Estée Lauder shares plunge after China slowdown hits sales

Cosmetics group Estée Lauder has slashed its sales outlook for the third straight quarter because of a slower than expected recovery in Asia, sending shares in the company down by a fifth.

New-York listed Estée Lauder, home to brands including MAC and La Mer, warned on Wednesday that it expected sales for the year to fall between 10 per cent and 12 per cent, steeper than the 5 per cent to 7 per cent drop it had previously forecast.

“As the shape of recovery from the pandemic for Asia travel retail comes into better focus, it is proving to be both far more volatile than we expected and more gradual relative to what we experienced in other regions,” said chief executive Fabrizio Freda.

The weakness in Asia, which extended to South Korea as well as China, offset a better performance in the first quarter in the US and Europe. Overall sales in the quarter dropped 12 per cent to $3.7bn, close to analysts’ expectations.

Shares in the company plunged 19.5 per cent in early trading on Wednesday.

Alongside cutting its annual sales forecast, the beauty group said earnings per share will be between $2.62 and $2.76, down from a previous range of $4.25 and $4.44.

In the first quarter, its profit narrowed to $156mn, far short of the $558mn it made a year ago and missing analysts’ forecasts of $167.9mn.

Estée Lauder said it expects consumer traffic in Asia to improve and that sales will begin growing in the fourth quarter. Rival L’Oréal, the world’s largest beauty company, has predicted a recovery in Chinese demand in the current quarter.

Late last year, Estée Lauder agreed to buy Tom Ford, the fashion brand, for $2.8bn, including debt.

The warning from Estée Lauder comes a day after Starbucks said sales growth was moderating after China’s reopening following the ending of pandemic restrictions. The company said that sales in China, the largest market for Starbucks after the US, had started to moderate after a “faster than expected recovery” during the first quarter.

Shares in Starbucks were down almost 10 per cent in early trading on Wednesday.