Estee Lauder Cos Inc has updated its profit forecast for the year, citing the impact of COVID-19 restrictions in China and the suspension of operations in Russia due to the Ukraine crisis. Initially, the news caused a drop of 12.7% in the company’s shares; however, they recovered slightly after executives announced plans to increase prices in July to offset rising costs.

China, a significant market for luxury goods makers, has been hit by recent restrictions that have hampered the recovery of the cosmetics industry from the pandemic-induced slump. Consequently, Estee Lauder has not met third-quarter sales estimates. The limitations in China have also affected the company’s ability to fulfill orders from its distribution facilities, resulting in a decline in Asia-Pacific sales for the first time in almost two years.

In contrast, Estee Lauder’s French rival, L’Oreal, exceeded sales estimates last month due to strong demand in Europe and North America, which helped offset the impact of lockdowns in China. According to analysts at Jefferies, China accounts for approximately 36% of Estee Lauder’s sales compared to around 20% for L’Oreal. The brokerage firm noted that Estee Lauder’s weaker China sales forecast for the fourth quarter does not bode well for L’Oreal despite its smaller exposure to the Chinese market.

Nevertheless, Estee Lauder remains confident in its ability to bounce back from the slowdown in China. The company believes that demand for high-end cosmetics remains resilient, even amidst concerns about inflation and an economic downturn. Fabrizio Freda, Estee Lauder’s CEO, emphasized that the luxury segment of the business is showing exceptional growth, indicating that consumers are not overly worried about the state of the economy.

Due to the challenges presented by COVID-19 restrictions and the geopolitical situation involving Russia and Ukraine, Estee Lauder has adjusted its projections for the full year. Net sales are now expected to increase by 7% to 9%, a revision from the previous forecast of 13% to 16% growth. The adjusted annual profit is estimated to be between $7.05 and $7.15 per share, lower than the previous outlook of $7.43 to $7.58 per share. Despite these adjustments, Estee Lauder maintains an optimistic view of its long-term prospects in the cosmetics industry.

Useful links:
1. Estee Lauder Company Statistics
2. Estee Lauder’s forecast and price increase announcement