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Estée Lauder Beats Wall Street Estimates in Q4, but Cautions of Headwinds

It enters the new fiscal year during a "volatile period," including record inflation, supply chain disruptions and strong headwinds from the COVID-19 restrictions in Hainan.

The Estée Lauder Cos. Inc. surpassed Wall Street estimates on the top and bottom lines in the fourth quarter, but there are multiple headwinds on the horizon — and the biggest is still COVID-19.

Delivering its latest set of results, Lauder cautioned that it enters the new fiscal year during a volatile period of “record inflation, supply chain disruptions, strengthening U.S. dollar, risk of a slowdown in many markets globally, and with a strong headwind from the August 2022 COVID-19 restrictions in Hainan,” China.

And in an interview with WWD following the release of its earnings, executive vice president and chief financial officer Tracey Travis, said: “I would say that [the pandemic] is probably the biggest headwind, but it is a temporary headwind even though it’s been a long ‘temporary’ and we are certainly encouraged by the markets that are in recovery and the momentum that we’re seeing in business in those markets.”

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In particular, the company explained that the COVID-19 pandemic continued to disrupt its operating environment globally, primarily impacting supply chain, inventory levels and other logistics during the most recent fiscal year. “The resurgence of COVID-19 cases in many Chinese provinces led to restrictions late in the fiscal 2022 third quarter that remained in place through the end of fiscal 2022 to prevent further spread of the virus. Consequently, retail traffic, travel and distribution capabilities were temporarily curtailed,” it said. “The company’s distribution facilities in Shanghai operated with limited capacity to fulfill brick-and-mortar and online orders beginning in mid-March 2022 and returned to normal capacity by early June 2022.”

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As a result of the headwinds, net sales are forecast to increase between 3 and 5 percent versus the prior-year period, while adjusted diluted earnings per share are expected to increase between 5 and 7 percent on a constant currency basis. Analysts had been expecting increases of around 7.6 percent for sales and 10.5 percent on earnings per share.

Despite this environment and a quieter deals market, earlier this month Lauder emerged as a surprise candidate to acquire Tom Ford International, according to industry sources, although they stressed that it’s far from a done deal and there are other interested players.

For now, both parties are remaining quiet publicly, but on Lauder’s general merger and acquisition strategy, Travis told WWD that the company doesn’t need acquisitions to grow, but is opportunistic.

“We have continued to generate very, very strong cash flows and so we look at M&A very strategically. We have regular discussions with our leadership team on areas that we identify as interesting for us to add brands to our portfolio,” she added.

Highlighting the strength of Tom Ford Beauty, for which it holds the license, Lauder said fragrance sales grew by strong double digits, reflecting strength in its signature and private blend fragrances, including Black Orchid and Oud Wood.

For the quarter ending June 30, Lauder’s overall net sales were $3.56 billion, down about 9.6 percent from $3.94 billion in the same period a year earlier, but beating analysts’ estimates of $3.43 billion. Net earnings were $52 million, and diluted EPS were 14 cents. On an adjusted basis, EPS was 42 cents, surpassing Wall Street estimates of 32 cent.

Net sales for its fiscal year were $17.74 billion, an increase of 9 percent from $16.22 billion in the prior-year period. Net earnings were $2.39 billion, compared to $2.87 billion.

Fabrizio Freda, Lauder’s president and chief executive officer, said, “We delivered excellent results in fiscal 2022, exceeding our expectations in the fourth quarter and achieving record revenue and profitability on an adjusted basis for the year. Our multiple engines of growth strategy proved invaluable amid pandemic and macro complexity, affording us the diversification to seize growth of the moment. The Americas and EMEA [Europe, Middle East and Africa] prospered, fragrance soared and makeup realized the promise of its emerging renaissance.”

He highlighted La Mer, MAC and Jo Malone London for delivering strong sales, and added that brick-and-mortar and online sales grew globally, as the company capitalized on reopening, and amplified its omnichannel capabilities.

Shares were up 1.9 percent to $281.83.