Estée Lauder: Shares Fell 17% as Q3 FY23 Revealed Past Mistakes

Company Update (EL US) (Buy)

Highlights

• EL had its fourth quarter of year-on-year sales decline

• Management blamed weak China and Korea Travel Retail

• We see effects of past poor execution now turning visible

• Weakness will linger, but strong brands should carry EL through

• We see 41% upside (11.7% p.a.) by June 2026. Buy

Introduction

We review Estée Lauder (EL) after shares crashed 17% on Wednesday (May 3) following Q3 FY23 results. EL’s share price is now down 21% in the past year, and 45% lower than its peak in December 2021:

EL Share Price (Last 1 Year)

Source: Google Finance (03-May-23).

EL sales fell 8% organically year-on-year in Q3 FY23. This was the fourth consecutive quarter of year-on-year decline, and EL sales had fallen back to pre-COVID levels since Q4 FY22. Inventory levels were too high in CY22, and de-stocking has continued to be a headwind. FY23 guidance was cut to an organic sales decline of 5-7% and an Adjusted EPS decline of 54%. EL’s poor performance was in sharp contrast to the continuing growth at L’Oré…