Estée Lauder sales down as its reveals new profitability plan

The Estée Lauder Companies has reported a 11% drop in organic net sales to £2.8 billion ($3.52 billion) for the first quarter as it reveals plans to rebuild profitability in FY25 and FY26.

The decrease in sales was attributed to expected pressures across travel retail in Asia, as well as incremental headwinds from a slower-than-expected recovery of overall prestige beauty in mainland China.

These challenges were partially offset by organic net sales growth in the US, many markets in Asia/Pacific, as well as in nearly all markets in Europe, the Middle East and Africa, led by the UK and Germany.

The company's skincare sales dropped  21%. This reflects declines from Estée Lauder and La Mer, partially offset by growth from The Ordinary and, to a lesser extent, MAC Cosmetics.

Makeup sales lifted 1%, with increases at MAC Cosmetics, Too Faced, Tom Ford and Clinique mostly offset by a decrease at Estée Lauder.

Fragrance sales were up 5%, with help from Le Labo and Tom Ford Beauty, while haircare sales dropped 7%.

Gross profit fell 16% to £1.9 billion ($2.4 billion) during the first quarter, with gross margin down from 74% in 2022 to 69.6%.

Given the "slower-than-expected" pace of recovery, the Estée Lauder Companies has accelerated and expanded its profit recovery plan to rebuild its profit margins in fiscal years 2025 and 2026.

The plan, which is anticipated to be substantially in place at the beginning of 2024, is designed to target specific areas of the company’s business to improve gross margin and lower certain operating expenses over the next two fiscal years, while further investing in key consumer-facing activities.

Fabrizio Freda, President and CEO at the Estée Lauder Companies, said: "In the context of a quarter which we anticipated to be challenging, we delivered our organic sales outlook and exceeded expectations for profitability. Momentum continued in many developed and emerging markets around the world, where our organic sales grew strongly and we realised prestige beauty share gains.

"While we had a better-than-expected first quarter, we are lowering our FY24 outlook given incremental external headwinds, namely from the slower growth in overall prestige beauty in Asia travel retail and in mainland China, and the risks of business disruption in Israel and other parts of the Middle East.

"We are accelerating and expanding our profit recovery plan, to benefit FY25 and FY26, to realise our ambitions to rebuild profitability despite the external headwinds’ increased pressure on the business in FY24."