Estee Lauder expects revenue in China to be far below expectations this fiscal year | Financial Report Insights

Estée Lauder Cos. announced its financial report before the U.S. stock market on Monday, showing that due to poor performance of its products in the Chinese market, its annual growth expectations are lower than analysts' expectations, indicating that the long-awaited recovery of this cosmetics company has once again encountered obstacles. Meanwhile, the company's CEO Fabrizio Freda, known as the "emperor of the fashion industry," will retire next year.

1) Key Financial Data for the Fourth Quarter:

Adjusted Net Sales: Adjusted net sales for the fourth quarter were $3.87 billion, with an expected $3.81 billion.

Adjusted Earnings Per Share: Adjusted earnings per share were $0.64, with an expected $0.26.

2) Performance Guidance:

Net Sales for the Year: Expected to decrease by 1%-2% in 2025, with expected earnings per share of $2.52-$2.76, while the market estimates a growth of 5.6%.

Adjusted Earnings Per Share for the Year: Expected adjusted earnings per share of $2.78-$2.98 in 2025, with the market expecting $3.97.

Net Sales for the First Quarter: Expected to decrease by 3%-5% in the first quarter, with the market estimating a growth of 5.6%.

Earnings Per Share for the First Quarter: Expected adjusted earnings per share of 1 cent to 9 cents in the first quarter, with the market estimating 68 cents.

The cosmetics giant pointed out the continued decline in sales of high-end beauty products in China. During the analyst conference call after the financial report, CFO Tracey Travis stated that the Profit Recovery and Growth Plan (PRGP) of the company is progressing well, and profits for the fiscal year 2025 are expected to increase, mainly benefiting from the turnaround plan and growth in the Americas, Asia-Pacific, and European markets (excluding travel retail) outside of China.

CEO Fabrizio Freda stated in a declaration:

"We expect sales in the high-end beauty sector in China to continue to decline in fiscal year 2025. The profit recovery and growth plan for fiscal year 2025 enables us to offset the profit pressure caused by the continued weakness in the high-end beauty sector in China, achieving a more moderate expansion of operating profit margins than we previously expected.

While our revenue and profit outlook for fiscal year 2025 is disappointing, this year we will take significant steps to implement our strategic restructuring, continue to rebalance regional growth, enhance annual profit capabilities, and strengthen market promotion and innovation capabilities."

Estée Lauder's stock fell as much as 10% in pre-market trading, but rebounded at one point, rising slightly by 0.21% in early trading to $95.17. Since hitting a historic high of $374.20 in January 2022, the company's stock price has fallen by nearly 75%.

Following the footsteps of American consumer giants, sales in the Chinese market are sluggish

Estee Lauder stated that poor performance is mainly due to long-term inflation and weak demand in the Chinese market.

At the same time, Estee Lauder is working hard to overcome the financial difficulties caused by the collapse of sales in duty-free shops in tourist hotspots. The company stated that the recovery of the tourism industry after the epidemic is slower than expected by Estee Lauder executives. Although the company's travel retail business began to recover in the fourth quarter, consumer demand in China and the United States has been weak, with these two major markets being the main drivers of Estee Lauder's growth in the years before the epidemic.

Analysts say that China once accounted for nearly 30% of Estee Lauder's sales during its heyday. Estee Lauder expects that demand in the high-end beauty sector in China will continue to decline, and its competitor L'Oreal also emphasizes the lack of rebound in the Chinese market.

Executives at Estee Lauder are also working to restore investor and analyst confidence. Analysts believe that because they have repeatedly lowered expectations over the past year, it gives the impression that they do not have a deep understanding of shaping their business dynamics.

In fact, the wind of consumption slowdown has swept through the entire industry, with American consumer giants collectively disappointing, experiencing a general "defeat" in the Chinese market.

A previous article by Wall Street News stated that from Starbucks, Nestle to Procter & Gamble and L'Oreal and other beauty giants, second-quarter revenue growth has declined and generally fallen short of expectations, with Starbucks' same-store sales falling by 3%, L'Oreal's same-store sales growth slowing to 5.3%, and Nestle and P&G revenue growth both below expectations.

Among them, the performance of consumer giants in the Chinese market has generally declined, with Starbucks China's same-store sales plummeting by 14%, L'Oreal's revenue in China and other North Asian regions falling by over 2%, and P&G's sales in Greater China dropping by 9%.

Behind the poor performance, the overall consumer industry shows signs of weakness, as consumer discretionary spending is restrained, with a growing emphasis on reducing consumption or turning to lower-priced goods.

"Emperor of Part-Time Work" in the Fashion Industry to Retire Next Year

Estee Lauder also announced earlier on Monday that Freda, who has long served as the company's CEO, will retire at the end of June 2025.

Freda, known as the "Emperor of Part-Time Work" in the fashion industry, was appointed CEO in 2009 and was responsible for expanding the company's skincare portfolio through acquisitions of brands such as Dr. Jart and The Ordinary's parent company Deciem. Freda has been pushing plans to bring the company's finances back on track, regain market share from major competitors such as L'Oreal in small brands in the United States, China, and other regions, and implemented a turnaround plan last year, including layoffs.

He promised to cut costs, capture beauty trends on social media faster, and shift to selling some brands on platforms like Amazon, including Clinique. Prior to this, Estee Lauder had long avoided this practice, fearing it would weaken consumers' perception of its brand as a high-end product.

Estee Lauder stated on Monday that the board is considering internal and external candidates as part of the CEO succession plan.

Earlier reports indicated that Estee Lauder's Honorary Chairman Leonard Lauder and some board members intend to replace Freda. Currently, the Lauder family collectively holds about 35% of Estee Lauder Group's shares, including approximately 80% of the voting rights granted to heirs The main members of the family include founder's sons Leonard and Ronald Lauder, as well as third-generation heirs William, Jane, and Aerin. Leonard Lauder's other son Gary Lauder officially joined the board of directors last year. The media reported that Ronald Lauder's daughter Jane Lauder and CEO Stephane de la Faverie are internal candidates for the new CEO of Estee Lauder.

However, Barclays analyst Lauren Lieberman stated that a new CEO from outside the company would be a positive change. She pointed out that Estee Lauder is "quite closed" and executives typically have long tenures. "A new perspective from outside will be beneficial," she said