Estée Lauder, Hit by Falling Sales in the US

Sales of the cosmetics maker rose 1% in its fiscal first quarter to $2.87 billion. This figure is slightly below market expectations (for just 1%) but, what´s more significant, is the worst rate of revenue growth in more than a year. Meanwhile, net profit fell almost 5% to $294 million. Without taking into account extraordinary expenses the profit beat analysts’ forecasts.

The economic improvement in the US is driving sales of high-value technology products, such as smartphones or tablets. Customers prefer to visit these stores instead of traditional beauty and personal care luxury-shops, which is punishing sales across the industry.

To further worsen the scenario, the dollar’s strength against other currencies has also reduced spending by tourists, an effect that joins the growing interest of customers for online shopping, where Estee Lauder is lagging behind other competitors that have reacted more quickly to this trend. Nor sales in China and Hong Kong have met expectations, neither.

The company maintains so far its expectation of increasing sales by 3 or 4% in the second quarter thanks to the Thanksgiving and Christmas campaigns, which would means $3.22-$3.25 billion. According to the company statement, it expects a gradual acceleration of revenues through new releases and targets new public with its mid-range products. The forecasts for the full fiscal year are set in a revenue increase by 6 or 7% (disregarding the impact of exchange rates) and boosts its earnings per share before extraordinary by between 8 and 10%.

The announcement of these results has caused a drop of 5% of its stock market value. Its shares lost 7% so far this year, although his P/E, over 25 times, is still relatively high compared to the industry average. Still, analysts recommend overweighting the company with a target price of $100, with an upside potential of 15%.

Disclosure: The Luxonomist is not responsible for the views expressed in the article. The text has been written freely expressing their own ideas, without receiving any compensation. The author has no business relationship with any of the companies whose shares are listed in this article.