The Estee Lauder Companies (EL) Dulls on Cost & Currency Woes
The Estee Lauder Companies Inc. EL is in a tight spot because of persistent inflationary pressures. The leading skincare, makeup, fragrance and hair care product provider is grappling with unfavorable currency headwinds.
On its last earnings call, this Zacks Rank #5 (Strong Sell) company stated that it is cautious about economic hurdles in China, volatile inflation levels, foreign currency fluctuations and concerns surrounding recession (in several global markets). For the first quarter of fiscal 2024, management anticipates reported and organic net sales to decline 12-10% year over year. The bottom line is envisioned in the band of a loss of 31 cents per share and a loss of 21 cents in the fiscal first quarter.
The Estee Lauder Companies’ stock has slumped 34.9% in the past six months compared with the industry’s 22.7% decline. The stock has underperformed the Zacks Consumer Staples’s decline of 3% during this time.
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What’s Hurting EL’s Performance?
In fourth-quarter fiscal 2023, The Estee Lauder Companies’ adjusted gross profit came in at $2,467 million, down 3% year over year. The gross margin contracted to 67.8% from 71% reported in the year-ago quarter. The downside was caused by the under-absorption of overhead in its plants stemming from the pull-down of production during the year. The company’s operating income fell 66% to $71 million while its operating margin contracted 380 basis points (bps) to 2%. Operating expenses, as a percentage of sales, increased 70 bps, thanks to increased advertising and promotional activities.
Owing to The Estee Lauder Companies’ solid international presence, it remains exposed to unfavorable currency fluctuations. Any adverse currency fluctuation will likely weigh on the company’s operating performance. For fiscal 2024, management projects an unfavorable currency impact of 1% on net sales. Currency headwinds will likely affect net earnings per share (EPS) by nearly 11 cents in fiscal 2024.
In its last earnings call, management highlighted that macroeconomic headwinds across China have slowed down the Asia travel retail business. Consequently, inventory levels in the trade and Asia travel retail have improved slowly. This will likely put increased pressure on the company’s first-half fiscal 2024 performance.
Final Thoughts
The Estee Lauder Companies is expanding its omnichannel capabilities to aid consumers with flexible and convenient shopping options. Management is on track with four strategic imperatives, including fueling momentum where its business is driving and reaccelerating growth in the United States, among others. The company has a strong presence in emerging markets, which insulates it from the macroeconomic headwinds in the matured markets.
Whether these upsides can help The Estee Lauder Companies counter the downsides above is yet to be seen.
3 Solid Cosmetic Stocks
Inter Parfums IPAR, which manufactures, markets and distributes a range of fragrances and fragrance-related products, sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Inter Parfums’ current financial-year sales indicates 19.7% growth from the year-ago reported figure. IPAR has a trailing four-quarter earnings surprise of 45.9% on average.
Helen of Troy HELE, a provider of several consumer products, currently has a Zacks Rank #2 (Buy). HELE has a trailing four-quarter earnings surprise of 8.1%, on average.
The Zacks Consensus Estimate for Helen of Troy’s current fiscal-year sales suggests a decline of 10.1% from the year-ago reported numbers.
e.l.f. Beauty ELF, a cosmetic and skin care product company, currently carries a Zacks Rank #2. ELF has a trailing four-quarter earnings surprise of 108.3%, on average.
The Zacks Consensus Estimate for e.l.f. Beauty’s current fiscal-year sales suggests growth of 64.6% from the corresponding year-ago reported figure.
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The Estee Lauder Companies Inc. (EL) : Free Stock Analysis Report
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e.l.f. Beauty (ELF) : Free Stock Analysis Report
