FINANCIAL RESULTS GLOBAL
NEW YORK, UNITED STATES
By IFAB MEDIA - NEWS BUREAU - May 4, 2023 | 19 6 minutes read
The Estée Lauder Companies Inc. reported net sales of $3.75 billion for its third quarter ended March 31, 2023, a decline of 12 percent from $4.25 billion in the prior-year period, including the negative impact from foreign currency. Organic net sales fell 8 percent, primarily driven by Asia travel retail in Hainan and Korea. Partially offsetting the pressures affecting the Company’s Asia travel retail business, organic net sales grew in nearly every market, including the developed markets of the United States, the United Kingdom and Hong Kong, and in emerging markets globally. The Fragrance category grew double digits.
The company reported net earnings of $156 million, compared with net earnings of $558 million in the prior-year period2. The company’s reported effective tax rate was 44.6 percent in the quarter, compared to 18.5 percent in the prior-year period. The increase in rate was primarily due to the expected change in the Company’s geographical mix of earnings for fiscal 2023. Diluted net earnings per common share was $.43, compared with $1.53 reported in the prior-year period. Excluding restructuring and other charges and adjustments as detailed on page 3, adjusted diluted net earnings per common share declined 75 percent to $.47, decreasing 74 percent in constant currency. The reported and adjusted declines include a negative impact of 3 percent from certain foreign currency transactions in key international travel retail locations.
Fabrizio Freda, President and Chief Executive Officer said, “In the context of a quarter which we anticipated to be challenging, we are pleased to have delivered the high-end of our outlook for the third quarter of fiscal 2023. Our developed and emerging markets grew strongly and exceeded our expectations to offset an even slower-than-expected recovery in Asia travel retail. Each of The Americas and Asia/Pacific returned to organic sales growth, bolstered by increases in the United States and China, while the markets of EMEA continued to prosper. Moreover, we continued to grow our prestige beauty share in many markets, including a sequential acceleration in gains in China and Western Europe."
“As the shape of recovery from the pandemic for Asia travel retail comes into better focus, it is proving to be both far more volatile than we expected and more gradual relative to what we experienced in other regions. We are, therefore, lowering our organic sales and EPS outlook for fiscal 2023 to reflect significantly greater headwinds in our fourth quarter than we expected in February.”
Freda concluded, “While we work through the serious but we believe temporary headwinds facing Asia travel retail, we are encouraged by the strong momentum in the rest of our business. Indeed, consumer demand is robust for our diverse portfolio of brands in developed and emerging markets around the world, evidenced in both organic sales growth and retail sales trends, which drives our confidence in the long-term. What is more, we are thrilled to have acquired the TOM FORD brand last week and are optimistic about its promising growth opportunities.”
During the fiscal 2023 third quarter, the phase and pace of recovery from the COVID-19 pandemic continued to vary across markets globally. In the West, in both developed and emerging markets, the momentum of post-COVID recovery growth continued with strong organic net sales performance in The Americas and markets in Europe, the Middle East & Africa, excluding travel retail. In Asia/Pacific, markets emerged from COVID restrictions more gradually and over a longer period of time, compared to the pace of recovery experienced in the West. These markets continued to evolve in recovery during the fiscal 2023 third quarter, evidenced by strong organic net sales growth in nearly all Asia/Pacific markets.
While the Company saw recovery in many markets globally, its Asia travel retail business continued to be pressured by the slower than anticipated recovery from the COVID pandemic. Specifically, in Hainan, while traffic into the island exceeded prior year levels, conversion of travelers to consumers in prestige beauty lagged. This led to the slower than anticipated depletion of elevated levels of retailer inventory and, therefore, lower replenishment orders. In Korea, the shipments to duty free retailers were pressured owing to the transition to post-COVID regulations as traveling consumers gradually return. In Korea, as well as in Asia more broadly, the travel retail recovery was challenged by the slower than anticipated resumption of international flights, granting of visas, and organized group tours.
In mainland China, organic net sales grew in the fiscal 2023 third quarter. While January 2023 was pressured by low retail traffic and retailer destocking from the rise in COVID cases that began in November 2022 and continued into January 2023, organic net sales returned to growth, rising double digits in February and March 2023. However, prestige beauty growth was slower than expected for the fiscal 2023 third quarter.
Finally, the Company’s business also continued to be pressured by the strong U.S dollar, historically high inflation and recession concerns.
Fiscal 2023 Third quarter results Reported net sales decreased 12 percent, including the impact of the license terminations related to certain of the Company’s designer fragrances and the negative impact from foreign currency translation.