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Estée Lauder Q1 2025 Analysis: Sales Fall, Dividend Cut, and Uncertainty in Asia

Stock Target Advisor News - Stock Target Advisor - Thu Oct 31, 7:08AM CDT

Estée Lauder Companies Inc (EL), a global leader in prestige beauty, recently reported its fiscal 2025 first-quarter results, revealing a challenging start to the fiscal year. Despite efforts to stabilize sales and margins, the company faces continued economic headwinds, especially in China and Asia’s travel retail sector, leading to a 4% decline in net sales, totaling $3.36 billion, and a net loss per share of $0.43.

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Key Insights from Estée Lauder’s Earnings Report:

Sales and Revenue: Estée Lauder reported a 4% decrease in net sales, with a sharper 5% drop on an organic basis. These declines are attributed to weakened consumer sentiment in China and lower sales in Asian travel retail.
Earnings Per Share (EPS): The company’s adjusted diluted EPS rose to $0.14, despite restructuring costs. However, without adjustments, the net diluted EPS fell to a loss of $0.43, partially due to a $159 million charge related to talcum litigation settlements.
Restructuring and Recovery Plan: Initiatives under Estée Lauder’s Profit Recovery and Growth Plan (PRGP) have provided some margin stability, but overall profitability remains affected by decreased sales.
Market Response: While markets like Japan showed growth, China’s slow recovery has led Estée Lauder to withdraw its full-year fiscal outlook, adding further uncertainty for the year.

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Positive Implications for Investors:

Investors may find some encouraging signs in Estée Lauder’s adjustments. The company’s Profit Recovery and Growth Plan has delivered some margin improvements, and new product launches within the skin care and fragrance categories have shown promise.

Skin care, in particular, saw growth in EMEA and the Americas, driven by popular nighttime products from the Advanced Night Repair and Revitalizing Supreme+ lines. Additionally, Estée Lauder has successfully expanded its online footprint, including launches on Amazon’s U.S. Premium Beauty store, signaling an attempt to diversify revenue streams and enhance direct-to-consumer sales.

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Negative Implications for Investors:

The major concern lies in Estée Lauder’s reliance on the Asia Pacific market, particularly China, where consumer sentiment remains low, affecting both retail and travel retail segments. The company also announced a dividend reduction, aiming to adjust to a more sustainable payout ratio, a change that reflects near-term profitability challenges. Estée Lauder’s decision to withdraw its fiscal 2025 outlook emphasizes the uncertainty in key markets, and litigation charges linked to talcum settlements have increased operating costs.

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Stock Target Advisor’s Analysis on Estée Lauder:

According to Stock Target Advisor, Estée Lauder’s stock outlook is Very Bearish with six negative indicators and no positive signals. The stock is currently priced at $87.15, reflecting a notable one-year drop of 60.29%. Despite a 12-month target price of $124.75 from analysts, Stock Target Advisor’s own projected price is $127.29, a potential rise, yet heavily contingent on stabilization in critical markets.

Conclusion:

Estée Lauder’s Q1 fiscal 2025 results highlight significant regional challenges, compounded by operational restructuring costs and talcum litigation expenses. Investors may view Estée Lauder as a long-term play if market stabilization occurs, but short-term caution is warranted given the current outlook and Stock Target Advisor’s very bearish stance.