05.03.23
Global beauty company The Estée Lauder Companies Inc. reported net sales of $3.75 billion for its third quarter ended March 31, 2023, a decline of 12% from $4.25 billion in the prior-year period, including the negative impact from foreign currency.
Organic net sales fell 8%, 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.
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.”
Revisit the company’s Q2 2023 results.
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.
“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,” commented Freda. “Moreover, we continued to grow our prestige beauty share in many markets, including a sequential acceleration in gains in China and Western Europe.”
Makeup net sales were virtually flat to the prior-year period, reflecting growth in most markets as they continued to evolve in recovery and as usage occasions increased, offset by the challenges and the slower than anticipated recovery of Asia travel retail from the Covid-19 pandemic. Net sales declined from Estée Lauder, partially offset by growth from M·A·C, Clinique and Tom Ford Beauty.
Fragrance net sales grew double digits, reflecting strong growth in every region and double-digit growth from Tom Ford Beauty, Le Labo and Estée Lauder.
Hair Care net sales increased 3%, reflecting growth from The Ordinary’s hair care products, partially offset by a decline from Aveda.
Reported net sales are forecasted to decrease between 12% and 10% versus the prior-year period.
Organic net sales fell 8%, 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.
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.”
Revisit the company’s Q2 2023 results.
Global Recovery from Covid-19
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.
“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,” commented Freda. “Moreover, we continued to grow our prestige beauty share in many markets, including a sequential acceleration in gains in China and Western Europe.”
Business Segments
Skin Care net sales declined 17%, primarily reflecting the slower than anticipated recovery of Asia travel retail from the Covid-19 pandemic. This included lower shipments to retailers in Hainan due to lower conversion of travelers to consumers and the slower than anticipated depletion of elevated levels of retailer inventory, as well as lower shipments to Korean duty free retailers primarily due to the transition to post-Covid regulations as traveling consumers gradually return. In Korea and 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. Net sales declined from La Mer, Estée Lauder and Dr.Jart+, partially offset by growth from The Ordinary and M·A·C.Makeup net sales were virtually flat to the prior-year period, reflecting growth in most markets as they continued to evolve in recovery and as usage occasions increased, offset by the challenges and the slower than anticipated recovery of Asia travel retail from the Covid-19 pandemic. Net sales declined from Estée Lauder, partially offset by growth from M·A·C, Clinique and Tom Ford Beauty.
Fragrance net sales grew double digits, reflecting strong growth in every region and double-digit growth from Tom Ford Beauty, Le Labo and Estée Lauder.
Hair Care net sales increased 3%, reflecting growth from The Ordinary’s hair care products, partially offset by a decline from Aveda.
Outlook
The Company expects organic net sales to return to growth in the fourth quarter, reflecting continued momentum of post-Covid recovery growth in nearly all markets globally. The impacts from the ongoing pressures in Asia travel retail, driven primarily by risks associated with the volatile and slower than originally anticipated pace of recovery, are expected to partially offset the growth in other markets.Reported net sales are forecasted to decrease between 12% and 10% versus the prior-year period.