The shares of The Estée Lauder Companies Inc. (NYSE:EL) experienced a decline on Tuesday following an announcement by Goldman Sachs stating that beauty sales in China were falling short of expectations.
In a note written by Goldman Sachs analysts led by Jason English, it was revealed that both the results from China Tourism Group Duty-Free and insights from an expert call indicated that beauty sales in Hainan were not meeting their previous estimates. The analysts attributed this weakness to the Chinese government’s imposition of tighter restrictions on Daigou resellers.
The implications of this underperformance are expected to be more prolonged than initially anticipated, posing a negative impact on Estée Lauder’s share price and further weighing down its sales. It may also require Estée Lauder to increase its investments in the market, as highlighted by Goldman Sachs.
Goldman Sachs stated, “Considering this dynamic, we have significantly lowered our estimates for FY24 and FY25.” However, despite this adjustment, the firm maintained its Buy rating for Estée Lauder, acknowledging it as a company with long-term growth advantages within the HPC (Health and Personal Care) sector.
Although a compelling recovery is anticipated in the latter half of 2024, recent warnings by Citi regarding Estée Lauder’s near-term share price trajectory have raised concerns ahead of the upcoming earnings report scheduled for late August. Citi stated We anticipate initial FY’24 guidance to fall below consensus. While the market expects this to some extent, we believe that investors will not perceive the low guidance as conservative, considering the significant cuts made in the past two years.
In light of these developments, Goldman Sachs revised its earnings per share (EPS) estimates for FY23, FY24, and FY25 to $3.30, $4.56, and $6.80, respectively, down from the previous estimates of $3.38, $5.95, and $8.52. Furthermore, Goldman Sachs introduced an EPS estimate of $7.65 for FY26, assuming that Hainan sales will continue to face considerable pressure throughout the first half of 2024 before experiencing a notable rebound.
On the same day, Estée Lauder’s industry peers, including e.l.f. Beauty, Inc., Coty, and Unilever PLC demonstrated little change in their stock performance.
Over the past three months, earnings per share estimates for the upcoming quarter have been revised downwards on 23 occasions, without a single upward revision.
Estée Lauder’s shares have declined by approximately 26% year-to-date. The company currently holds 14 Strong Buy ratings, seven Buys, eight Holds, and one Strong Sell rating from Wall Street analysts.
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Author Faith Yakubu 
