EL Stock Plummets Despite Q1 Earnings Beat Amid China Weakness

Core Insights - The Estee Lauder Companies Inc. (EL) experienced a significant decline in share price, dropping 24% in pre-market trading following the release of its first-quarter fiscal 2025 results, which showed a year-over-year decline in revenue and missed consensus estimates [1][2] - The company has withdrawn its fiscal 2025 outlook due to ongoing challenges in China and travel retail, indicating a cautious approach moving forward [1][4] Financial Performance - Adjusted earnings per share (EPS) were reported at 14 cents, surpassing the Zacks Consensus Estimate of 9 cents, and increased from 11 cents in the same quarter last year [2] - Quarterly net sales totaled $3,361 million, falling short of the Zacks Consensus Estimate of $3,370.9 million, representing a 4% decline year over year [2] - Organic net sales decreased by 5%, primarily due to weakened consumer sentiment in China and reduced conversion rates in Asia travel retail [3] Segment Performance - Skin Care sales decreased by 7% year over year to $1,529 million, attributed to negative consumer sentiment in China [5] - Makeup revenues fell by 2% to $1,038 million, with declines in M·A·C and Too Faced, partially offset by growth in Clinique [5] - Fragrance revenues were $630 million, down 1% from the previous year, impacted by challenges in global travel retail [6] - Hair Care sales totaled $139 million, a 6% decline year over year, reflecting softness in Aveda [6] Regional Performance - Sales in the Americas decreased by 2% to $1,187 million [7] - Revenues in the EMEA region also fell by 2% to $1,230 million [7] - The Asia-Pacific region saw a significant decline of 11%, with sales at $944 million [7] Margin and Financial Health - Gross profit was reported at $2,433 million, down 1% year over year, with a gross margin of 72.4%, an increase from 69.6% in the prior year [8] - Adjusted operating income rose by 33% to $144 million from $108 million in the previous year [8] - The company ended the quarter with cash and cash equivalents of $2,350 million, long-term debt of $7,311 million, and total equity of $5,084 million [10] Dividend and Future Outlook - The company is reducing its dividend to establish a more appropriate payout ratio, aiming for greater financial flexibility to support growth [11] - For the second quarter of fiscal 2025, reported and organic net sales are projected to decline by 6-8%, with adjusted EPS expected to drop by 60-77%, ranging from 20 cents to 35 cents [13] - Management remains cautiously optimistic about medium-to-long-term growth opportunities in China but does not expect immediate positive impacts from new economic stimulus measures [12]