Estée Lauder: Poor Q1 FY23 Results, Much Worse Than Peers

(Preview) Company Update (EL US) (Buy)

Summary

• EL's Q1 FY23 results were poor, with sales down 5% organically and Adjusted EBIT down 26%; FY23 outlook was cut.

• EL's peers grew their sales by 9% in the same quarter. EL's larger exposure to China explains part of the underperformance.

• COVID restrictions hit Travel Retail and brick-and-mortar stores in China; EL also suffered from inventory tightening at some U.S. retailers.

• There were anecdotal datapoints of good performance. EL expects double-digit organic sales growth to resume in H1 FY23.

• We give EL benefit of the doubt. With shares at $220.67, we expect a total return of 52% (12.5% annualized) by June 2026. Buy.

Introduction

The Estée Lauder Companies Inc. released Q1 FY23 (July-September 2022) results on November 2. EL shares initially fell by more than 10%, before recovering to close down 5.6% that day; they have since recovered, including rising 11% in two days in last week’s market rally, but the share price is still down 37% in the past year.

We initiated our Buy rating on …