Why Cosmetics Major Estee Lauder Shares Are Rocketing Premarket Monday

The Estee Lauder Companies Inc EL shares are shooting premarket today after the company reported better-than-expected second-quarter FY24 results.

The company reported a sales decline of 7% Y/Y to $4.279 billion, beating the analyst consensus estimate of $4.194 billion.

Organic net sales declined 8% Y/Y, primarily due to challenges in Asia travel retail and continued weakness in overall prestige beauty in Mainland China.

By geographies, organic sales in the Americas fell 1% Y/Y due to a decline in North America; Europe, Middle East & Africa dropped 14% Y/Y; and Asia/Pacific fell 7% Y/Y.

By product category, organic sales in Skin Care fell 10% Y/Y, Makeup declined 8% Y/Y, Hair Care decreased 6% Y/Y, and Fragrance remained flat Y/Y.

Gross profit declined 8% Y/Y to $3.13 billion, with the margin contracting to 73.0% from 73.6% a year ago.

Operating expenses fell 10% Y/Y to $2.55 billion, while the operating expense margin was 59.6% versus 61.6% last year.

Estee Lauder’s operating income rose 3% Y/Y to $574 million, with the operating margin expanding to 13.4% from 12.0% the prior-year quarter.

Adjusted EPS of $0.88 beat the consensus estimate of $0.55.

The company held $3.94 billion in cash and equivalents as of December 31, 2023.

Dividend: The company also declared a quarterly dividend of $0.66 per share, payable on March 15, 2024, to stockholders of record at the close of business on February 29, 2024.

Outlook: Estee Lauder revised its FY24 adjusted EPS outlook to $2.08-$2.23 (from $2.17-$2.42), against the consensus of $2.33 and revised reported sales guidance to a 1% decline – 1% increase (prior view: 2% decline – 1% increase).

Estee Lauder expects third quarter adjusted EPS of $0.36 – $0.46 against the consensus of $0.81 and reported net sales to increase by 3%-5%.

Profit Recovery Plan: The company further expanded its Profit Recovery Plan for fiscal years 2025 and 2026 to include a restructuring program.

The company’s restructuring program aims to boost gross margin, lower the cost base and overhead expenses and increase investments in key consumer-facing activities.

In particular, the company aims to reduce its positions by around 3%-5% as of June 30, 2023.

Estee Lauder expects the restructuring program to begin in the third quarter of FY24 and specific initiatives to be substantially completed by the end of FY26.

Post completion, Estee Lauder projects restructuring and other charges of $500 million-$700 million (before taxes) and anticipates the program to generate annual gross benefits of $350 million-$500 million (before taxes).

The company sees the initiatives to drive incremental operating profit of $1.1 billion to $1.4 billion, including net benefits from the restructuring program (vs. $800 million to $1 billion expected earlier). 

Estee Lauder projects the plan to realize nearly all the expected benefits in FY25 and FY26, more than half of which is expected to benefit FY25 operating profitability.

Price Action: EL shares are up 16.4% at $156.10 premarket on the last check Monday.

Photo via Wikimedia Commons