Estee Lauder tempers sales view despite US, China recovery

By Ananya Mariam Rajesh

(Reuters) -Estee Lauder lowered its annual organic sales estimate on persistent softness in mainland China's prestige beauty space, even as a demand rebound for its pricey items in the U.S. and Asia-Pacific markets drove a profit forecast raise.

Shares of the New York-based company dropped nearly 10% on Wednesday.

Estee also beat third-quarter results expectations, hinting at a recovery in demand for beauty and cosmetic products in the U.S. after a long bout of inflation had pressured sales of luxury items in the world's biggest economy.

A pick-up in China and Asia travel retail demand after several quarters of weakness underscored customer willingness to splurge on "affordable luxuries" such as fragrances and make-up products.

Third-quarter organic net sales in the Americas grew 1%, with a 3% rise in the Asia Pacific region.

"We see actual progress in the total Chinese consumer consumption on our brands and they are very solid," said CEO Fabrizio Freda, adding that the number of Chinese travelers are growing too.

However, Estee forecast annual organic sales would fall 1% to 2%, compared with its previous estimate of a 1% decrease to a 1% increase.

"Estee Lauder's management might have taken the view it is better to be cautious now and over-deliver than continue with high expectations and fail to sell enough products," said Dan Coatsworth, investment analyst at AJ Bell.

The company expects full-year 2024 adjusted profit per share between $2.14 and $2.24, compared with a prior forecast of $2.08 to $2.23.

Net sales rose 5% to $3.94 billion, compared with LSEG estimates of $3.91 billion. Adjusted profit of 97 cents per share surpassed expectations of 49 cents.

Last month, European rival L'Oreal also beat sales expectations and eased concerns about waning demand in the U.S. and China - the two biggest beauty markets.

"The sector has held better than I expected and the question really around luxury and personal luxury goods is whether 2024 will be a hard or soft landing ... so far it speaks to the narrative of a soft landing," said Javier Gonzalez Lastra, luxury-focused portfolio manager at Tema ETFs.

(Reporting by Ananya Mariam Rajesh in Bengaluru; Editing by Devika Syamnath)