Estee fears bigger drop in profit on uncertain China recovery

FILE PHOTO: An Estee Lauder cosmetics counter is seen in Los Angeles

By Ananya Mariam Rajesh

(Reuters) – Estee Lauder Cos Inc forecast a bigger drop in full-year profit than it had initially estimated, citing uncertainity around recovery in major market China.

Analysts, meanwhile, expect China’s recent move to relax its toughest COVID-related curbs and lift travel restrictions to improve sales for U.S. luxury and beauty companies, such as Estee, that took a beating from the country’s strict zero-COVID policy.

Shares of the New York-based company were down about 1% in early trading on Thursday after the company also forecast third-quarter sales and profit below analysts’ expectations.

Estee said it expects a return to sales growth in Mainland China and Asia travel retail in the second half of the year.

“Outside of China, the travel retail looks strong” said Evercore ISI analyst Robert Ottenstein, adding that segment recovery in the country, however, remained an important question.

Lower sales at Asia travel retailers and fewer inventory orders from the United States on worries of a slowdown in demand, hurt the MAC lipstick maker’s sales in the second quarter.

“A concern on the quarter was apparent weakness in the U.S. and it looks like they may be losing market share on the skin care side,” Ottenstein added, highliting a 5% decline in sales in the Americas.

Estee expects annual adjusted profit per share to fall between 27% and 29%, compared with its prior forecast of a decrease between 19% and 21%, and net sales to fall about 5% to 7%, compared with a 6% and 8% drop it forecast earlier.

(Reporting by Ananya Mariam Rajesh in Bengaluru; Editing by Shinjini Ganguli)