Why Are Cosmetics Major Estee Lauder's Shares Diving Today?

Estee Lauder Companies Inc (NYSE: EL) shares are down Wednesday morning following its first quarter results and lackluster outlook.

The company reported a first-quarter FY24 sales decline of 10% year-on-year to $3.518 billion, missing the analyst consensus estimate of $3.529 billion.

Organic net sales declined 11%, primarily driven by expected pressures in the company's Asia travel retail business, as well as incremental headwinds from a slower-than-expected recovery of overall prestige beauty in mainland China.

Net sales in the Americas improved with strong growth in both North America and Latin America. Sales in Europe, Middle East & Africa dropped 27%, and Asia/Pacific fell 3%.

Net sales from Skin Care fell 22%, Makeup increased 1%, Fragrance rose 5%, and Hair Care decreased 6%.

Gross profit declined 16% Y/Y to $2.44 billion, with the margin contracting 440 basis points to 69.6%.

Operating expenses increased 5% to $2.35 billion, while the operating expense margin was 66.8% versus 57.2% last year.

Estee Lauder's operating income for the quarter was $98 million versus $661 million last year. The operating margin was 2.8%.

The company held $3.09 billion in cash and equivalents as of September 30, 2023.

Adjusted EPS of $0.11 beat the consensus estimate of $(0.20).

The company also declared a quarterly dividend of $.66 per share, payable on December 15, 2023, to stockholders of record at the close of business on November 30, 2023.

"While we had a better-than-expected first quarter, we are lowering our fiscal 2024 outlook given incremental external headwinds, namely from the slower growth in overall prestige beauty in Asia travel retail and in mainland China, which is currently confirmed in the pre-sale phase of the 11.11 Shopping Festival, and the risks of business disruption in Israel and other parts of the Middle East," said President and CEO Fabrizio Freda.

Outlook: Estee Lauder sees FY24 adjusted EPS of $2.17-$2.42 ($3.50 - $3.75 prior), against the consensus of $3.62. EL sees FY24 reported sales to be between a 2% decline - 1% increase (prior view: increase of 5%-7%).

Estee Lauder expects Q2 FY24 adjusted EPS of $0.48 - $0.58 against the consensus of $1.25. Q2 FY24 revenue to decline 9% - 11%.

Price Action: EL shares traded lower by 16.61% at $107.47 premarket Wednesday.