Shares of Estée Lauder (NYSE: EL) were taking a dive today as the cosmetics giant continued to struggle with weakness in China as the company also cut its dividend and pulled its guidance for the fiscal year, reflecting a lack of visibility into the China situation and a need to reinvest in the business.
The stock was down 19.3% on the news as of 12:38 p.m. ET.
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Estée Lauder's challenges continue
Estée Lauder, which owns brands like Aveda, Clinique, La Mer, and Mac, reported a decline in organic sales of 5% and revenue of 4% to $3.36 billion, which essentially matched the consensus at $3.37 billion.
The company blamed worsening consumer sentiment in China that hit the prestige beauty segment, as well as weakness in travel retail, or duty-free. It did report growth in Japan and emerging markets.
On a generally accepted accounting principles (GAAP) basis, the company reported a loss of $156 million due to charges related to a talcum litigation settlement, while adjusted EPS came in at $0.14, up from $0.13 in the quarter a year ago, and ahead of the consensus at $0.09.
However, the bigger news was that Estée Lauder slashed its dividend from $0.66 to $0.35 a quarter, a move management said was designed to give the company more financial flexibility, especially as a new leadership team is set to take over.
Management also cited difficulty in forecasting the recovery in China and Asia travel retail.
What's next for Estée Lauder?
Management did give guidance for the current quarter, but withdrew it for the full year due to the uncertainty in China.
For the current quarter, it expects an organic net sales decline of 6%-8% and adjusted earnings per share of $0.20-$0.35, which is down 60%-77% from the quarter a year ago.
Clearly, Estée Lauder is facing a number of challenges, and China's weakness has affected most consumer companies doing business there. It's unclear when the Chinese economy is going to bounce back. Until there are clear signs of that, Estée Lauder stock is best avoided.
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Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
