Estee Lauder, symbolized by the abbreviation $EL.US, recently released a less-than-optimistic earnings forecast for fiscal year 2025 on Monday, reflecting ongoing challenges in demand, especially in the crucial Chinese market. The company's Chief Executive Officer, Fabrizio Freda, has also announced his intention to retire at the end of fiscal year 2025, marking the conclusion of his notable service that began in 2009. Freda’s announcement comes as Estee Lauder’s board of directors is "well advanced" in its long-term succession planning, evaluating potential candidates from both internal and external pools.
In a public statement, Freda emphasized his commitment to oversee the execution of a strategic reset aimed at profit recovery, stating, "I will continue to be fully focused on the execution of our strategic reset and the profit recovery and growth plan, as we continue to address the current challenges." After his departure, he will serve as an advisor for fiscal year 2026 to ensure a smooth transition. This leadership change follows another significant announcement from Estee Lauder, which disclosed the upcoming retirement of Chief Financial Officer Tracey Travis, effective June 30, with Akhil Shrivastava stepping in to succeed her starting November 1.
In terms of financial expectations, Estee Lauder anticipates adjusted earnings per share (EPS) in the range of $2.75 to $2.95 for fiscal 2025, predicting a modest decrease in sales by 1% or a 2% increase on a reported and organic basis. Analysts on Visible Alpha had previously projected an operating EPS of $4.01, with net sales expected to reach approximately $16.53 billion.
It’s worth noting that last fiscal year saw adjusted EPS decline significantly by 25%, to $2.59, alongside a 2% drop in adjusted sales, which totaled $15.61 billion. The softer guidance highlights the company’s expectations of a year-on-year decline in sales, particularly from the mainland China market and Asia’s travel retail sector, with hopes for gradual improvements in the latter half of the fiscal year.
Freda expressed the difficulties faced in the prestige beauty segment in China, which he attributes to ongoing weak consumer sentiment. He remarked, "We anticipate continued declines in the prestige beauty segment in China, mainly reflecting persistent weak sentiment among Chinese consumers." Despite the less favorable outlook, Freda remains optimistic about the strides Estee Lauder plans to make this year through its strategic reset.
He noted that this would help in rebalancing regional growth, enhancing annual profitability, and boosting the company’s go-to-market and innovation strategies to better cope with the competitive landscape. For the current quarter, the company's adjusted EPS is projected to range between $0.02 and $0.10, while sales are expected to decrease by 3% to 5% year-on-year.
Analysts anticipated operating EPS at $0.68 and net sales of $3.8 billion for the first quarter. On a positive note, Estee Lauder’s adjusted earnings saw improvement, reaching $0.64 a share for the three-month period ending June 30, up from just $0.07 the previous year. This performance notably surpassed analysts' expectations, which estimated adjusted EPS at $0.26.
The company reported a 7% year-over-year increase in non-GAAP sales to $3.87 billion, exceeding the Street's forecast of $3.82 billion. Organic sales also grew by 8%, demonstrating robust performance across all product categories, particularly in skin care. However, when analyzing sales by region, organic sales within the Americas faced a 5% decline to $1.01 billion.
This drop has been attributed to ongoing "company-specific" challenges, including the distribution mix and a highly competitive market. Conversely, revenue in Europe, the Middle East, and Africa rose by 32% to reach $1.65 billion, while Asia Pacific reported a 4% decline, primarily influenced by market conditions in mainland China. In the market, Estee Lauder’s stock was priced at $95.73, reflecting a change of +0.76, representing a percentage change of +0.80..