Estee Lauder’s NYSE:EL results, reported last week, were better than expected, with strong growth in the Asia/Pacific region helping to offset ongoing weakness in the Asia Travel Retail channel and a decline in sales in North America.
However, guidance for the coming fiscal year was below consensus estimates and weighed on the shares, as the company is forecasting a double-digit sales decline in the first quarter before a recovery in the latter part of the year.
Can Estee Lauder stock go any lower?
Shareholders have seen around 40% wiped off their value in the last six months, which has been a bitter pill to swallow. The stock saw a good rally in December and January, but all of that has since been given up it seems. Estee Lauder stock is trading only marginally above its 52 week low and threatening to establish a new one.
- Stock recommendations by Bridgewise. Try a free trial of Data+ for a deeper look.
Friday’s release is the latest in a run of guidance cuts from Estee Lauder as challenges in its travel retail business persist.
“With the company having pushed back its return to growth several times now, it is hard to predict an inflection point in the stock, however, we believe that the long-term opportunities for the company remain attractive despite the short-term difficulties,” said stockbroker Killik & Co, which is currently rating Estee Lauder shares a Buy.
Estee Lauder shares have weakened considerably since their peak in 2021 and Killik believes that long-term investors will be rewarded by holding the stock at current levels.
“We continue to view Estee Lauder as a high-quality business, with a strong portfolio of brands in an attractive end market,” the broker said in a note to investors.
The shares trade on a price to June 2024 earnings ratio of 37.1x and offer a prospective dividend yield of 1.7%.
Estee Lauder results: high level take aways
Reported net sales for the fourth quarter increased 1% from the same quarter one year ago to $3.61bn. On an organic basis, excluding the impact of FX, net sales increased by 4% owing to strong growth in Asia/Pacific as markets continued to recover, with double-digit growth in every product category.
In EMEA, net sales declined, due to the challenges in Asia travel retail, partially offset by growth in nearly all markets. Net sales in the Americas were virtually flat, reflecting strong double-digit growth in Latin America, offset by a decline in North America primarily driven by the slower than anticipated pace of the company’s improvement at retail.
By product category, both Makeup and Fragrance delivered double-digit organic sales growth, but Skin Care sales decline as the Asia travel retail channel remains challenging
The company made a net loss of $33m and a diluted net loss per share of $0.09.
Artificial intelligence specialist BridgeWise posted a Sell recommendation on the stock, based on fundamental metrics and peer analysis. The Estee Lauder balance sheet looks especially appalling, and the company is severely underperforming its peers in the US listed sector.
Forecasting an increase in net sales
Excluding restructuring and other changes, adjusted diluted net earnings per common share for the three months ended 30 June 2023 was $0.07, ahead of consensus estimates. Estee Lauder provided guidance for both the first quarter of its fiscal 2024 year and for the full year. It expects reported net sales to increase between 5% and 7% versus the prior year, with organic net sales to increase between 6% and 8%. Adjusted EPS is expected to be between $3.50 and $3.75.
For the first quarter organic net sales are forecast to decrease between 12% and 10% compared to the prior-year period. Adjusted EPS is expected to be between -$0.31 and -$0.21.
