MW Estée Lauder's stock heads for record selloff after profit warning, dividend cut
By Tomi Kilgore
Consumer sentiment in China worsened, driving weak prestige beauty and Asia travel retail sales
Shares of Estée Lauder Companies Inc. tumbled toward the lowest prices seen in a decade, after the luxury beauty-care products company warned of a large earnings miss and surprise sales decline for the current quarter, citing worsening consumer sentiment in China.
The company also slashed its dividend by 47% "to a more appropriate payout," given the "particular difficulty" in projecting when the prestige-beauty market stabilizes and China and Asia travel retail recovers.
The stock $(EL)$ plunged 23.2% in premarket trading, putting it on track to open at the lowest price seen since April 2014.
It was also headed for a new record one-day selloff, as the current record is the 18.9% drop on Nov. 1, 2023.
The company, whose brands including M--A--C, Bobbi Brown Cosmetics, Jo Malone London, Tom Ford and Aveda, said "worsened consumer sentiment in China" hurt the prestige-beauty market in China, and led to low conversion rates in Asia travel retail and Hong Kong SAR.
"While we believe the new economic stimulus measures in China present medium- to long-term potential for stabilization and ultimately growth in prestige beauty, we anticipate still-strong declines near-term for the industry in China and Asia travel retail," said Chief Executive Fabrizio Freda.
The company placed the current fiscal second quarter's adjusted earnings per share, excluding nonrecurring items, between 20 cents and 35 cents. That compares with the current FactSet EPS consensus of $1.06.
The company also expects sales to decrease between 8% and 6% from a year ago, while the current FactSet sales consensus of $4.28 billion implies 0.1% growth.
The downbeat outlook comes after luxury-goods group Hermès International (FR:RMS) reported upbeat results, but rivals like Gucci owner Kering S.A. (FR:KER) and LVMH Moet Hennessy Louis Vuitton SE (FR:MC) reported sales declines.
For the fiscal first quarter to Sept. 30, Estée Lauder swung to a net loss of $156 million, or 43 cents a share, from net income of $31 million, or 9 cents a share, in the same period a year ago.
Excluding nonrecurring items, such as restructuring charges, litigation settlements and currency impacts, adjusted EPS of 12 cents topped the FactSet consensus of 9 cents.
Sales fell 4.5% to $3.36 billion, just below the FactSet consensus of $3.37 billion, as all of the company's business segments saw sales decline.
Skin care sales shed 6.8% to $1.53 billion, missing the FactSet consensus of $1.58 billion, and makeup sales were down 2.3% to $1.04 billion, which was in line with expectations.
Fragrance sales declined 0.9% to $630 million and hair care sales fell 6.1% to $139 million.
"Our first quarter results are largely aligned with our outlook on an adjusted basis, despite the fact that the expected headwinds in China and Asia travel retail were greater than anticipated," CEO Freda said.
Separately, the company declared a quarterly dividend of 35 cents a share, down from the previous dividend paid of 66 cents a share. Shareholders of record on Nov. 29 will be paid the new dividend on Dec. 16.
Based on the stock's Wednesday closing price, the lowered annual dividend rate cut the implied dividend yield to 1.61% from 3.03%. That compares with the implied yield for the S&P 500 index SPX of 1.28%.
The stock has already tumbled 40.4% year to date through Wednesday, while the S&P 500 has rallied 21.9%.
-Tomi Kilgore
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(END) Dow Jones Newswires
October 31, 2024 08:28 ET (12:28 GMT)
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