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The Estée Lauder Cos. Stock Tumbles More Than 20% as It Withdraws Annual Forecast
Kathryn Hopkins
5 min read
Updated Oct. 31 at 5:41 p.m.
As Stéphane de La Faverie prepares to take the reins of The Estée Lauder Cos., his to-do list is growing more challenging by the day.
Just one day after the company announced his appointment as chief executive officer and revealed William P. Lauder’s departure as executive chairman, the group withdrew its annual forecast as it reported a slump in first quarter 2025 sales due to struggles in Asia and cut its dividend almost in half from 66 cents to 35 cents. This sent the stock down 20.89 percent to $68.94.
“We anticipate still-strong declines near-term for the industry in China and Asia travel retail,” said current CEO Fabrizio Freda. “With this complex industry landscape, including the particular difficulty in forecasting the timing of market stabilization and recovery in China and Asia travel retail, and in the context of leadership changes, we are solely issuing an outlook for the second quarter and withdrawing our fiscal 2025 outlook.”
De La Faverie will take over on Jan. 1 from Freda, about six months earlier than Freda’s previously announced retirement date, the company confirmed in a statement early Wednesday. Analyst reaction to de La Faverie’s appointment has been mixed.
While Ashley Helgans, an analyst at Jefferies, highlighted de La Faverie’s strong résumé, having worked at Lauder for 13 years, she said: “Selecting internal hires for both CEO and CFO [chief financial officer] gives us concern that the new appointees may not make drastic enough strategic changes to improve the trajectory of the business.”
As previously reported, Akhil Shrivastava has been appointed executive vice president and CFO, effective Friday, taking the reins from Tracey Travis. He joined Lauder in 2015, holding several key finance roles since then. Most recently he was senior vice president, corporate controller.
Oliver Chen of TD Cowen said internal CEO promotion could provide more stability and continuity as the organization retrenches. “His category expertise in skin care and fragrance, having overseen brands like Estée Lauder, Jo Malone and Le Labo could help accelerate growth through these areas both organically and inorganically; internal promotion could provide more stability and continuity as the organization reshuffles.”
During a call with analysts, Freda defended the company’s decision to hire an internal candidate as CEO.
“I’m personally very happy that the board at the end selected internal succession,” he said, noting that an internal candidate is better equipped to quickly make important changes.
“Frankly, this ability is stronger in very talented internal leaders than would be external,” Freda said. “The understanding of how to better allocate our resources to the big changing trends of the world is also a characteristic that the new leadership needs to have. We believe we need to be brand builders, but we also need people that will act with urgency, speed, courage to make the needed changes.”
The group reported net sales of $3.36 billion for its first quarter ended Sept. 30, a decrease of 4 percent from $3.52 billion in the prior year. Analysts had penciled in $3.37 billion.
The company blamed worsened consumer sentiment in China for driving further softening in overall prestige beauty in mainland China and low conversion rates in Asia travel retail and Hong Kong. Asia net sales dropped 11 percent.
In addition, lower replenishment orders in Asia travel retail impacted organic net sales.
Lauder’s performance contracts to that of rival L’Oréal, which has also been hit by the China slowdown, but which still saw sales rise 2.8 percent to 10.29 billion euros in its third quarter. What’s more, L’Oréal Luxe sales were up 5.8 percent on a like-for-like basis. That’s despite that it is the division in which North Asia carries the most weight.
One of the biggest issues, sources said, seems to be Lauder’s previous reliance on Daigou — the practice of Chinese consumers purchasing products at lower prices overseas and selling them at a discount in China.
In its first quarter, Lauder reported a net loss of $156 million, compared with net earnings of $31 million in the prior year, primarily due to charges associated with talcum litigation settlement agreements of $159 million in the aggregate, which includes charges for current and potential future claims with certain plaintiff law firms.
The change also reflected charges associated with the Restructuring Program component of the company’s Profit Recovery and Growth Plan.
Adjusted diluted net earnings per common share increased to 14 cents, above Wall Street estimations.
For the second quarter, Lauder expects organic net sales to decrease 6 percent to 8 percent compared to the prior year, largely due to the ongoing challenges in mainland China and in Asia. Adjusted diluted net earnings per common share are expected to decrease between 77 percent and 60 percent and range between 20 cents and 35 cents.
A breakdown of the first quarter sales numbers showed that skin care, the majority of the business, saw sales decrease 8 percent, with double-digit declines from La Mer and Estée Lauder. Makeup net sales decreased 2 percent, led by MAC and Too Faced, partially offset by Clinique.
Fragrance net sales decreased 1 percent, driven by the challenges in the company’s global travel retail business, partially offset by growth in both Asia/Pacific and collectively in the markets of EMEA. Within that, net sales from Tom Ford declined high-single-digits, reflecting the brand’s retail softness in North America that led to lower replenishment orders as well as the challenges in the company’s global travel retail business.
Hair care net sales fell 6 percent, with Aveda in particular struggling, reflecting the timing of shipments and continued softness in the company’s North America salon channel.
Mark Astrachan of Stifel Financial Corp. said: “By category, results were underwhelming as Lauder reported declines across all segments indicating share loss is widespread. In total we think the results and lack of visibility suggest considerable work and time needed for incoming management to improve performance. We anticipate EL shares underperform.”
