Estee Lauder Q1 FY2025 Earnings Not Set to be Pretty. Here’s Why

TradingKey - For those who are concerned about the state of their skin and looking for associated beauty products, then Estee Lauder Companies Inc (NYSE: EL) is one of the world’s largest purveyors of beauty products. The company, which is an American cosmetics, makeup, skincare, and haircare giant, has been around for nearly 80 years.

In recent years, though, Estee Lauder has faced issues as ongoing weakness in key markets in Asia – particularly China – have weighed on the stock. Indeed, Estee Lauder shares are down more than 75% from their all-time high (set in January 2022) as investors become wary over whether the company’s fortunes can be turned around.

Those looking for a successful outcome will soon have more clarity on whether the company is making progress. That’s because Estee Lauder is set to report its Q1 fiscal year 2025 (FY2025) earnings – for the three months ending 30 September 2024 – on Thursday (31 October) before the market opens in the US. However, it’s not set to be a pretty earnings report and here’s why that’s the case.

Poor forecast for FY2025

When the company released its Q4 FY2024 earnings in August, the company put out a FY2025 sales forecast that came in below expectations. Estee Lauder said that it expected to see sales fall as much as 1% or rise 2% in FY2025 (for the 12 months ending 30 June 2025) and that saw shares in the beauty firm slip slightly.

Estee Lauder also projected adjusted profit per share of between US$2.75 and US$2.95 for FY2025, well below analysts’ expectations at the time of US$3.96. 

For its latest Q4 FY2024 period, the company did see organic net sales rise 8% year-on-year to US$2.04 billion but it was a mixed picture in terms of performance by geography. A large part of the increase came from sales in its global travel retail business as well as its Europe, Middle East, and Africa (EMEA) market.

This was partially offset by a 5% decline in organic sales for its Americas business as well as a 4% drop in organic sales for its Asia-Pacific business, mainly driven by a decline in Mainland China. Indeed, CEO Fabrizio Freda said in August that the company “anticipated continued declines in the prestige beauty segment in China, mainly reflecting persistent weak sentiment among Chinese consumers”.

Succession questions for the C-suite

During its most recent earnings announcement in August, it was announced that CEO Freda would be departing and he is due to step down on 30 June 2025. He was named CEO in 2009 and has been in the top job at Estee Lauder for over 15 years.

In recent days, news has come out that Estee Lauder’s board have selected insider Stephane de la Faverie to take over the CEO role when Freda departs next year. Investors could see more clarity and information on this transition when the company announces its earnings.

In addition to CEO Freda departing, it was also announced earlier this year that Estee Lauder CFO Tracey Travis would be leaving the company after 12 years. With the top two positions now in transition, it could be an opportunity for a fresh business strategy from an incoming CEO and CFO. Current CEO Freda has built up Estee Lauder’s business partly by acquiring well-known brands such as Dr. Jart and The Ordinary.

Investors will be looking for any signs that the decline in China sales could be close to turning around or whether this sales weakness in one of its largest markets is set to persist. That has been one of the key reasons for Estee Lauder’s poor share price performance.

So far this year, Estee Lauder shares have fallen 39% and are trailing the S&P 500 Index’s gain of 22.8% over the same period.