The Estée Lauder Companies Inc. reported net sales of $3.52 billion for its first quarter ended September 30, 2023, a decline of 10% from $3.93 billion in the prior year.
 
Organic net sales declined 11%, primarily driven by expected pressures in the Company’s Asia travel retail business, as well as incremental headwinds from a slower-than-expected recovery of overall prestige beauty in mainland China.
 
These challenges were partially offset by organic net sales growth in the United States, many markets in Asia/Pacific, led by Hong Kong SAR and Japan, as well as in nearly all markets in Europe, the Middle East & Africa (EMEA), led by the United Kingdom and Germany. Organic net sales in Fragrance and Makeup grew, partially offsetting the decline in Skin Care.
 
Revisit ELC’s fiscal 2023 results.
 
Fabrizio Freda, President and Chief Executive Officer said, “In the context of a quarter which we anticipated to be challenging, we delivered our organic sales outlook and exceeded expectations for profitability. Momentum continued in many developed and emerging markets around the world, where our organic sales grew strongly and we realized prestige beauty share gains. Encouragingly, we returned to growth in the U.S., with Fragrance, Makeup and Skin Care all contributing.”
 
He added, “This performance partially offset the pressures of Asia travel retail and a slower recovery of overall prestige beauty in mainland China.
 
As a result of incremental external headwinds, namely from the slower growth in overall prestige beauty in Asia travel retail and in mainland China and the risks of business disruption in Israel and other parts of the Middle East, the company lowered its fiscal 2024 outlook.

Skincare Sales

Skincare net sales decreased 21%, reflecting a decline in the Company’s Asia travel retail business, primarily due to the Company’s and its retailers’ actions to reset retailer inventory levels.
 
The decline also reflected the pressures of incremental headwinds from a slower-than-expected recovery of overall prestige beauty in mainland China and the changes in government and retailer policies related to unstructured market activity.
 
Net sales declined from Estée Lauder and La Mer, partially offset by growth from The Ordinary and, to a lesser extent, M·A·C.

Makeup Sales

Makeup net sales increased 1%, reflecting high-single-digit growth in The Americas and in Asia/Pacific, partially offset by a decline in EMEA due to the challenges in the Company’s Asia travel retail business, as previously mentioned.
 
Increases in net sales from M·A·C, Too Faced, TOM FORD and Clinique were mostly offset by a decrease from Estée Lauder.

Fragrance Sales

Fragrance net sales rose 5%, reflecting increases from Le Labo and TOM FORD, owing to double-digit growth in The Americas and Asia/Pacific.

Hair Care

Hair Care net sales decreased 7%, driven by Aveda and Bumble and bumble primarily due to softness in North America.

Revised Outlook

The Company is lowering its outlook to reflect the slower pace of recovery in net sales and margins as a result of incremental external headwinds.
 
In mainland China, the expected growth rate of overall prestige beauty has slowed. To reflect this trend, the Company is lowering its fiscal 2024 expectations for mainland China and Asia travel retail. Amid this headwind, the Company continues to expect to reset retailer inventory in Asia travel retail by the end of the third quarter of fiscal 2024.
 
This, combined with the potential risks of further business disruptions in Israel and other parts of the Middle East as well as currency headwinds, are increasing the pressure on the Company’s fiscal 2024 financial results.
 
Reported net sales for Q2 2024 are forecasted to decrease between 11% and 9% versus the prior-year period. Reported net sales for the full year fiscal 2024 are forecasted to range between a decrease of 2% and an increase of 1% versus the prior year.

Plan to Improve Performance

With its revised outlook, the Company still anticipates to progressively improve performance in the second half of fiscal 2024.
 
The Company also plans to continue to strategically invest in consumer-facing activities, where appropriate, in areas to support recovery, share gains and long-term profitable growth. These investments include innovation, advertising, growth of its emerging markets and the completion of its first manufacturing facility in Asia, located in Japan, to support the development of the regionalization of the supply chain in the Asia/Pacific region.
 
In September, The Estée Lauder Companies made a minority investment in “clean” beauty startup Code Mint through its New Incubator Ventures (NIV)—its first-ever investment in a Chinese beauty brand.