Estee Lauder raises outlook, CEO’s turnaround paying off

[NEW YORK] Estee Lauder raised its annual profit outlook, a sign that one year into CEO Stephane de La Faverie’s tenure, his turnaround plan for the cosmetics conglomerate is starting to pay off. 

The owner of the Jo Malone and Le Labo brands expects adjusted earnings per share (EPS) in the range of US$2.05 to US$2.25, a statement on Thursday (Feb 5) said.

The upper end of the range is above analyst estimates. In October, Estee Lauder guided for that figure to be between US$1.90 to US$2.10. 

The guidance lift comes after the company narrowly beat Wall Street’s expectations for revenue and adjusted EPS in its most recent quarter, buoyed by the growth in skincare – including La Mer and The Ordinary – and fragrance, such as Tom Ford and Le Labo. 

The results are a reversal from the prior fiscal year, when sales fell by more than 8 per cent and profit tumbled. 

The company also narrowed its outlook range for net revenue growth in the current FY. It now forecasts 3 to 5 per cent growth in the 12 months that end in June. Analysts expect a 4.4 per cent increase to US$15 billion. 

Estee Lauder is also forecasting growth across nearly all geographic regions, led by China. It still expects a US$100 million hit to profitability from tariffs, which will show up mainly in the next six months. 

Turnaround plan

De La Faverie has been putting in place strategies to help Estee Lauder better compete against rivals such as L’Oreal and upstarts, which have capitalised on steady growth in the cosmetics market since the pandemic.

On Thursday, the company said it had cut 6,000 positions, and still intends a net reduction of as many as 7,000, which is part of its turnaround strategy.

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More products on faster-growing channels – such as Amazon and TikTok shops – are being sold by de La Faverie as well, pivoting away from the company’s long-time reliance on slower-growing department stores.

He is trying to launch additional new products more quickly to keep pace with social media trends. 

Historically, Estee Lauder has raised the prices on its products at a low single-digit rate, largely in line with inflation.

Under de La Faverie, though, price increases have been lower than in the past and below the broader market, Telsey Advisory Group analyst Dana Telsey said. 

That is intended to target “unit growth to win more consumers and grow market share”, she wrote in a research note. 

The company is reviewing its portfolio of more than 20 brands, de La Faverie said.

Analysts have said the likely targets to divest include makeup brands that have underperformed, including Too Faced and Smashbox, and mid-market skincare labels such as Origins, Darphin and GlamGlow. 

The company’s higher-end skincare brands, such as its Estee Lauder and La Mer labels, have reported stronger growth. BLOOMBERG