Estée Lauder Cos. pulled its guidance for the year, citing uncertainty over a new chief executive and weak demand in China.
The New York-based company also cut its dividend “to a more appropriate payout ratio, which will also create more financial flexibility for our incoming leadership team to reaccelerate our profitable growth trajectory,” it said in a statement Thursday.
The surprise moves sent shares down by 16% in premarket trading. The stock had already fallen 40% this year through Wednesday, compared to a 22% increase in the S&P 500.
Sales dropped by 4% in the quarter ended September 30, as consumer sentiment worsened in China and a pullback in Asia hit the company’s duty-free stores. The cosmetics giant also reported a net loss of $156 million, primarily due to charges associated with talc litigation.
Rival L’Oreal SA also posted disappointing results for the most recent quarter because of weakness in China but the French conglomerate relies less heavily on China.
Stéphane de La Faverie, who takes over as CEO in January, will have to tackle the sales slump and show investors that the turnaround plan he’ll inherit from his predecessor is working — or else come up with a new strategy.
‘Move Us Forward’
The company has been contending with declining US market share and sluggish sales in China, particularly in duty-free shops, known as the travel retail business.
But the decision to pull guidance altogether and cut the company’s dividend suggests the financial picture is worse than expected, since the owner of brands including La Mer, Clinique, the Ordinary and Le Labo had already significantly lowered its annual outlook in August.
“While we believe the new economic stimulus measures in China present medium- to long-term potential for stabilization and ultimately growth in prestige beauty, we anticipate still-strong declines near-term for the industry in China and Asia travel retail,” outgoing Chief Executive Officer Fabrizio Freda said.
During the past two years, Freda has repeatedly cut guidance, giving Wall Street the impression that executives don’t have a grasp on what’s going on and dampening expectations of a long-promised recovery.
“The biggest debate around Estée Lauder is whether the current issues in China (~20% of total sales) and TR (travel retail, ~20% of total sales; down from 28% at peak) are structural or transitory,” Jefferies analysts Ashley Helgans wrote.
This week, the company said De La Faverie, 50, will succeed Freda, who has been CEO since 2009. It also said two Lauder family members would step down from their posts, marking the first time since the company was founded more than 75 years ago that a member of the Lauder family hasn’t been involved in the day-to-day management of the business.
On Thursday, Freda said he was hopeful that his successor will help “move us forward with speed and agility.”
Learn more:
Stéphane de La Faverie Named CEO of Estée Lauder Companies
The longtime Lauder executive, who will take the top job on Jan. 1, 2025, will be tasked with strengthening the company’s weak post-pandemic recovery.
