Estée Lauder has worst day ever after withdrawing guidance and slashing dividend
Disappointing outlook, dividend cut, and leadership pick rattled investors, dragging the stock down more than 20%.
We’ve heard the story before: businesses that rely on Chinese consumers are struggling. But Estée Lauder was hit especially hard. Shares of the beauty conglomerate were down over 20% on Thursday afternoon, on track for their biggest one-day drop on record. The stock has plunged more than 50% this year and has opened at its lowest price since April 2014.
The company reported adjusted earnings per share of $0.14 per share, better than expected. Overall, net sales of $3.36 billion was modestly below analyst estimates of $3.37 billion.
However, facing an uncertain future, Estée Lauder withdrew its outlook for fiscal 2025 and reduced its dividend by nearly half.
China was Estée Lauder’s biggest market when its stock peaked in late 2021, making up about 35% of the company’s sales by regions in 2021 and 2022. Yet the worsening sentiment surrounding Chinese consumers amid the postpandemic economic malaise has turned many of them away from prestige skin care and beauty products. In the latest quarter, net sales in Asia Pacific decreased 11%, including double-digit decline in Mainland China and Hong Kong.
And just like other companies that had their heydays in China, Estée Lauder was facing fierce competition from cheap local alternatives.
“While we believe the new economic stimulus measures in China present medium- to long-term potential for stabilization and ultimately growth in prestige beauty, we anticipate still-strong declines near-term for the industry in China and Asia travel retail,” the company said in a press release. When China announced a slew of fiscal and monetary stimulus in late September, shares of Estée Lauder — along with luxury giants like LVMH — rose on the optimistic sentiment.
Beyond challenges in China, Estée Lauder’s real-life “Succession” drama also disappointed investors. Some members of the board were dissatisfied with the company’s current CEO Fabrizio Freda, but the board and the Lauder family were split on who should succeed Freda, The Wall Street Journal reported. Some preferred external candidates who may be better suited to lead turnaround efforts, while others wanted an insider. On Wednesday, the company announced that Stéphane de La Faverie, a longtime insider, would take over from Freda as CEO.
But Wall Street doesn’t seem happy. Investors were concerned that an internal hire isn’t able to offer a fresh, differentiated perspective, Barron’s reported.
