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EL Stock Plummets Despite Q1 Earnings Beat Amid China Weakness
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The Estee Lauder Companies Inc.’s (EL - Free Report) shares plunged 24% in the pre-market session on Thursday, after reporting first-quarter fiscal 2025 results. The company's top line declined year over year and fell short of the Zacks Consensus Estimate amid persistent challenges across China and travel retail. Management withdrew its fiscal 2025 outlook in light of these persistent issues.
Adjusted earnings of 14 cents per share surpassed the Zacks Consensus Estimate of 9 cents. The bottom line increased from earnings of 11 cents in the year-ago quarter. Adjusted earnings per share (EPS) were 12 cents at constant currency or cc.
Find the latest EPS estimates and surprises on Zacks Earnings Calendar.
The Estee Lauder Companies’ quarterly net sales of $3,361 million missed the Zacks Consensus Estimate of $3,370.9 million. The top line declined 4% year over year.
Organic net sales declined 5% due to deteriorating consumer sentiment in China, which contributed to a slowdown in the prestige beauty sector in mainland China and reduced conversion rates across Asia travel retail and Hong Kong SAR. Reduced replenishment orders in Asia travel retail, including inventory challenges amid a slowing retail market, added additional pressure on organic sales. However, this decline was partially mitigated by growth in markets such as Japan and its Priority Emerging Markets.
The Estee Lauder Companies Inc. Price, Consensus and EPS Surprise
Due to the complex industry landscape, including difficulties in predicting market stabilization and recovery in China and Asia travel retail, as well as leadership changes, the company will provide an outlook only for the fiscal second quarter and withdraw its fiscal 2025 forecast. In addition, management is reducing the dividend to establish a more appropriate payout ratio.
EL’s Product-Based Segmental Results
Skin Care’s sales were down 7% year over year to $1,529 million. The downside can be attributed to worsened consumer sentiment across China.
Makeup revenues fell 2% year over year to $1,038 million, thanks to declines in M·A·C and Too Faced, although this was partially offset by growth in Clinique.
In the Fragrance category, revenues of $630 million inched down 1% from the year-ago quarter’s figure. The down can be attributed to challenges in the company’s global travel retail business. However, this decline was partially offset by growth in the Asia/Pacific region and across the EMEA markets.
Hair Care sales totaled $139 million, down 6% year over year, due to softness in Aveda, which reflects the timing of shipments and ongoing softness in EL’s North America salon channel.
Regional Revenue Results for EL's Q1
Sales in the Americas fell 2% year over year at $1,187 million. Revenues in the Europe, the Middle East & Africa (EMEA) region declined 2% to $1,230 million. In the Asia-Pacific region, sales tumbled 11% to $944 million.
EL’s Q1 Margin Breakdown: Key Insights
The Estee Lauder Companies’ gross profit came in at $2,433 million, down 1% year over year. The gross margin came in at 72.4%, up from 69.6% reported in the year-ago quarter. The company’s Profit Recovery and Growth Plan led to gross margin expansion, although this was partially offset by operating deleverage.
The adjusted operating income came in at $144 million, up 33% from $108 million reported in the year-ago period.
EL’s Financial Health Snapshot
The Zacks Rank #3 (Hold) company exited the quarter with cash and cash equivalents of $2,350 million, long-term debt of $7,311 million, and total equity of $5,084 million.
The net cash flow used for operating activities for the three months ended Sept. 30, 2024, was $670 million. Capital expenditures during this time amounted to $141 million.
EL Reduces Dividend Rate
In light of the complex prestige beauty landscape and the challenges in forecasting market stabilization and recovery in mainland China and Asia travel retail, The Estee Lauder Companies is reducing its dividend to align with a more suitable payout ratio. This dividend reduction will provide greater financial flexibility to reaccelerate the company’s growth trajectory.
The company announced a quarterly dividend of 35 cents per share on its Class A and Class B Common Stock, payable Dec. 16, 2024, to shareholders of record as of Nov. 29, 2024.
Image Source: Zacks Investment Research
What to Expect From EL in Q2?
The Estee Lauder Companies remains cautiously optimistic about the medium-to-long-term growth opportunities arising from the new economic stimulus measures across China. However, given the volatile and uncertain environment in the near term, management does not anticipate these measures to positively impact its performance in the fiscal second quarter. The company continues to expect a normalization of growth in the prestige beauty industry, mainly in North America.
For the second quarter of fiscal 2025, reported and organic net sales are projected to decline 6-8% compared to the prior year’s level. Adjusted EPS are likely to slump by 60-77%, ranging from 20 cents to 35 cents. In addition, foreign currency translation is not anticipated to affect its sales or EPS for the quarter.
The EL stock has lost 10.3% in the past three months compared with the industry’s decline of 13.4%.
The Zacks Consensus Estimate for IPAR’s current financial year sales and earnings indicates advancements of 10.6% and 8.8%, respectively, from the prior-year figures. It has a trailing four-quarter earnings surprise of 2.5%, on average.
Boot Barn Holdings, Inc. (BOOT - Free Report) sports a Zacks Rank of 1. Boot Barn has a trailing four-quarter earnings surprise of 6.8%, on average.
The consensus estimate for BOOT’s current financial year earnings indicates advancements of almost 12% from the prior-year figures.
Urban Outfitters Inc. (URBN - Free Report) is a lifestyle specialty retailer that offers fashion apparel and accessories, footwear, home décor and gift products. It currently has a Zacks Rank #2 (Buy).
The Zacks Consensus Estimate for Urban Outfitters’ current financial year sales and earnings indicates advancements of 5.7% and 11.7%, respectively, from the prior-year figures. URBN has a trailing four-quarter average earnings surprise of 17.6%.
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EL Stock Plummets Despite Q1 Earnings Beat Amid China Weakness
The Estee Lauder Companies Inc.’s (EL - Free Report) shares plunged 24% in the pre-market session on Thursday, after reporting first-quarter fiscal 2025 results. The company's top line declined year over year and fell short of the Zacks Consensus Estimate amid persistent challenges across China and travel retail. Management withdrew its fiscal 2025 outlook in light of these persistent issues.
Adjusted earnings of 14 cents per share surpassed the Zacks Consensus Estimate of 9 cents. The bottom line increased from earnings of 11 cents in the year-ago quarter. Adjusted earnings per share (EPS) were 12 cents at constant currency or cc.
Find the latest EPS estimates and surprises on Zacks Earnings Calendar.
The Estee Lauder Companies’ quarterly net sales of $3,361 million missed the Zacks Consensus Estimate of $3,370.9 million. The top line declined 4% year over year.
Organic net sales declined 5% due to deteriorating consumer sentiment in China, which contributed to a slowdown in the prestige beauty sector in mainland China and reduced conversion rates across Asia travel retail and Hong Kong SAR. Reduced replenishment orders in Asia travel retail, including inventory challenges amid a slowing retail market, added additional pressure on organic sales. However, this decline was partially mitigated by growth in markets such as Japan and its Priority Emerging Markets.
The Estee Lauder Companies Inc. Price, Consensus and EPS Surprise
The Estee Lauder Companies Inc. price-consensus-eps-surprise-chart | The Estee Lauder Companies Inc. Quote
Due to the complex industry landscape, including difficulties in predicting market stabilization and recovery in China and Asia travel retail, as well as leadership changes, the company will provide an outlook only for the fiscal second quarter and withdraw its fiscal 2025 forecast. In addition, management is reducing the dividend to establish a more appropriate payout ratio.
EL’s Product-Based Segmental Results
Skin Care’s sales were down 7% year over year to $1,529 million. The downside can be attributed to worsened consumer sentiment across China.
Makeup revenues fell 2% year over year to $1,038 million, thanks to declines in M·A·C and Too Faced, although this was partially offset by growth in Clinique.
In the Fragrance category, revenues of $630 million inched down 1% from the year-ago quarter’s figure. The down can be attributed to challenges in the company’s global travel retail business. However, this decline was partially offset by growth in the Asia/Pacific region and across the EMEA markets.
Hair Care sales totaled $139 million, down 6% year over year, due to softness in Aveda, which reflects the timing of shipments and ongoing softness in EL’s North America salon channel.
Regional Revenue Results for EL's Q1
Sales in the Americas fell 2% year over year at $1,187 million. Revenues in the Europe, the Middle East & Africa (EMEA) region declined 2% to $1,230 million. In the Asia-Pacific region, sales tumbled 11% to $944 million.
EL’s Q1 Margin Breakdown: Key Insights
The Estee Lauder Companies’ gross profit came in at $2,433 million, down 1% year over year. The gross margin came in at 72.4%, up from 69.6% reported in the year-ago quarter. The company’s Profit Recovery and Growth Plan led to gross margin expansion, although this was partially offset by operating deleverage.
The adjusted operating income came in at $144 million, up 33% from $108 million reported in the year-ago period.
EL’s Financial Health Snapshot
The Zacks Rank #3 (Hold) company exited the quarter with cash and cash equivalents of $2,350 million, long-term debt of $7,311 million, and total equity of $5,084 million.
The net cash flow used for operating activities for the three months ended Sept. 30, 2024, was $670 million. Capital expenditures during this time amounted to $141 million.
EL Reduces Dividend Rate
In light of the complex prestige beauty landscape and the challenges in forecasting market stabilization and recovery in mainland China and Asia travel retail, The Estee Lauder Companies is reducing its dividend to align with a more suitable payout ratio. This dividend reduction will provide greater financial flexibility to reaccelerate the company’s growth trajectory.
The company announced a quarterly dividend of 35 cents per share on its Class A and Class B Common Stock, payable Dec. 16, 2024, to shareholders of record as of Nov. 29, 2024.
Image Source: Zacks Investment Research
What to Expect From EL in Q2?
The Estee Lauder Companies remains cautiously optimistic about the medium-to-long-term growth opportunities arising from the new economic stimulus measures across China. However, given the volatile and uncertain environment in the near term, management does not anticipate these measures to positively impact its performance in the fiscal second quarter. The company continues to expect a normalization of growth in the prestige beauty industry, mainly in North America.
For the second quarter of fiscal 2025, reported and organic net sales are projected to decline 6-8% compared to the prior year’s level. Adjusted EPS are likely to slump by 60-77%, ranging from 20 cents to 35 cents. In addition, foreign currency translation is not anticipated to affect its sales or EPS for the quarter.
The EL stock has lost 10.3% in the past three months compared with the industry’s decline of 13.4%.
Better-Ranked Staple Bets
Inter Parfums (IPAR - Free Report) is engaged in the manufacturing, distribution and marketing of a wide range of fragrances and related products. IPAR currently sports a Zacks Rank of 1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for IPAR’s current financial year sales and earnings indicates advancements of 10.6% and 8.8%, respectively, from the prior-year figures. It has a trailing four-quarter earnings surprise of 2.5%, on average.
Boot Barn Holdings, Inc. (BOOT - Free Report) sports a Zacks Rank of 1. Boot Barn has a trailing four-quarter earnings surprise of 6.8%, on average.
The consensus estimate for BOOT’s current financial year earnings indicates advancements of almost 12% from the prior-year figures.
Urban Outfitters Inc. (URBN - Free Report) is a lifestyle specialty retailer that offers fashion apparel and accessories, footwear, home décor and gift products. It currently has a Zacks Rank #2 (Buy).
The Zacks Consensus Estimate for Urban Outfitters’ current financial year sales and earnings indicates advancements of 5.7% and 11.7%, respectively, from the prior-year figures. URBN has a trailing four-quarter average earnings surprise of 17.6%.