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Estée Lauder Lowers Guidance Due to Coronavirus

The business also recorded a $777 impairment charge for Too Faced, Becca and Smashbox, reflecting slowdowns in the makeup category.

The Estée Lauder Cos. Inc. has sharply lowered guidance, citing coronavirus.

Now the beauty business says net sales are forecast to increase between 0 percent and 1 percent in the second half of its fiscal year. “The global environment has changed meaningfully following the outbreak of the coronavirus,” Lauder president and chief executive officer Fabrizio Freda told Wall Street analysts on the company’s earnings call Thursday.

“Although it is difficult to anticipate the full impact of the coronavirus on our business, we expect the next couple months will be very challenging. Chinese consumers in many big cities are staying home and retailers are closing stores or limiting hours in an effort to help contain the spread of the virus,” Freda said.

“Additionally, global travel is being restricted, and the effect is being felt beyond China into major travel retail corridors and large cities. Given what we know now and our experience with past epidemics, we believe our business will gradually recover towards the end of the fiscal year.”

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Freda said Lauder plans to invest further in the Chinese market with a new innovation center “in order to drive both breakthrough prestige beauty innovation for China, the Asia-Pacific region and the rest of the world.”

Lauder has pledged 5 million renminbi, or $717,200, to support relief efforts, and will match employee donations related to the outbreak.

“Our thoughts are with the individuals who have been diagnosed and those who are with family and friends,” Freda said. “As a company, we are focused on the wellbeing of our employees in China and globally and are taking appropriate measures to protect them based on guidance from local authorities and the World Health Organization.”

While guidance for the remainder of Lauder’s fiscal year has been lowered, its most recent quarter included continued sales gains.

For the quarter ended Dec. 31, net sales rose 15 percent, to $4.62 billion in the quarter. Net earnings dipped slightly, to $557 million compared to $573 million in the prior-year period.

Lauder said it took a $777 million impairment charge for Too Faced, Becca and Smashbox due to declines in the makeup category. Lauder executives said Thursday that the company was working to rejuvenate the makeup business in North America by using data to make products. The company gave an example: data showed that consumers like skin-care benefits with their makeup, so it launched a new moisturizing foundation called Futurist Hydra Rescue for the Estée Lauder brand.

“To reinstate growth in makeup in the future, we are accelerating innovation in the makeup category,” Freda said. “To be clear, we’re not giving up at all on makeup. We’re just accepting that in the short-term, we are focusing more on our category and innovating better in the category to reactivate consumer interest.”

Makeup generated 6 percent growth, with $1.7 billion in sales, driven by Estée Lauder, Tom Ford, Bobbi Brown and La Mer. Higher sales from those brands were offset by declines at Becca and Smashbox, and strategic investments in MAC. Lauder’s Double Wear continues to do well. Tom Ford sales were driven by eye shadow and cushion compact products in Asia-Pacific. Bobbi Brown also grew in the Asia-Pacific region and travel retail, driven by Intensive Skin Serum Foundation and Luxe Shine Intense Lipsticks.

For the quarter, skin care became the largest category, with 27 percent growth and $2.2 billion in sales. Estée Lauder and La Mer led the category, but Origins and Clinique also grew globally. At Lauder, hero franchises like Advanced Night Repair, Perfectionist, Re-Nutriv, Revitalizing Supreme+ and Micro Essence continued to do well. La Mer’s growth was broad based, and Origins benefited from growth in moisturizers and Dr. Weil Mega Mushroom Treatment Lotion and Serum. Clinique’s growth was driven by its Smart and Moisture Surge franchises.

Lauder also bought the rest of Have & Be Co., the owner of Dr. Jart+, during the quarter.

Fragrance brought in $581 million in net sales, an 8 percent year-over-year gain, driven by Jo Malone London and Tom Ford Beauty. Hair care posted $162 million in net sales, up 5 percent from the prior-year period. Both Aveda and Bumble and bumble grew.

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