Est?e Lauder's Color Cosmetics Segment Slumps... "Expected to Benefit as Consumer Spending Accelerates"

[Asia Economy Reporter Minji Lee] Est?e Lauder's stock price slightly declined after the company reported earnings below expectations due to sluggishness in the color cosmetics segment. Market experts anticipate that future growth in the e-commerce sector and the effect of store reopenings could boost performance, but the high valuation may pose a burden for investors.

On the 5th, Est?e Lauder's stock price was recorded at 302.11 as of the 4th, showing a decline of about 3.7% since the beginning of the month. Although it had risen approximately 18% since the start of the year amid expectations of a recovery in the cosmetics market, the stock price slightly dropped following third-quarter results that fell short of market expectations.

Looking at Est?e Lauder's results from January to March (Q3), sales reached $3.86 billion, marking a 13% increase compared to the same period last year. Excluding currency effects, this slightly missed the market forecast of $3.94 billion. Operating margin improved by 12.7 percentage points from the same period last year to 15.9%, and earnings per share (EPS) stood at $1.59, exceeding market expectations by 21%. Hyunji Lee, a researcher at Shinhan Financial Investment, stated, “The weak demand for color products and store closures in parts of Western Europe and South America due to the resurgence of COVID-19 lasted longer than the market had anticipated. However, the ongoing cost reduction effects post-pandemic have led to a rapid recovery in operating margins, which is positive.”

By product category, skincare recorded $2.3 billion (28%), color cosmetics $1 billion (-13%), fragrance $500 million (27%), and haircare $100 million (6%). Growth in skincare and fragrance products was influenced by strong sales of brands such as Est?e Lauder, La Mer, Clinique, Jo Malone, and Tom Ford Beauty.

By region, sales in Europe, the Middle East, and Africa (EMEA) reached $1.7 billion, growing 10%, while Asia-Pacific generated $1.3 billion and the Americas $900 million, growing 26% and 4% respectively. Notably, sales in the Chinese market increased by approximately 63%, with most brands showing double-digit sales growth. Hyoju Son, a researcher at Hanwha Investment & Securities, explained, “While Western Europe and Latin America were affected by the resurgence of COVID-19, online sales offset these impacts. Online sales in the EMEA region showed strong growth mainly driven by Latin America.”

Considering the normalization of business operations and cost reduction effects, Est?e Lauder is expected to deliver better annual results than initially forecasted. Accordingly, the company raised its annual sales forecast by about 9-10% compared to previous estimates. EPS guidance was increased by up to 47% to a range of $5.59 to $6.05. Researcher Hyunji Lee commented, “With the full resumption of service consumption, an increase in service and leisure-related spending, which was compressed during the pandemic, is expected. However, the recent stock market valuation being higher than anticipated and the price reaching previous highs may weigh on investor sentiment.”