Net Sales Decreased 4% and Diluted Net EPS
Decreased to Net Loss Per Share of $.43
Organic Net Sales1 Decreased 5% and Adjusted
Diluted EPS Increased to $.14
Withdrawing Fiscal 2025 Outlook Amid
Incremental Uncertainty on Timing of Stabilization in
Mainland China Market and Asia Travel Retail as well as in the
Context of Leadership Changes
Reducing Dividend to a More Appropriate
Payout Ratio
The Estée Lauder Companies Inc. (NYSE: EL) today reported net
sales of $3.36 billion for its first quarter ended September 30,
2024, a decrease of 4% from $3.52 billion in the prior year.
Organic net sales decreased 5% primarily due to worsened consumer
sentiment in China that drove further softening in overall prestige
beauty in mainland China and low conversion rates in Asia travel
retail and Hong Kong SAR. In addition, lower replenishment orders
in Asia travel retail, including inventory pressure given the
further retail market deceleration, impacted organic net sales.
Partially offsetting these declines was growth in several markets,
including Japan and the Company’s Priority Emerging Markets2.
The Company reported a net loss of $156 million, compared with
net earnings of $31 million in the prior year, primarily due to
charges associated with talcum litigation settlement agreements of
$159 million in the aggregate, which includes charges for current
and potential future claims with certain plaintiff law firms. These
agreements relate to the settlement of approximately 70% of talcum
litigation cases that were outstanding during the fiscal 2025 first
quarter, and also provide for settling potential future cases with
these firms, at annual capped amounts, starting on January 1, 2025
for five years. The change also reflects charges associated with
the Restructuring Program component of the Company’s Profit
Recovery and Growth Plan (“PRGP”). Diluted net loss per common
share was $.43, compared with net earnings per common share of $.09
reported in the prior year. Excluding restructuring and other
charges and adjustments as detailed on page 3, net income was $52
million and adjusted diluted net earnings per common share
increased to $.14 and rose 7% in constant currency.
1Organic net sales represents net sales
excluding returns associated with restructuring and other
activities; non-comparable impacts of acquisitions, divestitures
and brand closures; as well as the impact from foreign currency
translation. The Company believes that the Non-GAAP measure of
organic net sales growth provides year-over-year sales comparisons
on a consistent basis. See page 2 for reconciliations to GAAP.
2The Company’s Priority Emerging Markets
by geographic region: The Americas: Brazil and Mexico; EMEA: India,
the Middle East, Turkey and South Africa; and Asia/Pacific:
Thailand, Malaysia, Vietnam, Indonesia and the Philippines.
Fabrizio Freda, President and Chief Executive Officer said, “Our
first quarter results are largely aligned with our outlook on an
adjusted basis, despite the fact that the expected headwinds in
China and Asia travel retail were greater than anticipated. Our
Profit Recovery and Growth Plan drove gross margin expansion, which
was partially offset by operating deleverage. Other pillars of our
strategic reset also delivered promising initial results.
“As we reignite Skin Care, our night-time innovations proved
highly sought after, driving strong organic sales growth for the
category in the markets of EMEA as well as strong share gains for
the second consecutive quarter in prestige Skin Care in China, led
by La Mer. We advanced our ambitions to capitalize on the multiple
growth drivers of Fragrance. We expanded consumer reach of our
luxury and artisanal portfolio and launched BALMAIN Beauty, as we
aim to strengthen our strategic leadership in luxury Fragrance,
demonstrated in the quarter by having become the top-ranked company
in Japan in the category driven by Le Labo and Jo Malone London.
Moreover, we set the stage to reaccelerate our growth in the
prestige tier of Fragrance. We also made great strides in our
pursuit of moving faster to leverage winning channels, most notably
in the U.S. having delivered a sequential acceleration of retail
sales growth in the first quarter. And, just last week we further
demonstrated our execution of this pillar, as our Estée Lauder
flagship brand debuted in the U.S. Amazon Premium Beauty store.
“While we believe the new economic stimulus measures in China
present medium- to long-term potential for stabilization and
ultimately growth in prestige beauty, we anticipate still-strong
declines near-term for the industry in China and Asia travel
retail. In the rest of our business, we continue to expect the
ongoing normalization of growth in prestige beauty, most notably in
North America. With this complex industry landscape, including the
particular difficulty in forecasting the timing of market
stabilization and recovery in China and Asia travel retail, and in
the context of leadership changes, we are solely issuing an outlook
for the second quarter and withdrawing our fiscal 2025 outlook.
Additionally, we are reducing our dividend to a more appropriate
payout ratio, which will also create more financial flexibility for
our incoming leadership team to reaccelerate our profitable growth
trajectory.”
With regard to the Company’s recent CEO succession plan
announcement, Freda emphasized, “Having worked alongside Stéphane
for many years, I am thrilled to welcome him as our next President
and CEO effective January 1, 2025, and look forward to supporting a
seamless transition for the next several months. In an industry as
dynamic as prestige beauty, Stéphane’s deep knowledge, exceptional
strength as a leader, and unique ability to combine inspiration,
authenticity, and strategic insights to drive profitable growth
will enable him to move us forward with speed and agility.”
Fiscal 2025 First Quarter
Results Reported net sales decreased 4%, including the
impact from foreign currency translation.
Reconciliation between GAAP
and Non-GAAP Net Sales Growth
(Unaudited)
Three Months Ended September
30, 2024(1)
As Reported - GAAP
(4
)%
Impact of foreign currency translation
(1
)
Returns associated with restructuring and
other activities
—
Organic, Non-GAAP
(5
)%
(1)Percentages are calculated on an
individual basis
Adjusted diluted net earnings per common share excludes
restructuring and other charges and adjustments as detailed in the
following table.
Reconciliation between GAAP
and Non-GAAP - Diluted Net Earnings (Loss) Per Common Share
(“EPS”)
(Unaudited)
Three Months Ended
September 30
2024(1)
2023
Growth
As Reported Net Income (Loss) Per
Common Share - GAAP
$
(.43
)
$
.09
(100
+)%
Non-GAAP
Restructuring and other charges
.23
—
Change in fair value of DECIEM
acquisition-related stock options (less the portion
attributable to redeemable noncontrolling
interest)
—
.02
Talcum litigation settlement
agreements
.34
—
Adjusted EPS - Non-GAAP
$
.14
$
.11
33
%
Impact of foreign currency translation on
earnings per share
(.02
)
Adjusted Constant Currency EPS -
Non-GAAP
$
.12
$
.11
7
%
(1)For the three months ended September
30, 2024 the effects of potentially dilutive stock options,
performance share units, and restricted stock units of
approximately 1.2 million shares, were excluded from the
computation of As Reported and adjustments to Non-GAAP diluted loss
per common share as they were anti-dilutive due to the net loss
incurred during the period. These shares were added to the
weighted-average common shares outstanding to calculate Non-GAAP
diluted earnings per common share.
The Company announced its PRGP in November 2023, and initiatives
under the plan are currently underway, delivering net benefits in
the fiscal 2025 first quarter that primarily improved cost of sales
and resulted in gross margin expansion compared to the prior year.
Partially offsetting these benefits was operating deleverage due to
the decline in net sales.
Total reported operating loss was $121 million, a decrease from
operating income of $98 million in the prior year. In constant
currency, adjusted operating income increased 23% to $133 million,
excluding the following items and primarily reflecting lower cost
of sales and operating expenses, partially offset by lower net
sales:
- Fiscal 2025 first quarter:
- $159 million of aggregate charges associated with the talcum
litigation settlement agreements.
- $106 million of restructuring and other charges associated with
the Restructuring Program component of the PRGP.
- Fiscal 2024 first quarter: $10 million of restructuring and
other charges and adjustments.
- The favorable impact of foreign currency translation of $11
million.
During the fiscal 2024 second quarter, the Company identified
and corrected prior-period misclassifications of net sales and
operating income between certain of its product categories. As a
result, product category net sales and operating income have been
adjusted from the amounts previously reported for the three months
ended September 30, 2023 for comparability purposes. The
misclassifications had no impact on the prior-period consolidated
statements of earnings, consolidated statements of comprehensive
income, consolidated balance sheets, or the consolidated statements
of cash flows, and the Company determined that the impact on its
previously issued financial statements for the respective period
was not material. See the Q2 2024 Quarterly Earnings section of the
Company’s website for supplemental information relating to the
impacts of these misclassifications.
Results by Product
Category
(Unaudited)
Three Months Ended September
30
Net Sales
Percentage Change(1)
Operating Income
(Loss)
Percentage Change
($ in millions)
2024
2023
Reported Basis
Impact of Foreign Currency
Translation
Organic Net Sales
(Non-GAAP)
2024
2023
Reported Basis
Skin Care
$
1,529
$
1,640
(7
)%
(1
)%
(8
)%
$
117
$
37
100
+%
Makeup
1,038
1,062
(2
)
—
(2
)
(185
)
(40
)
(100
+)
Fragrance
630
636
(1
)
—
(1
)
60
107
(44
)
Hair Care
139
148
(6
)
—
(6
)
(18
)
(22
)
18
Other
25
32
(22
)
—
(22
)
11
18
(39
)
Subtotal
$
3,361
$
3,518
(4
)%
(1
)%
(5
)%
$
(15
)
$
100
(100
+)%
Returns/charges
associated with
restructuring and
other activities
—
—
(106
)
(2
)
Total
$
3,361
$
3,518
(4
)%
(1
)%
(5
)%
$
(121
)
$
98
(100
+)%
Non-GAAP Adjustments to As Reported
Operating Income (Loss):
Returns/charges associated with
restructuring and other activities
106
2
Skin Care - Change in fair value of DECIEM
acquisition-related stock options
—
8
Makeup - Talcum litigation settlement
agreements
159
—
Adjusted Operating Income -
Non-GAAP
$
144
$
108
33
%
(1) Percentages are calculated on an individual basis.
The product category net sales commentary below reflects organic
performance, excluding the (positive) impacts which are reflected
in the preceding table.
Skin Care
- Skin Care net sales decreased 8%, primarily due to worsened
consumer sentiment in China that drove further softening in overall
prestige beauty in mainland China and low conversion rates in Asia
travel retail and Hong Kong SAR. In addition, lower replenishment
orders in Asia travel retail, including inventory pressure given
the further retail market deceleration, impacted organic net sales.
The category’s performance was driven by double-digit declines from
La Mer and Estée Lauder, primarily due to the aforementioned
challenges.
- Partially offsetting the declines in Estée Lauder in mainland
China and Hong Kong SAR were:
- Net sales growth in Europe, the Middle East & Africa
(“EMEA”) and, to a lesser extent, The Americas, benefiting from new
product innovation within the Advanced Night Repair and
Revitalizing Supreme+ product franchises, which are strategically
focused on nighttime skin care.
- The net sales growth in The Americas reflected shipments for
the brand’s October 2024 launch in Amazon’s U.S. Premium Beauty
store.
- Skin Care operating income increased, primarily due to lower
cost of sales and disciplined expense management, partially offset
by the decline in net sales.
Makeup
- Makeup net sales decreased 2%, led by M·A·C and Too Faced,
partially offset by Clinique.
- Net sales from M·A·C declined high-single-digits, reflecting
softness in the brand’s retail sales in North America, resulting in
lower replenishment orders. The ongoing business disruptions in the
Middle East also contributed to the brand’s decline in net
sales.
- Too Faced net sales decreased, primarily in North America.
- Net sales from Clinique increased double digits globally, with
growth across all geographic regions, benefiting from continued
strength in the lip subcategory, led by the Clinique Pop and Almost
Lipstick product franchises and fueled by new product innovation,
along with the fiscal 2024 third quarter launch in Amazon’s U.S.
Premium Beauty store.
- Makeup operating loss increased, due to $159 million in
aggregate charges relating to the talcum litigation settlement
agreements.
Fragrance
- Fragrance net sales decreased 1%, driven by the challenges in
the Company’s global travel retail business, partially offset by
growth in both Asia/Pacific and collectively in the markets of
EMEA. Reported and organic net sales from the Company’s Luxury
Brands3, excluding its global travel retail business, grew
mid-single-digits in total compared to the prior year, reflecting
strategic investments to support direct-to-consumer expansion,
particularly freestanding stores.
- Net sales from TOM FORD declined high-single-digits, reflecting
the brand’s retail softness in North America that led to lower
replenishment orders as well as the challenges in the Company’s
global travel retail business.
- Net sales from the Company’s Prestige Brands4 declined double
digits, primarily driven by challenges in the Company’s global
travel retail business.
- Jo Malone London net sales were flat, driven by the challenges
in the Company’s global travel retail business, offset by growth in
the rest of the business owing to new product innovation, including
Orange Marmalade and Hinoki & Cedarwood, as well as existing
products, such as Cypress & Grapevine primarily owing to the
franchise’s strategic focus on men.
- Net sales from Le Labo increased double digits, primarily
driven by continued success of the Classic Collection as well as
the annual City Exclusive event, including new product innovation,
and benefited from targeted expanded consumer reach, including
direct-to-consumer, globally.
- Fragrance operating income declined, primarily driven by
strategic investments to support targeted expanded consumer reach
globally and the growth of the Company’s Luxury Brands through
advertising and promotional activities, including the fiscal 2025
launch of BALMAIN Beauty.
Hair Care
- Hair Care net sales decreased 6%, primarily driven by Aveda,
reflecting the timing of shipments and continued softness in the
Company’s North America salon channel.
- Hair Care operating loss decreased, reflecting lower cost of
sales and disciplined expense management, partially offset by the
decline in net sales.
3In fiscal 2025, the Company expanded its
Luxury fragrance brand portfolio with the launch of BALMAIN
Beauty.
4The Company’s Prestige fragrance brands
are Estée Lauder, Clinique and Aramis.
Results by Geographic
Region
(Unaudited)
Three Months Ended September
30
Net Sales
Percentage Change(1)
Operating Income
(Loss)
Percentage Change
($ in millions)
2024
2023
Reported Basis
Impact of Foreign Currency
Translation
Organic Net Sales
(Non-GAAP)
2024
2023
Reported Basis
The Americas
$
1,187
$
1,208
(2
)%
1
%
(1
)%
$
(168
)
$
(182
)
8
%
Europe, the
Middle East &
Africa
1,230
1,252
(2
)
(2
)
(4
)
90
144
(38
)
Asia/Pacific
944
1,058
(11
)
(1
)
(11
)
63
138
(54
)
Subtotal
$
3,361
$
3,518
(4
)%
(1
)%
(5
)%
$
(15
)
$
100
(100
+)%
Returns/charges
associated with
restructuring and
other activities
—
—
(106
)
(2
)
Total
$
3,361
$
3,518
(4
)%
(1
)%
(5
)%
$
(121
)
$
98
(100
+)%
Non-GAAP Adjustments to As Reported
Operating Income (Loss):
Returns/charges associated with
restructuring and other activities
106
2
The Americas - Change in fair value of
DECIEM acquisition-related stock options
—
8
The Americas - Talcum litigation
settlement agreements
159
—
Adjusted Operating Income -
Non-GAAP
$
144
$
108
33
%
(1) Percentages are calculated on an individual basis.
The geographic region net sales commentary below reflects
organic performance, excluding the negative/(positive) impacts
which are reflected in the preceding table.
The Americas
- Net sales decreased 1%, reflecting challenges in North America,
partially offset by growth in Latin America.
- In North America, net sales decreased 1%, primarily reflecting
declines from M·A·C, Aveda, TOM FORD and Too Faced, as previously
mentioned. These pressures were partially offset by the launch of
seven brands to date in Amazon’s U.S. Premium Beauty store,
including shipments for Estée Lauder’s launch in October 2024,
contributing to the Company’s double-digit online growth in the
United States. The Company’s retail sales growth in the United
States accelerated sequentially in the fiscal 2025 first quarter,
to low single-digit growth.
- Latin America net sales growth was fueled by high-single-digit
growth in Brazil, with particular strength in Makeup.
- Operating loss in The Americas decreased, primarily reflecting
lower cost of sales and the favorable year-over-year impact of net
intercompany activity, largely offset by $159 million of aggregate
charges associated with the talcum litigation settlement
agreements.
Europe, the Middle East &
Africa
- Net sales decreased 4%, driven by a double-digit decline in the
Company’s global travel retail business due to lower replenishment
orders in Asia travel retail reflecting i) the challenging retail
environment, including worsened consumer sentiment in China, ii)
travelers diverting spending toward experiences, which continued to
dampen conversion for beauty products, and iii) inventory pressure
given the further retail market deceleration.
- Net sales grew low-single-digits collectively in the markets of
EMEA, primarily driven by the success of both hero products and new
innovation in Skin Care, which fueled double-digit online
growth.
- Operating income decreased, reflecting the unfavorable
year-over-year impact of net intercompany activity and the decline
in net sales as well as strategic investments aimed at driving
growth, including targeted expanded consumer reach and new product
innovation.
Asia/Pacific
- Net sales decreased 11%, led by mainland China and Hong Kong
SAR, partially offset by double-digit growth in Japan.
- Mainland China net sales decreased double digits, reflecting
the impacts from further softening in overall prestige beauty due
in large part to worsened consumer sentiment. The Company gained
prestige beauty share in mainland China, led by Skin Care, for the
second consecutive quarter.
- In Hong Kong SAR, net sales declined double digits primarily
due to lower replenishment orders resulting from low conversion
rates among traveling consumers, given worsened consumer
sentiment.
- Net sales in Japan increased across all major product
categories, led by Fragrance, driven by both domestic and traveling
consumers, fueling continued growth in nearly all channels of
distribution. The Company’s retail sales grew double digits in the
fiscal 2025 first quarter, driving prestige beauty share gains
compared to the prior year.
- Operating income decreased, primarily driven by the decline in
net sales, partially offset by disciplined expense management.
Cash Flows
- For the three months ended September 30, 2024, net cash flows
used for operating activities were $670 million, compared with $408
million in the prior year primarily reflecting the decline in net
earnings compared to the prior year and an increase in cash paid
for income taxes.
- Capital Expenditures decreased to $141 million from $295
million in the prior year due to the prior-year payments relating
to the manufacturing facility in Japan.
- The Company ended the quarter with $2.35 billion in cash and
cash equivalents and paid dividends of $0.24 billion.
Dividend Update With the
complex prestige beauty landscape, including the particular
difficulty in forecasting the timing of market stabilization and
recovery in mainland China and Asia travel retail, the Company is
reducing its dividend to a more appropriate payout ratio. The
dividend reduction also affords more financial flexibility for the
incoming leadership team to reaccelerate the Company’s profitable
growth trajectory. The Company continues to view dividends as an
important piece of its capital allocation strategy at an
appropriate payout ratio. Today, the Company declared a quarterly
dividend of $.35 per share on its Class A and Class B Common Stock,
payable in cash on December 16, 2024 to stockholders of record at
the close of business on November 29, 2024.
Outlook for Fiscal 2025 Second
Quarter The Company began the fiscal year anticipating
tempered performance in mainland China and Asia travel retail.
While overall results for the fiscal 2025 first quarter were
generally aligned with its outlook on an adjusted basis provided in
August 2024, the impacts from worsened consumer sentiment in these
areas of its business were greater than expected. Looking ahead,
the Company is cautiously optimistic about the potential medium- to
long-term growth opportunities presented by the new economic
stimulus measures in China, but volatility and uncertainty remain
elevated in the near-term and, therefore, the Company does not
expect the stimulus measures to benefit its second quarter
performance. In the rest of its business, the Company continues to
expect the ongoing normalization of growth in the prestige beauty
industry, most notably in North America.
With this complex industry landscape, including the particular
difficulty in forecasting the timing of market stabilization and
recovery in China and Asia travel retail, and in the context of
changes in leadership, the Company is solely providing a fiscal
2025 second quarter outlook and withdrawing its full-year fiscal
2025 outlook.
The Company has reflected the following assumptions in its
second quarter outlook:
- Additional risks associated with the ongoing slowdown in
overall prestige beauty in mainland China and the challenging
retail environment in Asia travel retail. The Company does not
expect the recently-announced economic stimulus measures in China
to benefit its second quarter performance.
- Continued net sales decline in Hong Kong SAR primarily driven
by ongoing low conversion rates among traveling consumers due to
worsened consumer sentiment.
- Sustained investments in the second quarter to support growth
in key areas of the business, particularly for innovation, holiday
and key shopping moments.
- An effective tax rate for the second quarter of approximately
43%, primarily reflecting the unfavorable impact of
previously-issued stock-based compensation, which impacts the
second quarter due to the timing of vesting.
The Company continues to monitor the effects of the global macro
environment, including the risk of recession; currency volatility;
inflationary pressures; supply chain challenges; social and
political issues; competitive pressures; legal and regulatory
matters, including the imposition of tariffs and sanctions;
geopolitical tensions; and global security issues. The Company is
also mindful of inflationary pressures on its cost base and is
monitoring the impact on consumer preferences and the impact of
changes being made in the organization, including those related to
the PRGP.
Second Quarter Fiscal 2025
Currency exchange rates are volatile and difficult to predict.
Using October 24, 2024 spot rates for fiscal 2025, foreign currency
translation is not expected to have a material impact to the
Company’s sales or earnings per share outlook for the second
quarter.
Sales Outlook
- Reported and organic net sales are forecasted to decrease
between 8% and 6% versus the prior-year period.
Earnings per Share Outlook
- Reported diluted net earnings per common share are projected to
be between $.02 and $.19.
- The combined impact from the increases in the Company’s
effective tax rate and net interest expense is expected to dilute
net earnings per common share by $.05.
- The Company expects to take charges associated with previously
approved restructuring and other activities. For the Restructuring
Program component of the Profit Recovery and Growth Plan, the
charges are estimated to be between approximately $72 million to
$82 million, equal to $.15 to $.18 per diluted common share.
Additional restructuring charges are anticipated as initiatives are
approved throughout fiscal year 2025.
- Adjusted diluted net earnings per common share are expected to
decrease between 77% and 60% and range between $.20 and $.35.
Reconciliation between GAAP
and Non-GAAP - Net Sales Growth
(Unaudited)
Three Months Ending
December 31, 2024(F)
As Reported - GAAP
(8%) - (6
%)
Impact of foreign currency translation
—
Returns associated with restructuring and
other activities
—
Organic, Non-GAAP
(8%) - (6
%)
(F)Represents forecast
Reconciliation between GAAP
and Non-GAAP - Diluted Net Earnings Per Common Share
(“EPS”)
(Unaudited)
Three Months Ending
December 31
2024(F)
2023
Growth
Forecasted/As Reported EPS -
GAAP
$.02 - $.19
$
.87
(98%) - (78
%)
Non-GAAP
Restructuring and other charges
.16 - .18
.02
Change in fair value of DECIEM
acquisition-related stock options (less the portion
attributable to redeemable noncontrolling
interest)
—
(.01
)
Forecasted/Adjusted EPS -
Non-GAAP
$.20 - $.35
$
.88
(77%) - (60
%)
Impact of foreign currency translation
—
Forecasted/Adjusted Constant Currency
EPS - Non-GAAP
$.20 - $.35
$
.88
(77%) - (60
%)
(F)Represents forecast
Conference Call The Estée
Lauder Companies will host a conference call at 9:30 a.m. (ET)
today, October 31, 2024 to discuss its results. The dial-in
number for the call is 877-883-0383 in the U.S. or 412-902-6506
internationally (conference ID number: 6363279). The call will also
be webcast live at
http://www.elcompanies.com/investors/events-and-presentations.
Cautionary Note Regarding
Forward-Looking Statements Statements in this press
release, in particular those in “Outlook,” as well as remarks by
the CEO and other members of management, may constitute
forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. Such statements may
address the Company’s expectations regarding sales, earnings or
other future financial performance and liquidity, other performance
measures, product introductions, entry into new geographic regions,
information technology initiatives, new methods of sale, the
Company’s long-term strategy, restructuring and other charges and
resulting cost savings, and future operations or operating results.
These statements may contain words like “expect,” “will,” “will
likely result,” “would,” “believe,” “estimate,” “planned,” “plans,”
“intends,” “may,” “should,” “could,” “anticipate,” “estimate,”
“project,” “projected,” “forecast,” and “forecasted” or similar
expressions. Although the Company believes that its expectations
are based on reasonable assumptions within the bounds of its
knowledge of its business and operations, actual results may differ
materially from the Company’s expectations.
Factors that could cause actual results to differ from
expectations include, without limitation:
(1)
increased competitive activity
from companies in the skin care, makeup, fragrance and hair care
businesses;
(2)
the Company’s ability to develop,
produce and market new products on which future operating results
may depend and to successfully address challenges in the Company’s
business;
(3)
consolidations, restructurings,
bankruptcies and reorganizations in the retail industry causing a
decrease in the number of stores that sell the Company’s products,
an increase in the ownership concentration within the retail
industry, ownership of retailers by the Company’s competitors or
ownership of competitors by the Company’s customers that are
retailers and the Company’s inability to collect receivables;
(4)
destocking and tighter working
capital management by retailers;
(5)
the success, or changes in timing
or scope, of new product launches and the success, or changes in
timing or scope, of advertising, sampling and merchandising
programs;
(6)
shifts in the preferences of
consumers as to where and how they shop;
(7)
social, political and economic
risks to the Company’s foreign or domestic manufacturing,
distribution and retail operations, including changes in foreign
investment and trade policies and regulations of the host countries
and of the United States;
(8)
changes in the laws, regulations
and policies (including the interpretations and enforcement
thereof) that affect, or will affect, the Company’s business,
including those relating to its products or distribution networks,
changes in accounting standards, tax laws and regulations,
environmental or climate change laws, regulations or accords, trade
rules and customs regulations, and the outcome and expense of legal
or regulatory proceedings, and any action the Company may take as a
result;
(9)
foreign currency fluctuations
affecting the Company’s results of operations and the value of its
foreign assets, the relative prices at which the Company and its
foreign competitors sell products in the same markets and the
Company’s operating and manufacturing costs outside of the United
States;
(10)
changes in global or local conditions,
including those due to volatility in the global credit and equity
markets, government economic policies, natural or man-made
disasters, real or perceived epidemics, supply chain challenges,
inflation, or increased energy costs, that could affect consumer
purchasing, the willingness or ability of consumers to travel
and/or purchase the Company’s products while traveling, the
financial strength of the Company’s customers, suppliers or other
contract counterparties, the Company’s operations, the cost and
availability of capital which the Company may need for new
equipment, facilities or acquisitions, the returns that the Company
is able to generate on its pension assets and the resulting impact
on funding obligations, the cost and availability of raw materials
and the assumptions underlying the Company’s critical accounting
estimates;
(11)
shipment delays, commodity
pricing, depletion of inventory and increased production costs
resulting from disruptions of operations at any of the facilities
that manufacture the Company’s products or at the Company’s
distribution or inventory centers, including disruptions that may
be caused by the implementation of information technology
initiatives, or by restructurings;
(12)
real estate rates and
availability, which may affect the Company’s ability to increase or
maintain the number of retail locations at which the Company sells
its products and the costs associated with the Company’s other
facilities;
(13)
changes in product mix to
products which are less profitable;
(14)
the Company’s ability to acquire,
develop or implement new information technology, including
operational technology and websites, on a timely basis and within
the Company’s cost estimates; to maintain continuous operations of
its new and existing information technology; and to secure the data
and other information that may be stored in such technologies or
other systems or media;
(15)
the Company’s ability to
capitalize on opportunities for improved efficiency, such as
publicly-announced strategies and restructuring and cost-savings
initiatives, and to integrate acquired businesses and realize value
therefrom;
(16)
consequences attributable to
local or international conflicts around the world, as well as from
any terrorist action, retaliation and the threat of further action
or retaliation;
(17)
the timing and impact of
acquisitions, investments and divestitures; and
(18)
additional factors as described
in the Company’s filings with the Securities and Exchange
Commission, including its Annual Report on Form 10-K for the fiscal
year ended June 30, 2024.
The Company assumes no responsibility to update forward-looking
statements made herein or otherwise.
The Estée Lauder Companies Inc. is one of the world’s leading
manufacturers, marketers and sellers of quality skin care, makeup,
fragrance and hair care products, and is a steward of luxury and
prestige brands globally. The Company’s products are sold in
approximately 150 countries and territories under brand names
including: Estée Lauder, Aramis, Clinique, Lab Series, Origins,
M·A·C, La Mer, Bobbi Brown Cosmetics, Aveda, Jo Malone London,
Bumble and bumble, Darphin Paris, TOM FORD, Smashbox, AERIN Beauty,
Le Labo, Editions de Parfums Frédéric Malle, GLAMGLOW, KILIAN
PARIS, Too Faced, Dr.Jart+, the DECIEM family of brands, including
The Ordinary and NIOD, and BALMAIN Beauty.
ELC-F ELC-E
CONSOLIDATED STATEMENT OF
EARNINGS (LOSS)
(Unaudited)
Three Months Ended
September 30
Percentage
Change
($ in millions, except per share data)
2024
2023
Net sales(A)
$
3,361
$
3,518
(4
) %
Cost of sales(A)
928
1,070
(13
)
Gross profit
2,433
2,448
(1
)
Gross margin
72.4
%
69.6
%
Operating expenses
Selling, general and administrative(B)
2,298
2,349
(2
)
Talcum litigation settlement
agreements(C)
159
—
100
Restructuring and other charges(A)
97
1
100
+
Total operating expenses
2,554
2,350
9
Operating expense margin
76.0
%
66.8
%
Operating income (loss)
(121
)
98
(100
+)
Operating income (loss) margin
(3.6
)%
2.8
%
Interest expense
92
95
(3
)
Interest income and investment income,
net
35
41
(15
)
Other components of net periodic benefit
cost
2
(2
)
(100
+)
Earnings (loss) before income
taxes
(180
)
46
(100
+)
Provision for income taxes
(24
)
10
100
+
Net earnings (loss)
(156
)
36
(100
+)
Net earnings attributable to redeemable
noncontrolling interest
—
(5
)
100
Net earnings (loss) attributable to The
Estée Lauder Companies Inc.
$
(156
)
$
31
(100
+)%
Net earnings (loss) attributable to The
Estée Lauder Companies Inc. per common share
Basic
$
(.43
)
$
.09
(100
+)%
Diluted
$
(.43
)
$
.09
(100
+)%
Weighted-average common shares
outstanding
Basic
359.6
358.4
Diluted
359.6
360.5
(A)As a component of the Profit Recovery
and Growth Plan, communicated on November 1, 2023, on February 5,
2024, the Company announced a two-year restructuring program. The
restructuring program’s main focus includes the reorganization and
rightsizing of certain areas of the Company’s business as well as
simplification and acceleration of processes. The Company plans to
substantially complete specific initiatives under the restructuring
program through fiscal 2026. The Company expects that the
restructuring program will result in restructuring and other
charges totaling between $500 million and $700 million, before
taxes, consisting of employee-related costs, contract terminations,
asset write-offs and other costs associated with implementing these
initiatives.
The Company approved specific initiatives
under the Post-COVID Business Acceleration Program (the “PCBA
Program”) through fiscal 2022 and has substantially completed those
initiatives through fiscal 2023. Additional information about the
PCBA Program is included in the notes to consolidated financial
statements in the Company’s Annual Report on Form 10-K for the
fiscal year ended June 30, 2024.
(B)For the three months ended September
30, 2023, the Company recorded $8 million ($6 million, less the
portion attributable to redeemable noncontrolling interest and net
of tax), of expense related to the change in fair value of DECIEM
acquisition-related stock options.
(C)From the end of August 2024 through
October 2024, the Company reached agreements with certain plaintiff
law firms (collectively, the “talcum litigation settlement
agreements”) for: (i) the resolution of pending cosmetic talcum
powder matters handled by those firms as well as (ii) a process for
resolving potential future cosmetic talcum powder claims expected
to be brought on behalf of plaintiffs by those firms from January
1, 2025 through December 31, 2029, with annual capped amounts per
year for each participating law firm. To account for the talcum
litigation settlement agreements, the Company recorded a charge of
$159 million for the three months ended September 30, 2024 for the
amount agreed to settle these current and potential future
claims.
Returns and Charges Associated
With Restructuring and Other Activities and Other Adjustments
(Unaudited)
Three Months Ended September
30, 2024
Sales Returns
Cost of Sales
Operating Expenses
Total
After Redeemable
Noncontrolling Interest and Tax
Diluted EPS
(In millions, except per share data)
Restructuring
Charges
Other Charges/
Adjustments
PCBA Program
$
—
$
—
$
(1
)
$
1
$
—
$
—
$
—
Restructuring Program Component of
Profit
Recovery and Growth Plan
—
9
85
12
106
84
.23
Talcum litigation settlement
agreements
—
—
—
159
159
124
.34
Total
$
—
$
9
$
84
$
172
$
265
$
208
$
.57
Three Months Ended September
30, 2023
Sales Returns
Cost of Sales
Operating Expenses
Total
After Redeemable
Noncontrolling Interest and Tax
Diluted EPS
(In millions, except per share data)
Restructuring
Charges
Other Charges/
Adjustments
PCBA Program
$
—
$
1
$
(1
)
$
2
$
2
$
2
$
—
Change in fair value of DECIEM
acquisition-
related stock options
—
—
—
8
8
6
.02
Total
$
—
$
1
$
(1
)
$
10
$
10
$
8
$
.02
This earnings release includes some non-GAAP financial measures
relating to charges associated with restructuring and other
activities and adjustments, as well as organic net sales. Included
herein are reconciliations between the non-GAAP financial measures
and the most directly comparable GAAP measures for certain
consolidated statements of earnings accounts before and after these
items. The Company uses certain non-GAAP financial measures, among
other financial measures, to evaluate its operating performance,
which represent the manner in which the Company conducts and views
its business. Management believes that excluding certain items that
are not comparable from period-to-period, or do not reflect the
Company’s underlying ongoing business, provides transparency for
such items and helps investors and others compare and analyze
operating performance from period-to-period. In the future, the
Company expects to incur charges or adjustments similar in nature
to those presented herein; however, the impact to the Company’s
results in a given period may be highly variable and difficult to
predict. The Company’s non-GAAP financial measures may not be
comparable to similarly titled measures used by, or determined in a
manner consistent with, other companies. While the Company
considers the non-GAAP measures useful in analyzing its results,
they are not intended to replace, or act as a substitute for, any
presentation included in the consolidated financial statements
prepared in conformity with U.S. GAAP.
The Company operates on a global basis, with the majority of its
net sales generated outside the United States. Accordingly,
fluctuations in foreign currency exchange rates can affect the
Company’s results of operations. Therefore, the Company presents
certain net sales, operating results and diluted net earnings per
common share information excluding the effect of foreign currency
rate fluctuations to provide a framework for assessing the
performance of its underlying business outside the United States.
Constant currency information compares results between periods as
if exchange rates had remained constant period-over-period. The
Company calculates constant currency information by translating
current-period results using prior-year period monthly average
foreign currency exchange rates and adjusting for the
period-over-period impact of foreign currency cash flow hedging
activities.
Reconciliation of Certain
Consolidated Statements of Earnings (Loss) Accounts Before
and After Returns, Charges and Other Adjustments
(Unaudited)
Three Months Ended September
30
2024
2023
% Change
($ in millions, except per share data)
As Reported
Returns/ Charges/
Adjustments
Non- GAAP
Impact of Foreign Currency
Translation
Non- GAAP, Constant
Currency
As Reported
Returns/ Charges/
Adjustments
Non- GAAP
Non- GAAP
Non- GAAP, Constant
Currency
Net sales
$
3,361
$
—
$
3,361
$
(18
)
$
3,343
$
3,518
$
—
$
3,518
(4
)%
(5
)%
Gross profit
2,433
9
2,442
(15
)
2,427
2,448
1
2,449
—
%
(1
)%
Operating income
(loss)
(121
)
265
144
(11
)
133
98
10
108
33
%
23
%
Diluted EPS(1)
$
(.43
)
$
.57
$
.14
$
(.02
)
$
.12
$
.09
$
.02
$
.11
33
%
7
%
(1)For the three months ended September
30, 2024 the effects of potentially dilutive stock options,
performance share units, and restricted stock units of
approximately 1.2 million shares, were excluded from the
computation of As Reported and adjustments to Non-GAAP diluted loss
per common share as they were anti-dilutive due to the net loss
incurred during the period. These shares were added to the
weighted-average common shares outstanding to calculate Non-GAAP
diluted earnings per common share.
CONDENSED CONSOLIDATED BALANCE
SHEETS (Unaudited, except where noted)
September 30, 2024
June 30, 2024
September 30, 2023
($ in millions)
(Audited)
ASSETS
Cash and cash equivalents
$
2,350
$
3,395
$
3,090
Accounts receivable, net
1,977
1,727
1,909
Inventory and promotional merchandise
2,255
2,175
2,863
Prepaid expenses and other current
assets
633
625
723
Total current assets
7,215
7,922
8,585
Property, plant and equipment, net
3,233
3,136
3,103
Operating lease right-of-use assets
1,973
1,833
1,787
Other assets
8,896
8,786
9,175
Total assets
$
21,317
$
21,677
$
22,650
LIABILITIES AND EQUITY
Current debt
$
504
$
504
$
1,005
Accounts payable
1,135
1,440
1,257
Operating lease liabilities
393
354
352
Other accrued liabilities
3,454
3,404
3,300
Total current liabilities
5,486
5,702
5,914
Long-term debt
7,311
7,267
7,088
Long-term operating lease liabilities
1,802
1,701
1,687
Other noncurrent liabilities
1,634
1,693
1,793
Total noncurrent liabilities
10,747
10,661
10,568
Redeemable noncontrolling
interest
—
—
826
Total equity
5,084
5,314
5,342
Total liabilities and equity
$
21,317
$
21,677
$
22,650
SELECT CASH FLOW DATA
(Unaudited)
Three Months Ended September
30
($ in millions)
2024
2023
Net earnings (loss)
$
(156
)
$
36
Adjustments to reconcile net earnings
(loss) to net cash flows from operating
activities:
Depreciation and amortization
208
203
Deferred income taxes
(79
)
(57
)
Other items
73
49
Changes in operating assets and
liabilities:
Increase in accounts receivable, net
(219
)
(477
)
Decrease (increase) in inventory and
promotional merchandise
(10
)
62
Increase in other assets, net
(47
)
(17
)
Decrease in accounts payable and other
liabilities, net
(440
)
(207
)
Net cash flows used for operating
activities
$
(670
)
$
(408
)
Other Investing and Financing Uses:
Capital expenditures
$
(141
)
$
(295
)
Dividends paid
(240
)
(236
)
View source
version on businesswire.com: https://www.businesswire.com/news/home/20241031438586/en/
Investors: Rainey Mancini rmancini@estee.com
Media: Jill Marvin jimarvin@estee.com
Estee Lauder Companies (NYSE:EL)
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