent drop in skin-care sales. Excluding currency effects, skin-care sales would have risen about 3 percent.

Skin Care

The company attributed the lower skin-care sales to falling demand from department stores in the U.S. and fewer traveling Chinese consumers to Hong Kong. While the trend is continuing, the speed of the decline has slowed, Freda said. In makeup, he said Estee Lauder has seen a “dramatic” acceleration of growth, with gains coming from Asia as well as millennials, who are using more cosmetics.

The 1,200 job cuts, announced in May, represent about 2.5 percent of Estee Lauder’s workforce. The move is part of its Leading Beauty Forward program, which is expected to run through fiscal 2021. The cuts and other restructuring initiatives will result in charges of $600 million to $700 million.

Estee Lauder has expanded its distribution of some products. J.C. Penney Co. said this week that it will start selling the Clinique brand in September, and retailer Ulta Salon, Cosmetics & Fragrance Inc. has also started selling Estee Lauder’s namesake brand, signaling the growing importance of specialty stores.

“With our beautifully diversified global business, we believe we are ready to navigate what would be a more complex and volatile world for several years to come,” Freda said.

(Updates with CEO’s comment in third paragraph.)
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