Estée Lauder, the beauty company that owns Clinique and MAC Cosmetics, has cut its dividend and ditched its profit forecast as a sales slump in China deepens, prompting a 25 per cent plunge in its shares as trading opened in New York.
The New York-listed beauty group, which is in the midst of a turnaround and leadership transition, said on Thursday that a recovery in Chinese demand had proved slower than expected, with sales in the country falling by a double-digit percentage in the three months to the end of September.
As a result of the difficulty in forecasting when the Chinese market will recover, Estée Lauder said it was withdrawing its outlook for the rest of the year and reducing its dividend to a “more appropriate” level.
Fabrizio Freda, who will retire as chief executive in January after 16 years at the company, said Estée Lauder expected “still-strong declines” in demand in China as well as in tourist shopping in Asia in the near term, and “ongoing normalisation of growth in prestige beauty, most notably in North America”.
The beauty industry has taken a hit from the economic slowdown in China, which has been a major profit engine for Estée Lauder and its larger rival L’Oréal in recent years.
The dour outlook will be another challenge incoming chief executive Stéphane de La Faverie will have to contend with when he takes the reins at a time when the Lauder family that controls the beauty group is stepping back from day-to-day management.
The company is implementing a turnaround programme designed to cut costs and overheads while reinvesting in its brands and innovation. Freda said the reset had “delivered promising initial results”.
After underperforming peers during two years of falling sales and profits, Thursday’s outlook cut is another blow for a company whose shares are now down 55 per cent this year, reducing its market value to $23bn.
L’Oréal, the world’s biggest beauty company, last week missed quarterly sales expectations and flagged ongoing weakness in China and in travel retail. Its shares are down 23 per cent this year.
Estée Lauder reported a 4 per cent year-on-year drop in sales to $3.36bn in the three months to the end of September. It expects the rate of decline to accelerate to 6 to 8 per cent in the current quarter.
All of Estée Lauder’s divisions had falling sales this quarter, with skincare — its biggest by sales — down 8 per cent on a like-for-like basis. Losses in make-up, its second biggest, deepened in the quarter compared with the same period a year ago.