Estée Lauder lowers outlook, citing global impact on travel retail due to coronavirus

Estée Lauder Companies (ELC), the American cosmetics conglomerate which houses over 25 brands, including Estée Lauder, La Mer, Clinique, and Le Labo, reported double-digit growth for Q2 FY2020 this morning. But now is not the time to take a breather.

The company announced a 15% growth in net sales from $4.62 billion to $4.01 billion in the quarter ending Dec. 31, according to their earnings release. Upon announcing “exceptional” results, President and CEO, Fabrizio Freda, gave a cautious warning on the impact of travel retail for the full-year results, adding that more than 60 airlines have already stopped flying to China.

“There’s lack of traffic not just in and out of China,” Freda said in the earnings call. “The outbreak is a global concern, so many people who are travelling are restricted. Many companies have also banned business travel to infected countries.” He added that the company has already kicked started plans for the recovery. “We’re reworking our plans to recover when the time arrives,” he said, adding that the company also aims to support China’s economic recovery. “We will regain momentum not only for us but for the entire industry.”

“At this moment, stabilization is key,” Freda said. As a result of the ongoing uncertainty related to the coronavirus, the company’s projected earnings per share for the second half of FY2020 came in between $1.82 and $1.90 compared with the current adjusted earnings per share of $2.11.

As ELC’s second-largest market, Asia-Pacific has seen robust momentum last quarter, delivering a 29% increase from $1,020 million to $1,319 million. Greater China also had an undisclosed double-digit net sales growth, with Singles’ Day and other events to thank. 

Across the company’s five sectors — makeup, fragrance, hair care, and other — skin care has outperformed the others, with growth led by flagship brands Estée Lauder and La Mer. And, as one of the first to jump on emerging technologies like augmented reality and virtual reality, Freda also said the company would continue its path toward further innovation.

The Jing Take

When ELC looks around Greater China, it finds the market’s growing importance to its major rival, LVMH‘s beauty division. China has become Guerlain’s number one market in 2019; Rihanna’s inclusive beauty Fenty has been winning praise and opening wallets. But it should know that it’s ultimately competing with itself.

Despite the cautious outlook since the beginning of FY2020, when it cut its full-year profit forecast, expecting to take a hit from the Hong Kong protests and the slower growth in China, the company’s performance and efforts in the region have remained steady, though how the full impact of the coronavirus has yet to be understood.

Lar Mer, ELC’s one-billion dollar brand, promoted Justin Boxford as its Global Brand President. Photo: ELC

Just a week ago, ELC’s one-billion dollar brand, Lar Mer, announced an Asian market veteran as its Global Brand President. While working for the likes of Estée Lauder and TOM FORD BEAUTY, Justin Boxford secured “local relevance with consumers in China and with traveling Chinese consumers,” the company said in a news release.

Once the coronavirus crisis subsides, both ELC and Boxford will have their hands full implementing their recovery plans for the Greater China region. Todate, however, all indications look toward ELC coming out stronger in the long term.