13. The Estée Lauder Companies Inc. (NYSE:EL)
Consensus ROE: 24%
Number of Hedge Fund Investors in Q2 2024: 47
The Estée Lauder Companies Inc. (NYSE:EL) is one of the most well known consumer beauty products companies in the world. Since it is a prestige beauty brand company, naturally, the shares do not perform well when inflation is high. This has been the case recently, as The Estée Lauder Companies Inc. (NYSE:EL)’s shares have lost 34.7% and 32.51% year to date and over the past twelve months, respectively. A large portion of this underperformance has been because of the firm’s woes in China where economic troubles have been more severe and longstanding compared to the West. During its fiscal year 2024, The Estée Lauder Companies Inc. (NYSE:EL)’s Asia/Pacific sales dropped by 6% annually, and the firm attributed the drop primarily to China. Asia/Pacific accounted for 31% of the firm’s sales in FY24, making the drops hard hitting on its impact statement. Travel retail is another troubled segment for The Estée Lauder Companies Inc. (NYSE:EL), and a drop in Asia sales further impacted earnings.
With the overall sentiment remaining dour, here’s what The Estée Lauder Companies Inc. (NYSE:EL) shared for its FY25 outlook during the Q4 FY24 earnings call:
“Looking ahead, our fiscal year 2025 outlook reflects continued declines in the prestige beauty industry in China and Asia travel retail. While the PRGP, which remains on track relatively to our previously stated goals, enable us to offset the pressure to profitability from declines in areas of our business that have high penetration of skin care, it yields a slower pace of operating margin expansions for fiscal year 2025 than we had previously expected when we expanded the PRGP in February.
For fiscal year 2025, in the rest of our global business, we are planning to deliver improved performance across both developed and emerging markets. To fuel this, our strategic priorities are reigniting skin care, capitalizing on the multiple growth drivers of high-end fragrance, moving faster in leveraging winning channels, launching accretive innovation inclusive of new, big opportunities and enhancing our precision marketing capabilities for increased effectiveness and efficiency of our consumer facing investments. The PRGP enables and accelerates these strategy priorities and is the foundation to restore sustainable long-term organic sales growth and to rebuild our operating profitability. We are also creating a faster and leaner organization that will more quickly adapt to market dynamics and be better able to leverage future growth.
While our sales and profit outlook for fiscal year 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, strengthen go-to-market and innovation capabilities to elevate our execution in response to a more competitive market. These efforts will position us to both outperform the prestige beauty industry in fiscal year 2026 and accelerate profitability expansion.”
