Estee Lauder Company Misses Expectation in Its Q3 of FY2022
- Chaileedo Press
- May 4, 2022
- 3 min read
For the three months ended March 31, Estee Lauder Company sales rose 10% year-on-year to $4.25 billion, missing market expectations of $4.31 billion. Relative to the past, the Asia-Pacific market did not start the year as well as expected due to the pandemic.
On May 3, Estee Lauder Company released its results for the third quarter of the fiscal year 2022. In the three months ended March 31, Estee Lauder Company sales increased 10% year-over-year to $4.25 billion, missing market expectations of $4.31 billion. Its net income recorded $560 million, up nearly 22% from $460 million in the previous year. Organic net sales, which exclude the impact of brand restructuring and currency exchange rates, increased 9 percent. Operating profit grew to $738 million up 19.8% year-over-year.
According to the results, the Company's skincare category sales grew 6% year-on-year to $2.359 billion and 3% organically led by double-digit sales growth of LA MER and Clinique. The net sales in the fragrance category grew 28% due to high premiums for luxury fragrances, the opening of brick-and-mortar retail and the beginning of tourism recovery in Western markets and grew 31% to $579 million.
Its brands such as LA MER, Clinique, Jo Malone London, M-A-C, Tom Ford Beauty, Le Labo and Aveda were all named and praised in the earnings report all achieving handsome double-digit growth due to factors such as product launches and social media marketing. Estee Lauder's skincare net sales declined due to logistical challenges in Greater China, but fragrance and cosmetics both achieved double-digit growth.
Relative to the past, the Asia-Pacific market did not start the year as well as expected with net sales of $1.203 billion in 2022, down 4 percentage points year-over-year. Data from previous years show that the Asia-Pacific market led the way with an increase of about 30 percent, except during the pandemic in 2020, which reported a 29 percent increase in fiscal 2021.
The Estée Lauder Company, headquartered in Shanghai, China, is not immune to the impact of the pandemic. In its earnings report, Estée Lauder Company noted that cases resurfaced in many Chinese provinces beginning in mid-March 2022 and restrictions were implemented to prevent further spread of the virus. These temporary restrictions reduced consumer traffic and travel, and the company's distribution facility in Shanghai was temporarily impacted in its ability to fulfill physical and online orders. Despite double-digit growth in e-commerce it was still unable to offset the decline in physical retail, with sales of skin care and color cosmetics in particular showing declines.
"We believe our business in China will rebound and accelerate our momentum when COVID subsides." said Fabrizio Freda, President and CEO of Estée Lauder Group.
Fabrizio Freda concluded, "Despite the headwinds we experienced in the quarter, including the limitations of the COVID-19 epidemic in Asia Pacific, we achieved strong sales growth and higher than expected profitability driven by the excellent performance of our fragrance business globally and the revival of our Western markets with organic growth in every category. 11 brands contributed double-digit organic growth further demonstrating our diversification and multi-engine growth strategy, which has allowed us to maintain strong consumer demand even in an environment of increased inflation."
Travel Retail has been a contributor to Estee Lauder Group's business growth and, as seen in this quarter's results, global travel retail net sales continued to achieve double-digit growth. However, Estée Lauder's business in Hainan duty-free was also affected by the reduction in travel due to the outbreak that began in March.
At the beginning of the year, Estee Lauder also cooperated with CDF to actively expand its business in Hainan and boost consumption. During the promotional campaign on March 8th and International Worker’s Day, Estee Lauder and cdf members once again sent out special benefits.
Estee Lauder also made two important personnel changes at the group level this quarter. Israel Assa was appointed President of Global Travel Retail and Javier Simon, currently President of Travel Retail Asia Pacific, will replace Israel Assa who will be appointed as President of Global Travel Retail Commercial.
In addition to the new moves in travel retail, Estee Lauder is also moving into the metaverse in online marketing.
In March this year, Estee Lauder announced an exclusive in-depth cooperation with 3D virtual technology platform Decentraland meta-universe fashion week, users can use virtual images into the "Advanced Nigh Repair", receive a wearable NFT update avatar. With a series of NFT projects, Estee Lauder earned enough traffic on the network. As early as last year, Clinique also held an NFT-related online interactive prize inviting users to answer relevant questions and their own experiences in social media.
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