The Estée Lauder Companies Inc. has reported net sales of $3.93 billion for its first quarter ended September 30, 2022, a decline of 11% from $4.39 billion in the prior-year period, including negative impacts from foreign currency.
The Covid-19 pandemic continued to disrupt the company’s operating environment through the fiscal 2023 first quarter, including Covid-related restrictions in China, affecting travel retail in Hainan as well as retail traffic in mainland China. In Hainan, the ongoing restrictions led to prolonged store closures and the curtailment of travel and caused the tightening of inventory by certain retailers who had previously placed orders in anticipation of the return of travel that was since delayed.
During the quarter, the company’s business was also negatively impacted by inflationary pressures and recession concerns, which caused certain retailers in the United States to tighten inventory.
Fabrizio Freda, president and chief executive officer said, “For the first quarter, we delivered organic sales in line with our outlook and adjusted EPS ahead of it even as the transitory external pressures of Covid-19 restrictions in China, high inflation globally, and a strong U.S. dollar intensified. Our multiple engines of growth strategy empowered us to seize prevailing growth opportunities amid the complexity.”
“Fragrance and Hair Care each rose double digits organically, and Makeup’s renaissance continued to realize its promise in markets reopening. Skin Care was the most challenged by Covid-19 restrictions in China, which significantly impacted the category in travel retail. All told, 13 brands grew organically, as M·A·C (BP's 2020 Company of the Year) excelled in Makeup, La Mer in luxury Skin Care, Jo Malone London in Fragrance, and Aveda in Hair Care. Encouragingly, we realized strong double-digit gains in many large developed and emerging markets around the world,” said Freda.
Skin care net sales declined 11%, primarily reflecting the impacts of the prolonged Covid-related restrictions in Hainan, including the tightening of inventory by certain retailers, and in mainland China. The tightening of inventory by certain retailers in the United States also negatively impacted the category’s growth. Net sales growth from La Mer, Bobbi Brown and The Ordinary was offset by declines from Estée Lauder, Dr.Jart+ and Origins.
Makeup net sales decreased 6%, primarily reflecting the ongoing Covid-related restrictions impacting travel retail in Hainan and mainland China, partially offset by the progression of the makeup renaissance as usage occasions increased in many markets. The decline in net sales also reflected a difficult comparison due to the timing of shipments in the prior-year period when certain retailers secured earlier shipments for holiday. Net sales growth from M·A·C was offset by declines from Estée Lauder and Tom Ford Beauty.
Net sales grew in every region and across all brands that sell fragrances, driven by continued desirability of the company’s luxury and artisanal fragrance portfolio and strategic expansion of freestanding stores. The company achieved strong growth despite global supply constraints, particularly of glass.
Hair care net sales rose 11%, reflecting growth in every region and brand.
Reported net sales are forecasted to decrease between 19% and 17% versus the prior-year period in Q2 2023. This range includes the negative impacts from tighter inventory management in travel retail in response to the decreased traffic driven by Covid-related restrictions, foreign currency translation of 7% as well as an additional unfavorable impact from certain foreign currency transactions in key international travel retail locations of 2%, and the termination of the company’s license agreements for the Donna Karan New York, DKNY, Michael Kors, Tommy Hilfiger and Ermenegildo Zegna product lines effective June 30, 2022.
The company expects its first-half results to be negatively impacted by the ongoing challenges from the Covid-related restrictions affecting Asia travel retail, including tightening of retailer inventory, and mainland China. The company also expects the tightening of inventory in the United States to negatively impact its first-half results.
For the second half, the company expects sequential improvement to its results and a gradual recovery as restrictions are lifted, travel resumes to Hainan and the tightening of inventory subsides.