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Estée Lauder Companies said organic sales increased 6 per cent year-on-year to $3.94 billion in the third quarter ended 31 March, with strong performance in the EMEA region (Europe, the Middle East and Africa) and a travel retail rebound in Asia that drove growth. Despite that, the company lowered its full-year forecast as soft sales in China among other challenges remain.
“For the third quarter of fiscal 2024, we delivered our organic sales outlook, exceeded expectations for profitability and continued to improve working capital,” said CEO and president Fabrizio Freda in a statement. By brand, the executive noted that La Mer, Estée Lauder, Jo Malone, Le Labo and The Ordinary led organic sales growth.
For the nine-month period also ended 31 March, organic sales decreased 5 per cent. The company reduced its organic net sales outlook for the year, blaming macroeconomic headwinds, softness in the prestige beauty business across Mainland China and geopolitical volatility in certain markets. It now expects organic net sales to decrease between 2 and 1 per cent for the full year; last quarter, it predicted a 1 per cent decrease to an increase of 1 per cent. In Q4, the company expects organic net sales to increase between 6 and 10 per cent.
Freda said the company has made progress on its Profit Recovery Plan, which is set to deliver between $1.1 billion and $1.4 billion of incremental operating profit in 2025 and 2026. The plan will also provide a set of funds to reinvest into brands and consumer-facing activities. Most recently, ELC participated in a $7 million funding round for cosmetics brand Kiki World, and opened an AI innovation lab in partnership with Microsoft.
Competitor L’Oréal fared better, reporting sales up 9 per cent on a like-for-like basis in the first quarter. Coty has yet to report its updated earnings. On the fashion side, results have been turbulent. Among its winners were Hermès, which saw sales growth of 13 per cent; Prada Group, whose sales were up 16 per cent; and Moncler, which spiked 16 per cent. LVMH’s fashion division grew just 2 per cent on an organic basis in Q1 and Kering posted a 10 per cent decline.
Travel retail in Asia improved this quarter as shipments increased to meet retailers’ higher inventory demands. APAC net sales grew 3 per cent this quarter, led by Hong Kong (which grew double digits), Mainland China (which was up low-single digits) and Japan (which increased double digits), with skincare and fragrance performing best. “For Mainland China we returned to organic sales growth, albeit at a slower pace than expected,” Freda told investors, adding that sales were strong in January for Chinese New Year but softened in February and March.
EMEA net sales grew 12 per cent, again thanks to travel retail and a strong performance across skincare and makeup. Germany and Italy performed particularly well.
Sales were flat in North America, with growth in fragrance offsetting declines in makeup and haircare, particularly in department stores. In Latin America, sales increased 1 per cent with Mexico and Brazil leading, particularly in the makeup category.
Across the company, the skincare category saw 9 per cent growth. Estée Lauder Companies highlighted La Mer’s strong double-digit growth, as well as the Estée Lauder brand, which grew mid-single digits. Makeup net sales increased 4 per cent thanks to travel retail, as well as double-digit growth in Latin America and Korea. The Estée Lauder brand performed strongly, as did Clinique, both with double-digit growth reflected across all regions.
Fragrance net sales nudged up 1 per cent as luxury fragrances grew mid-single digits, with high single-digit growth from Jo Malone driven by EMEA and the Americas, and double-digit growth from La Labo driven by APAC. The growth in the luxury division offset a decline from the Estée Lauder brand due to softer holiday sales. Haircare decreased 4 per cent, as demand for Aveda softened in North American salons.
“With our third-quarter results and fourth-quarter outlook, we are confident that the second half of fiscal 2024 will prove to be an inflection point for our company performance,” said Freda. “We expect accelerating momentum in organic sales growth in the fourth quarter, and for operating margin in the second half of fiscal 2024 to not only be stronger than the first half but also to expand from the year-ago period.”
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