Estée Lauder's Fragrance Hits Nearly Two-year Low in Growth

Estée Lauder's Fragrance recorded only 1% growth in the Q3 of FY2023, a much narrower increase compared to the 28% growth in Q3 of FY2022 and 30% in Q3 of FY2021.

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(Credit: Estée Lauder Light & Sound Collection fragrance)

On May 3, The Estée Lauder Companies, Inc. released its financial results for the third quarter of fiscal year 2023. In the three months ended March 31, the company achieved net sales of $3.76 billion, down 12% year-on-year, with organic net sales down 8%.

In its financial report, the company said it would lower its full-year earnings expectations, with net sales expected to fall by 10-12% year-on-year for the full year. The company’s shares fell by more than 20% following the results, the largest decline ever recorded by the company.

(Credit: Estee Lauder share price chart)

In terms of product categories, net sales in the Skin Care category were $1.922 billion, down 17 per cent year-on-year. The net sales in the Makeup category were $1.088 billion, virtually unchanged from a year earlier. Its Hair Care category generated $149 million in revenue and other products generated $11 million in revenue.

The Estee Lauder fragrance category grew by just 1%, recording a net sales of $585 million and operating income of $89 million, down 15% year-on-year. Estee Lauder said its net sales was driven by Tom Ford Beauty, Le Labo and Estee Lauder fragrances. The decline in operating income was mainly due to an increase in cost of sales, including changes in the brand portfolio.

Narrower growth in fragrance business

CHAILEEDO found that Estee Lauder's fragrance business recorded net sales of $585 million, which was the lowest increase in two years in the third quarter of fiscal 2023 with net sales up 1% year-over-year.

(Credit: Estee Lauder's third quarter Fragrance financial results for the last 3 years)

As seen in the table above, the Fragrance achieved significant double-digit year-over-year growth in both Q3 of 2021 and Q3 of 2022, but recorded only 1% growth in Q3 of 2023. And, a breakdown of Estée Lauder's figures from Q4 of 2022 to Q3 of 2023 reveals that its Q3 results were down 32.5% month-on-month.

(Credit: Estee Lauder's Fragrance financial results for the last four quarters)

In all three quarters of the FY2023 financial report, Estée Lauder specifically mentioned the growth of Tom Ford Beauty and Le Labo. In the current quarter, the two brands’ net sales grew by double digits, reflecting strong growth in each region and double-digit growth in Tom Ford Beauty, Le Labo and Estée Lauder. In particular, Tom Ford net sales grew by double digits, driven by Tom Ford Noir Extreme Parfum and the fiscal 2023 third quarter launch of The Private Blend Cherry Collection. Le Labo was benefited from growth in every region and across almost all distribution channels, driven by continued consumer demand for the brand's staple franchises (such as Santal 33 and Another 13) and high-touch services, as well as targeted consumer outreach.

(Credit: Le Labo Santal 33 Perfume)

Several fragrance brands declined in China

Fabrizio Freda, President, Chief Executive Officer & Director, The Estée Lauder Companies, Inc, noted in a video conference following the earnings release that after four quarters of pressure from COVID-19 restrictions and outbreaks, Mainland China achieved low-single-digit organic growth.

The duration of Estée Lauder's third quarter of fiscal 2023 enjoyed two important holidays: Valentine's Day on February 14th and Women's Day on March 8th . These two holidays are very important promotional points for the beauty industry every year, especially on Women’s Day, a holiday that features women. For this holiday, major beauty brands pull out all the stops to compete for female consumers. However, data shows that a number of Estee Lauder's fragrance brands experienced a decline in performance in February and March.

According to CHAILEEDO data, in March 2023 on the Chinese e-commerce platform Tmall, Tom Ford perfume sales were approximately 3.28 million yuan ($474,500), compared to sales of approximately 8.99 million yuan ($1.3 million) in March in 2022, a drop in sales of 63.5%. In February 2023, Tom Ford perfume sales were 6.36 million yuan ($920,000), compared to February last year sales of 15.22 million yuan ($2.2 million), also a drop of 58.2%.

Frederic Malle and KILIAN, another Estee Lauder fragrance brand, also saw sales decline to varying degrees in March. According to CHAILEEDO data, Frederic Malle sales were 100,000 yuan ($14,500) in March 2023 on the Tmall platform, compared to 280,000 yuan ($40,500) in March last year, a decrease of 64%.

In fact, according to CHAILEEDO Data, sales of beauty brands generally declined in March. This is closely related to the unpromising turnover of the promotion for Women’s Day. According to the CBERI, during Women’s Day in 2023, the turnover of major international brands such as Estee Lauder, Lancome and La Mer fell by 20% to 50% year-on-year. Most beauty brands saw their turnover decline year-on-year.

In this regard, Dongxing Securities research report shows that "the pace of post-epidemic consumption recovery is still slow. The repair of residents' purchasing power still needs some time. In the absence of significant improvement in total consumption capacity, the release of some of the consumer demand for travel will also affect the demand for other optional consumer categories to a certain extent. Against this backdrop, the overall performance of listed companies in the beauty industry in the first quarter of 2023 may be relatively weak and the industry as a whole may achieve single-digit earnings growth."

(Credit: Tom Ford Noir Extreme Parfum)

Iconic fragrance brand in China market may be a turnaround

CHAILEEDO found that the company is the world's third largest cosmetics company by 2022 with $17.74bn in sales. The company is also grabbing more market share in China for its fragrance segment this year.

Firstly, Estée Lauder captured the "cash cow", Tom Ford. On 28 April 2023, Estée Lauder announced that it had completed the acquisition of Tom Ford for $2.8 billion. It also announced the appointment of Guillaume Jesel as President and CEO of TOM FORD and Peter Hawkings as Creative Director of TOM FORD. And in the first quarter of this year, Tom Ford Beauty announced Chinese actress Shu Qi as the brand's ambassador for fragrance and makeup.

Commenting on the announcement, Fabrizio Freda said, "Indeed, consumer demand is robust for our diverse portfolio of brands in developed and emerging markets around the world, evidenced in both organic sales growth and retail sales trends, which drives our confidence in the long-term. What is more, we are thrilled to have acquired the Tom Ford brand last week and are optimistic about its promising growth opportunities."

Secondly, the company has officially introduced its fragrance brand Le Labo in China. Le Labo showed double-digit growth during the quarter, according to the financial report.

On May 4, the company’s niche fragrance brand Le Labo made an official announcement that Le labo's first shop in mainland China is located in Shanghai.

The niche fragrance brand, which was acquired by Estée Lauder in 2014, has become one of the Companies' most profitable fragrance brands, with Le Labo achieving double-digit in net sales growth in this latest results release.

Although the brand has not yet officially entered China before, it has already gained a considerable amount of popularity among Chinese consumers. On the Chinese sharing platform Xiaohongshu platform, there are already 20,000 notes on Le labo. Its iconic product Santal 33 has become the first premium fragrance for many consumers.

In fact, apart from Le Labo, which is highly anticipated by Chinese consumers, its fragrance brand Jo Malone London has also achieved remarkable results in China. In the 2022 4-hour brand list on Tmall during Chinese Double 11 Shopping Festival, Jo Malone London came out on top, with Tom Ford coming in third.

(Credit: Jo Malone Rose Blush Cologne)

The 2022 Fragrance Product Insight Report by CHAILEEDO shows that in 2022, the global high-end fragrance market size reached 81.9 billion yuan ($11.8 billion), with a compound annual growth rate of 6.14% from 2023 to 2028. Therefore, the global high-end fragrance market size is expected to reach 86.9 billion yuan ($12.6 billion) in 2023. Based on the 4.1% share of China's fragrance market in the global fragrance market, China's high-end fragrance market is expected to reach 3.6 billion yuan ($520.8 million) in 2023. A further breakdown of the high-end fragrance shows that the high-end unisex fragrance market has grown at the highest CAGR in the last five years.

In the booming Chinese fragrance market, high-end fragrances may contribute to Estée Lauder's strong and rapid growth in the country.