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The Estee Lauder Companies (EL) Hurt by Cost & Currency Woes
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The Estee Lauder Companies Inc. (EL - Free Report) appears in a tight spot due to a volatile inflation scenario. The leading skincare, makeup, fragrance and hair care product provider’s international presence exposes it to unfavorable currency rates.
These factors put pressure on the company’s fourth-quarter fiscal 2023 performance. Management remains cautious about economic hurdles in China, dynamic inflation levels, foreign currency fluctuations and concerns surrounding recession (in several global markets).
The Estee Lauder Companies anticipates reported and organic net sales to decline 12-10% year over year in the fiscal first quarter. The bottom line is envisioned in the band of a loss of 31 cents per share and a loss of 21 cents in the fiscal first quarter. On a constant-currency basis, the bottom line is likely to range between a loss of 29 cents per share and a loss of 19 cents.
Shares of the Zacks Rank #5 (Strong Sell) stock have slumped 23.9% in the past three months compared with the industry’s 19.9% decline. The stock has underperformed the Zacks Consumer Staples’s decline of 9.9% during this time.
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What’s Hurting The Estee Lauder Companies?
In fourth-quarter fiscal 2023, The Estee Lauder Companies’ adjusted gross profit came in at $2,467 million, down 3% year over year. The gross margin contracted to 67.8% from 71% reported in the year-ago quarter. The downside was caused by the under-absorption of overhead in its plants stemming from the pull-down of production during the year. The company’s operating income fell 66% to $71 million while its operating margin contracted 380 basis points (bps) to 2%. As a percentage of sales, operating expenses expanded by 70 bps thanks to increased advertising and promotional activities.
Thanks to The Estee Lauder Companies’ solid international presence, it remains exposed to unfavorable currency fluctuations. Any adverse currency fluctuation will likely dent the company’s operating performance. For fiscal 2024, management projects a negative currency impact of 1% on net sales. Currency headwinds will likely affect net earnings per share (EPS) by nearly 11 cents in fiscal 2024.
Wrapping Up
The Estee Lauder Companies is on track with four strategic imperatives, which include fueling momentum where its business is driving, reaccelerating growth in the United States, capturing demand for the returning individual traveler across Asia travel retail and rebuilding profitability. Strength in the company’s omnichannel capabilities is noteworthy.
Whether these upsides can help The Estee Lauder Companies keep its growth story alive is yet to be seen.
The Zacks Consensus Estimate for e.l.f. Beauty’s current financial year sales and earnings suggest growth of 45.4% and 48.2%, respectively, from the year-ago reported numbers.
Inter Parfums (IPAR - Free Report) , which manufactures, markets and distributes a range of fragrances and fragrance-related products, carries a Zacks Rank #2 (Buy).
The Zacks Consensus Estimate for Inter Parfums’ current financial year sales indicates 19.7% growth from the year-ago reported figure. IPAR has a trailing four-quarter earnings surprise of 45.9% on average.
The Kraft Heinz Company (KHC - Free Report) , a food and beverage product company, currently carries a Zacks Rank #2. KHC has a trailing four-quarter earnings surprise of 11.3% on average.
The Zacks Consensus Estimate for Kraft Heinz’s current fiscal year sales suggests growth of 2.2% from the corresponding year-ago reported figure.
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The Estee Lauder Companies (EL) Hurt by Cost & Currency Woes
The Estee Lauder Companies Inc. (EL - Free Report) appears in a tight spot due to a volatile inflation scenario. The leading skincare, makeup, fragrance and hair care product provider’s international presence exposes it to unfavorable currency rates.
These factors put pressure on the company’s fourth-quarter fiscal 2023 performance. Management remains cautious about economic hurdles in China, dynamic inflation levels, foreign currency fluctuations and concerns surrounding recession (in several global markets).
The Estee Lauder Companies anticipates reported and organic net sales to decline 12-10% year over year in the fiscal first quarter. The bottom line is envisioned in the band of a loss of 31 cents per share and a loss of 21 cents in the fiscal first quarter. On a constant-currency basis, the bottom line is likely to range between a loss of 29 cents per share and a loss of 19 cents.
Shares of the Zacks Rank #5 (Strong Sell) stock have slumped 23.9% in the past three months compared with the industry’s 19.9% decline. The stock has underperformed the Zacks Consumer Staples’s decline of 9.9% during this time.
Image Source: Zacks Investment Research
What’s Hurting The Estee Lauder Companies?
In fourth-quarter fiscal 2023, The Estee Lauder Companies’ adjusted gross profit came in at $2,467 million, down 3% year over year. The gross margin contracted to 67.8% from 71% reported in the year-ago quarter. The downside was caused by the under-absorption of overhead in its plants stemming from the pull-down of production during the year. The company’s operating income fell 66% to $71 million while its operating margin contracted 380 basis points (bps) to 2%. As a percentage of sales, operating expenses expanded by 70 bps thanks to increased advertising and promotional activities.
Thanks to The Estee Lauder Companies’ solid international presence, it remains exposed to unfavorable currency fluctuations. Any adverse currency fluctuation will likely dent the company’s operating performance. For fiscal 2024, management projects a negative currency impact of 1% on net sales. Currency headwinds will likely affect net earnings per share (EPS) by nearly 11 cents in fiscal 2024.
Wrapping Up
The Estee Lauder Companies is on track with four strategic imperatives, which include fueling momentum where its business is driving, reaccelerating growth in the United States, capturing demand for the returning individual traveler across Asia travel retail and rebuilding profitability. Strength in the company’s omnichannel capabilities is noteworthy.
Whether these upsides can help The Estee Lauder Companies keep its growth story alive is yet to be seen.
Solid Staple Picks
e.l.f. Beauty (ELF - Free Report) sports a Zacks Rank #1 (Strong Buy). ELF has a trailing four-quarter earnings surprise of 108.3%, on average. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for e.l.f. Beauty’s current financial year sales and earnings suggest growth of 45.4% and 48.2%, respectively, from the year-ago reported numbers.
Inter Parfums (IPAR - Free Report) , which manufactures, markets and distributes a range of fragrances and fragrance-related products, carries a Zacks Rank #2 (Buy).
The Zacks Consensus Estimate for Inter Parfums’ current financial year sales indicates 19.7% growth from the year-ago reported figure. IPAR has a trailing four-quarter earnings surprise of 45.9% on average.
The Kraft Heinz Company (KHC - Free Report) , a food and beverage product company, currently carries a Zacks Rank #2. KHC has a trailing four-quarter earnings surprise of 11.3% on average.
The Zacks Consensus Estimate for Kraft Heinz’s current fiscal year sales suggests growth of 2.2% from the corresponding year-ago reported figure.