By Senad Karaahmetovic
Shares of Estée Lauder (NYSE:EL) trade 10% lower after the company cut its full-year forecast.
EL posted an adjusted EPS of $1.43 on revenue of $3.93 billion, which compares to the consensus of $1.33 on sales of $3.99 billion. Revenue fell 10% year-over-year, or 7% on a constant currency basis, driven by a 15% plunge in Asia Pacific sales.
For its fiscal second quarter, EL sees EPS at $1.21 (the midpoint) with revenue expected to decline between 17% and 19%. Organic net sales are seen plunging between 9% and 11%.
As a result, EL cut its full-year profit forecast to $5.01-5.21 per share from $7.11-7.33. Net sales are seen falling between 6% and 8%.
"The COVID-19 pandemic continued to disrupt the Company’s operating environment through the fiscal 2023 first quarter, including COVID-related restrictions in China, affecting travel retail in Hainan as well as retail traffic in mainland China," EL said in a statement.
The company also noted that its business has been "negatively impacted by inflationary pressures and recession concerns."
As a result, EL "expects the remainder of the fiscal year to be pressured by the temporary disruptions due to headwinds from the COVID-19 restrictions in China, the strengthening of the U.S. dollar, record-high inflation, supply chain disruptions, and the risk of a slowdown in certain markets globally."
Goldman Sachs analysts noted that the guidance cut is "deeper than expected."
"The debates we had with investors ahead of results all centered around guidance risk, and the updated guidance is well below their incoming expectations. Even though we believe that many of the factors driving earnings lower will prove transitory, we expect the stock to underperform on the day," the analysts wrote in a client note.
Stifel analysts also paid close attention to the slashed guidance.
"Guidance implies a meaningful organic sales improvement in F2H23, which could prove optimistic given China’s current no-Covid policy and potentially worsening consumer spending in EMEA/Americas. We also note the F1Q 5% sales decline is much worse than results from peers indicating share loss that began in the June quarter continued for Lauder in the September quarter," the analysts wrote in a note.