Estée Lauder Cos Inc’s stock suffered a blow on Wednesday after the company released a disappointing forecast for the full year of 2023. Many analysts had anticipated stronger results, given the rebound of travel retail as Covid-19 restrictions began to ease globally and in China. However, Estée Lauder pointed to a slower-than-expected recovery in Asia travel retail, particularly in the crucial market of China, as the reason for revising its annual forecasts.

In contrast, European competitors LVMH and L’Oréal reported a rise in sales for the first quarter, largely due to increased demand in the Chinese region. This divergence has raised concerns among investors and industry insiders. Barclays analyst Lauren Lieberman expressed surprise at Estée Lauder’s profit forecast and cast doubt on the company’s control and visibility in its end-market sales through the travel retail channel in Asia.

Estée Lauder explained that although major shopping districts like Hainan and Korea experienced higher foot traffic, the conversion of travelers into consumers in the luxury beauty sector lagged behind. Additionally, the company faced challenges in January 2023 which included low retail traffic and retailers destocking due to a surge in Covid-19 cases.

Previous quarters also saw Estée Lauder’s sales impacted by US retailers tightening inventories of its products. However, the company did manage to achieve a 6 percent increase in organic net sales in the Americas, indicating steady demand for popular brands like Jo Malone and Bobbi Brown.

One of the factors putting pressure on Estée Lauder’s profits is the strength of the US dollar. As a company with global operations that converts foreign currencies into the US dollar, the appreciation of the dollar negatively affects its earnings.

Estée Lauder now expects a decline in net sales of 10 to 12 percent for the full year of 2023, compared to the previous forecast of a 5 to 7 percent decrease. Adjusted profit per share is projected to decline by 50 to 51 percent, compared to the previous estimate of a 27 to 29 percent decrease. However, the company did manage to surpass expectations for third-quarter sales, though it fell short of profit estimates.

Additional Information:
Investors and analysts are closely watching the performance of Estée Lauder as it faces challenges in the Asian travel retail market and the impact of a stronger US dollar. The company’s ability to adapt to changing consumer behaviors and navigate the recovery from the pandemic will be crucial in determining its future success.

Useful Links:
1. Estée Lauder Official Website
2. BBC Article: Estée Lauder’s Forecast Disappoints Analysts