Estée Lauder has cut its full year sales and profit forecasts because of Covid-19 related lockdowns in China, which have weighed on earnings for several international companies.
The cosmetics group on Tuesday reduced its full-year outlook for net sales growth to between 7 per cent and 9 per cent, down from a previous range of 13 to 16 per cent. The expected earnings per share range was cut to between $6.54 and $6.70, down from between $7.28 and $7.47.
Shares in the New York-based company fell 5 per cent in early trading.
Estée Lauder, whose make-up brands include MAC and Too Faced, said that Covid-related restrictions in China had weighed on consumer traffic and also exacerbated supply chain constraints, given that its distribution centres for the country are in Shanghai. The group’s net sales in the Asia-Pacific region fell 4 per cent year on year in the three months to the end of March.
“There is no doubt that these current limitations in China will prove to be transitory, although there will be a far greater impact on our results in the fourth quarter than they were in the third quarter,” said chief executive Fabrizio Freda.
Luxury goods companies have been closely monitoring the situation in China because the country is the second-biggest market globally for sales after the US, driving much of the sector’s growth.
LVMH, which owns brands such as Louis Vuitton and Tiffany & Co, said last month that the situation in China would affect its business, adding that store traffic had declined even in locations that were not subject to lockdowns.
Covid-19 lockdowns across China have also weighed on earnings for multinationals such as Apple, Coca-Cola and General Electric.
The invasion of Ukraine has also put pressure on sales for Estée Lauder after the company suspended its Russian business in March. Chief financial officer Tracey Travis said the elimination of sales in Russia and Ukraine had reduced expected fourth-quarter revenue growth by approximately 120 basis points.
Although quarterly sales grew in the Americas, Europe, the Middle East and Africa — which offset some of the decline in Asia — a rise in overall net sales of 10 per cent to $4.25bn missed analysts’ expectations for $4.3bn in revenues.
Quarterly profit was $2.97 a share, compared with analysts’ expectations of $2.58.
The group’s skincare segment drove revenue in the quarter and increased 6 per cent from a year earlier, although the restrictions in China partially offset double-digit sales growth for its skincare brand La Mer elsewhere.
The company expects to raise prices in July, after already doing so twice in its current financial year.
