Net profit shrank by more than 60%, Estee Lauder fell three times in a row

On February 2, Eastern Time, Estee Lauder Group announced its performance data for the second quarter of fiscal year 2023, which is October to December 2022.

The financial report shows that Estee Lauder’s Q2 net sales were US$4.62 billion (approximately RMB 31.161 billion), a decrease of 17% from US$5.54 billion in the same period last year; organic net sales after excluding the effects of restructuring, acquisitions, divestitures and closed brands decreased year-on-year 11%; the net profit attributable to the parent company was US$394 million, a year-on-year decrease of 64% from US$1.09 billion in the same period of the previous year.

This is Estee Lauder's third consecutive quarter of revenue and profit declines starting from Q4 of fiscal year 2022. The financial report explained that this is mainly due to the impact of the new crown epidemic, the Chinese market has been restricted in terms of physical transportation, especially the tourism retail business in Hainan.

However, the skin care business, which accounts for the bulk of revenue and profit, has fallen by more than 60%; the makeup business has returned to losses after a short-term profit. Estee Lauder obviously needs to worry about more than the impact of the epidemic.

Skin care, make-up, and perfume are the three largest business segments of Estee Lauder, and their revenues have declined this quarter. In the five major sectors including hair care and others, profits have declined across the board.

Among them, skin care products, which account for 2/3 of Estee Lauder's revenue, continued to decline. Estee Lauder's skin care category recorded revenue of US$2.382 billion in Q3 of fiscal year 2022, a year-on-year decrease of 25%, and a profit of US$421 million, a year-on-year decrease of 61%.

It is worth noting that the revenue of Estee Lauder's skin care products has continued to decline since Q4 of the 2022 fiscal year, and the net sales in the three quarters have recorded a decline of 21%, 14%, and 25% respectively. The profit of skin care products has fallen even more severely. Starting from Q3 of fiscal year 2022, it has decreased for four consecutive quarters, decreasing by 17%, 51%, 26% and 61% in this fiscal quarter.

In terms of make-up, Estee Lauder has not been able to get rid of the haze brought by the epidemic, and it is difficult to stop losses. In this quarter, the revenue of the cosmetics category was US$1.268 billion, a year-on-year decrease of 9%, and the profit turned from positive to negative, with a loss of US$37 million.

In fact, in the past fiscal year 2020 and fiscal year 2021, the cosmetics sector showed losses, with losses of US$1.438 billion and US$384 million respectively; Returning to losses, it recorded a total profit of US$133 million for the whole year; Q1 achieved a weak profit of US$16 million in fiscal year 2023, but lost another US$37 million this quarter.

In general, Estee Lauder's makeup sector has lost a total of more than 1.7 billion US dollars in the past three and a half years.

The perfume category may be the only sector with acceptable performance. Revenue for the quarter was US$775 million, a slight decrease of 3% year-on-year; profit was US$177 million, a year-on-year decrease of 16%. However, after excluding the impact of restructuring, acquisitions, divestitures and closed brands, its organic net sales achieved a growth of 12%. The financial report shows that the decline in profit is due to strategic investment in the expansion of physical stores and independent stores.

In the past few years, the perfume category has been the fastest growing category of the group. In the 2021 and 2022 fiscal years, the annual revenue will be 1.926 billion US dollars and 2.508 billion US dollars respectively, a year-on-year increase of 23% and 30%. 100 million and 456 million U.S. dollars, a growth rate of more than 100% for two consecutive years.

Estee Lauder's perfume category is growing rapidly, and its profit margin is between skin care products and make-up. It may become the main category driving Estee Lauder's performance growth.

In addition, Estee Lauder's hair care and other two segments recorded revenues of US$182 million and US$14 million, respectively; net profit of US$5 million and losses of US$10 million.

In terms of brands, under the skin care category, the net sales of The Ordinary and Bobbi Brown achieved growth this quarter, but were offset by the decline in Estee Lauder, La Mer, Dr.Jart+ and Clinique; under the makeup category, MAC and Clinique achieved growth, Estee Lauder and Tom Ford Beauty declined. Under the fragrance category, Estee Lauder, Le Labo and Tom Ford Beauty all achieved growth