Estée Lauder Earnings Call Disappoints As Stock Price Sinks
Key Takeaways
- Estée Lauder has beaten revenue expectations for their fiscal Q4
- Despite the positive end to the year, the stock price has tumbled on weak forward guidance
- The company is suffering as slower than expected demand in the US and falling revenue for their travel retail segment drags on earnings
This earnings season is all about guidance. It’s all well and good for companies to be notching earnings beats for the past quarter, but with many businesses making layoffs and driving efficiency gains, investors are worried about what the future holds.
After all, there’s only so far you can cut and trim expenses before it begins to impact the ability to generate revenue.
And this is why despite beating earnings expectations in their Q4 fiscal year, weak forecasts for the upcoming year sent the stock tumbling. Let’s take a closer look at why.
Estée Lauder might not be expecting a bumper fiscal year coming up, and they’re not alone. When the market gets jittery, value stocks are often the place to look, meaning companies whose demand, revenue (and hopefully, share price) stays more stable than the market as a whole.
Investing in Q.ai’s Value Vault Kit allows you to invest in value stocks (Warren Buffet’s favored strategy), while using the power of AI to predict the best performers for the coming week, automatically rebalancing your holdings in line with those predictions.
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Estée Lauder’s financial results
Net sales in Q4 came in at $3.61 billion, above the consensus estimates of $3.49 billion. Not only that, but with earnings per share expected to come in at -$0.04, the company managed to flip that loss into a profit of $0.07 per share.
But it wasn’t all good news, with gross margin falling from 71% down to 67.8% and restructuring costs coming at an expense of $76 million.
All in all, it was an ok year, but it’s the company’s forward guidance that really got the markets attention.
The first quarter of the new fiscal year had been projected to end in earnings per share of $0.98, but this figure was revised down by the company to a loss of between -$0.29 to -$0.19. Travel retail is expected to continue to remain suppressed and US market share is being given up to rivals such as L’Oréal.
The market reacted swiftly, with the stock price falling -3.7% on Friday to bring the total weekly loss to -7.38%.
The bottom line
The cosmetics industry is cutthroat and Estée Lauder is feeling the pressure from reduced revenue from travelers and a recovery in the US which has been slower than expected. It’s a tough industry for investors, with traditional cosmetics manufacturers feeling increasing pressure from influencer led brands such as Kylie Cosmetics.
Even so there are some serious opportunities in the broader health and wellness sectors, with many conglomerates such as Unilever and Procter & Gamble holding a wide portfolio of brands that include cosmetics. These consumer staples businesses boast consistent demand through all stages of the economic cycle, and they can be well worth considering when markets get choppy.
We’ve packaged these consistent investments into our Value Vault Kit, using the power of AI to predict which value stocks are expected to perform the best in the coming week, before automatically rebalancing the Kit in line with these predictions.
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