The Estée Lauder Companies Inc. (ELC) has reported a 2% decrease in net sales for the fiscal year ending June 30, 2024. The company’s total net sales for the year amounted to $15.61 billion, down from $15.91 billion in the previous year.
This decline reflects the ongoing challenges faced in the prestige beauty market, particularly in mainland China and the Asia travel retail sector, which have significantly impacted the company’s overall performance.
Financial overview of FY24
The company’s net earnings dropped substantially to $0.39 billion, a steep decline from $1.01 billion the previous year, reported ELC. This reduction is mirrored in the company’s diluted earnings per share (EPS), which fell by 61% to $1.08. When adjusted for restructuring and other charges, the diluted EPS decreased by 22% in constant currency to $2.59.
The decline in earnings was also influenced by a higher effective tax rate, which increased to 47.0% from 27.7% in the previous year, according to the company’s press release. This rise was driven by nondeductible goodwill impairment charges related to the Dr.Jart+ reporting unit, among other factors.
Operating income for the fiscal year was $0.97 billion, a 36% decrease from $1.51 billion in fiscal 2023. On an adjusted basis, operating income in constant currency decreased by 10% to $1.64 billion. The reduction in operating income was primarily due to lower net sales, although this was somewhat offset by decreased cost of sales, the release confirmed.
Performance by category
Skin Care
Net sales in the skin care category, which represents ELC’s largest segment, decreased by 3% to $8.1 billion. The decline was mainly driven by weak performance in mainland China and the global travel retail market.
However, the company’s press release highlighted that some brands within this category managed to perform well. As noted in the press release, “reported and organic net sales increased double digits in the second half of fiscal year 2024, driven by double-digit growth from La Mer, Estée Lauder and The Ordinary.”
La Mer saw a high single-digit increase in net sales, driven by hero products like The Treatment Lotion and The Eye Concentrate. The Ordinary also experienced strong double-digit growth across all geographic regions, buoyed by the success of popular products such as the Soothing & Barrier Support Serum.
Makeup
The makeup category, which had been a strong performer in previous years, saw a slight decline of 1% in net sales, totaling $5.7 billion. The decrease was primarily due to lower sales in the global travel retail sector and the impact of a one-time benefit in the prior year related to M·A·C’s loyalty program changes.
Despite this, certain brands within the category, such as Clinique, managed to achieve a double-digit increased in net sales. According to the press release, Clinique’s performance reflects “strong growth across all geographic regions, primarily driven by continued strength across the lip and mascara subcategories.”
Fragrance
The fragrance segment performed well, with a 2% increase in net sales to $2.0 billion. This growth was largely driven by mid-single-digit increases from luxury brands like Le Labo and Jo Malone London. The company emphasized that its strategic focus on high-end fragrances is paying off, as these brands continue to resonate strongly with consumers worldwide.
However, the ELC brand experienced a decline in fragrance sales, which the company attributed to “softer retail sales during holiday and key shopping moments and pressure in the Company’s Asia travel retail business that led to lower shipments for replenishment orders, as well as lower net sales from new product innovation,” the press release detailed.
Hair Care
The hair care category, although a smaller segment for ELC, experienced a 4% decline in net sales, bringing in $1.3 billion. As reported in the release, this decline was mainly attributed to “Aveda in North America, reflecting softness in the salon channel and the Company’s direct-to-consumer distribution channels.”
The company acknowledged the difficulties in this segment in its press announcement, but expressed confidence in its long-term potential, citing ongoing investments in product innovation and marketing.
Regional performance breakdown
The Americas
In the Americas, the company saw a mixed performance. While North America’s net sales remained flat, with declines in makeup partially offset by gains in fragrance, Latin America recorded double-digit growth “in nearly every market and product category, led by the Priority Emerging Markets of Mexico and Brazil,” the release confirmed.
“Net sales in Mexico increased double digits,” for example, “reflecting growth across all product categories, led by Makeup, and benefiting from key activations to support key shopping moments and new product innovation,” said the release. Further, “high-single-digit growth in Brazil was driven by double-digit growth in Makeup and Fragrance, fueled by advertising and promotional activities to support key campaigns, such as MAC’s launch of MACximal Silky Matte Lipstick.”
In North America, net sales performance “was primarily driven by the decline in Makeup, including a benefit in the prior year as a result of changes to MAC’s take-back loyalty program, partially offset by high-single-digit growth in Fragrance, led by the Company’s Luxury Brands.” Additionally, the release stated, “the performance in North America also reflected double-digit growth in specialty-multi and a benefit to online net sales from Clinique’s fiscal 2024 launch on the US Amazon Premium Beauty store, offset by declines in other channels of distribution, primarily department stores.”
EMEA
The EMEA region reported a solid performance, with growth in most markets, including the U.K., France, and the Middle East. The company attributed this growth to its continued focus on luxury brands and the expansion of its e-commerce capabilities in the region.
According to the company’s press release, “total net sales in the markets of EMEA grew low-single-digits, reflecting growth in Skin Care, Makeup and from the Company’s luxury fragrance brands, which drove double-digit growth in specialty-multi.”
APAC
The Asia/Pacific region remained a challenge for Estée Lauder, with net sales declining due to weak consumer sentiment in mainland China and a downturn in Asia travel retail. However, the company reported growth in other markets within the region, including Japan and South Korea, which helped to partially offset the declines.
As confirmed in the release, in the APAC region, ELC’s “operating income decreased, primarily due to the year-over-year increase in goodwill and other intangible asset impairments of $371 million relating to Dr.Jart+, the decline in net sales, a decrease of $43 million, which is offset by a corresponding increase in The Americas, due to a full-year true-up of charges among the Company’s geographic regions to reflect the updated value of investments in innovation centralized in The Americas, and partially offset by disciplined expense management.”
Strategic outlook for FY25
Fabrizio Freda, President and CEO of Estée Lauder, stated in the company’s press release, “While our sales and profit outlook for fiscal 2025 is disappointing, this year we will make important strides, as we implement our strategy reset to continue rebalancing regional growth, deliver improved annual profitability, and strengthen go-to-market and innovation capabilities to elevate our execution in response to a more competitive market.”
Freda also added that “these efforts, coupled with the strengths of our brands, product portfolio, and talented teams around the world, will position us to both outperform prestige beauty in fiscal 2026 and accelerate profitability expansion.”
For FY25, ELC has set a cautious outlook. They anticipate continued challenges, particularly within the prestige beauty segment in China, due to ongoing weak consumer sentiment, the company confirmed.
This softness in the Chinese market is expected to put pressure on the company’s overall profitability.
Despite these challenges, the company is focused on delivering improved performance in other regions and product categories. ELC plans to drive growth by reigniting its Skin Care category, capitalizing on high-end Fragrance opportunities, expanding into new markets, and leveraging innovative channels such as e-commerce.
They also aim to benefit from their Profit Recovery and Growth Plan, which is designed to optimize their cost structure and enhance agility. The plan includes a range of initiatives designed to streamline operations, reduce costs, and enhance efficiency across the organization.
Further strategic initiatives
In addition, the company is looking to capitalize on growth opportunities in the high-end fragrance sector, which has shown resilience even in a challenging economic environment. The company plans to launch new fragrances and expand its existing luxury fragrance brands into new markets.
Another key area of focus is the expansion of winning channels, particularly e-commerce and specialty retail. ELC is investing in its digital capabilities and is working to enhance its omnichannel presence to better serve consumers across various touchpoints.
Despite the challenges faced in FY24, ELC remains committed to its long-term growth strategy. By focusing on innovation, market expansion, and cost optimization, the company aims to navigate the current market environment and position itself for future success.
As the company continues to execute its strategic initiatives, it is well-positioned to drive growth and profitability in the years ahead, particularly as consumer sentiment improves and market conditions stabilize.
