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Estée Lauder Outlook Hit by China Lockdowns, Stronger Dollar

The fragrance and skin care company said Thursday that it expects an 8 percent to 10 percent drop in sales this quarter, compared with a year ago.
Estée Lauder storefront.
Estée Lauder storefront. (Shutterstock)

Estée Lauder Cos.’ sales forecast trailed analyst estimates amid continued lockdowns in China and pressure from the strengthening US dollar.

The fragrance and skin care company said Thursday that it expects an 8 percent to 10 percent drop in sales this quarter, compared with a year ago. Analysts surveyed by Bloomberg expected revenue to be roughly flat in the quarter, which is the first in Estée Lauder’s fiscal year. The company’s annual forecast also missed estimates.

Pandemic restrictions in China have been a drag on growth at Estée Lauder, which typically generates around one-third of its revenue in the country. In May, the company slashed its annual forecast in large part due to limited capacity at distribution centres in Shanghai. While those facilities are back up and running, Estée Lauder said recent lockdowns in the island province of Hainan are a “strong headwind.”

Shares of Estée Lauder fell 1.6 percent at 9:41 a.m. New York time. The stock had been trading about 25 percent below its January highs.

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The company said its fiscal first-quarter results will also be hurt by the end of license agreements for the Donna Karan New York, DKNY, Michael Kors, Tommy Hilfiger and Ermenegildo Zegna product lines.

Rupesh Parikh, an analyst at Oppenheimer & Co., said a weak forecast was expected.

“With this negative guide-down out of the way, we believe the setup for EL should improve as the year progresses,” Parikh said in a note to clients, referring to the company by its stock ticker.

Fellow high-end retailer Tapestry Inc. also cautioned about weakness in China in its earnings results on Thursday. The parent company of the Coach and Kate Spade brands said revenue in China fell more than 30 percent in the three-month period ended July 2 due to Covid-related disruptions.

Tapestry executives said they expect revenue in China to decline 15 percent in the current quarter and bounce back to growth in the company’s fiscal third quarter. “For the full year, we see a single-digit growth in China,” Tapestry chief financial officer Scott Roe told analysts during an earnings call. The company’s profit guidance for the upcoming year trailed estimates.

By Jeannette Neumann

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