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Why EL Stock Is Under Pressure: Key Issues to Watch In Fiscal 2025
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The Estee Lauder Companies Inc. (EL - Free Report) has been under pressure in 2024, as it faces significant challenges in its core markets, particularly in the Asia-Pacific region. The company has long been a powerhouse in the global beauty market. Its recent performance showcased concerns related to the global economy, shifting consumer behavior and adverse currency fluctuations.
These issues are leading the company to take a cautious approach. With earnings estimates slashed, analysts are showing increased pessimism about the company’s ability to meet its targets in the fiscal 2025. The Zacks Consensus Estimate for fiscal 2025 earnings per share (EPS) has moved downward by 2.9% to $2.90 in the past 30 days.
In the past six months, EL’s shares have plummeted 33.9% compared with the industry’s decline of 30.5%. The Zacks Consumer Staple sector and the S&P 500 registered increases of 7.4% and 10%, respectively, highlighting EL’s underperformance during this period. Much of this downward trend stemmed from the company’s struggles in China and the Asia travel retail market, which have been strong revenue sources.
Image Source: Zacks Investment Research
Asia Region Woes Hit EL Hard
In the fiscal 2024, the Asia-Pacific region, particularly mainland China, faced significant challenges, reflecting broader softness in the prestige beauty sector. In fourth-quarter fiscal 2024, sales tumbled 7% to $1,205 million in the Asia-Pacific region, mainly due to weakness in mainland China. During the quarter, prestige beauty retail sales trends in mainland China deteriorated further, with a decline accelerating from mid-single digits in the third quarter to low-double digits. The downside was caused by subdued consumer confidence and a cautious spending environment.
The prestige beauty industry in Asia travel retail also struggled, with particularly sharp declines in Hainan, where sales fell more than 40% in the quarter. The combined impact of weaker consumer sentiment, reduced basket sizes and a shift in consumer spending toward experiences contributed to these declines. Looking ahead to the fiscal 2025, the outlook remains challenging. The slow recovery in China and Asia travel retail is likely to persist in the near term, potentially limiting sales growth and profitability in these regions.
Currency Fluctuations Add to EL’s Woes
The Estee Lauder Companies extensive global presence exposes it to fluctuations in currency rates, which can significantly impact its financial performance. The strengthening of the U.S. dollar has weighed heavily on the company’s earnings, with management warning that currency headwinds could negatively impact EPS by 3 cents in fiscal 2025.
Will Fiscal 2025 be a Turning Point for EL?
The Estee Lauder Companies continues to operate in a challenging macroeconomic environment. The ongoing volatility in the global prestige beauty market, particularly in mainland China and Asia travel retail, is a substantial hurdle. For the fiscal 2025, the company projects a more restrained performance compared with the industry average, largely due to its substantial business presence in mainland China and Asia travel retail.
Management is carefully monitoring potential risks, such as retailer destocking, which may be influenced by factors like weak consumer sentiment, causing declines in the prestige beauty market in mainland China and Asia travel retail. Changes in traveler behavior, with more people spending on experiences instead of products, are affecting Asia travel retail. EL also faces the challenge of adapting to shifts in sales channels and navigating tough competition, particularly as the prestige beauty market slows down in North America.
The Estee Lauder Companies anticipates that first-quarter results will face pressure due to persistent difficulties in mainland China and Asia travel retail, primarily due to persistent weak consumer sentiment, a shift toward more experiential spending and lower conversion rates. Management expects reported and organic net sales to decline 5-3% year over year in first-quarter fiscal 2025. Adjusted EPS, on a constant-currency or cc basis, is expected to slump 89-17% to 1-9 cents in the fiscal year.
What Should Investors Do About EL?
While The Estee Lauder Companies continues to be a dominant player in the global beauty industry, its exposure to market volatility, particularly in China and Asia, along with the impact of currency fluctuations, makes it a high-risk investment at present. Investors looking to navigate these challenges should remain cautious and consider the potential for continued short-term volatility before making any decisions regarding the EL stock. At present, the company carries a Zacks Rank of 5 (Strong Sell).
Here, we have highlighted three better-ranked food stocks — The Chef's Warehouse (CHEF - Free Report) , Flowers Foods (FLO - Free Report) and McCormick & Company, Inc. (MKC - Free Report) .
The Chef’s Warehouse, which distributes specialty food products, currently carries a Zacks Rank #2 (Buy). CHEF has a trailing four-quarter earnings surprise of 33.7%, on average. The Zacks Consensus Estimate for The Chef’s Warehouse’s current fiscal sales and earnings each indicates growth of 9.7% and 12.6%, respectively, from the year-ago reported numbers.
Flowers Foods, one of the largest producers of packaged bakery foods in the United States, currently carries a Zacks Rank #2. FLO has a trailing four-quarter earnings surprise of 1.9%, on average. The Zacks Consensus Estimate for Flowers Foods’ current financial-year sales and earnings implies growth of around 1% and 5%, respectively, from the year-ago reported numbers.
McCormick is a leading manufacturer, marketer and distributor of spices, seasonings, specialty foods and flavors. It currently carries a Zacks Rank # 2. The Zacks Consensus Estimate for McCormick & Company’s current fiscal-year sales and earnings indicates advancements of 0.6% and 7%, respectively, from the year-ago reported figures. MKC has a trailing four-quarter earnings surprise of 13.8%, on average.
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Why EL Stock Is Under Pressure: Key Issues to Watch In Fiscal 2025
The Estee Lauder Companies Inc. (EL - Free Report) has been under pressure in 2024, as it faces significant challenges in its core markets, particularly in the Asia-Pacific region. The company has long been a powerhouse in the global beauty market. Its recent performance showcased concerns related to the global economy, shifting consumer behavior and adverse currency fluctuations.
These issues are leading the company to take a cautious approach. With earnings estimates slashed, analysts are showing increased pessimism about the company’s ability to meet its targets in the fiscal 2025. The Zacks Consensus Estimate for fiscal 2025 earnings per share (EPS) has moved downward by 2.9% to $2.90 in the past 30 days.
In the past six months, EL’s shares have plummeted 33.9% compared with the industry’s decline of 30.5%. The Zacks Consumer Staple sector and the S&P 500 registered increases of 7.4% and 10%, respectively, highlighting EL’s underperformance during this period. Much of this downward trend stemmed from the company’s struggles in China and the Asia travel retail market, which have been strong revenue sources.
Image Source: Zacks Investment Research
Asia Region Woes Hit EL Hard
In the fiscal 2024, the Asia-Pacific region, particularly mainland China, faced significant challenges, reflecting broader softness in the prestige beauty sector. In fourth-quarter fiscal 2024, sales tumbled 7% to $1,205 million in the Asia-Pacific region, mainly due to weakness in mainland China. During the quarter, prestige beauty retail sales trends in mainland China deteriorated further, with a decline accelerating from mid-single digits in the third quarter to low-double digits. The downside was caused by subdued consumer confidence and a cautious spending environment.
The prestige beauty industry in Asia travel retail also struggled, with particularly sharp declines in Hainan, where sales fell more than 40% in the quarter. The combined impact of weaker consumer sentiment, reduced basket sizes and a shift in consumer spending toward experiences contributed to these declines. Looking ahead to the fiscal 2025, the outlook remains challenging. The slow recovery in China and Asia travel retail is likely to persist in the near term, potentially limiting sales growth and profitability in these regions.
Currency Fluctuations Add to EL’s Woes
The Estee Lauder Companies extensive global presence exposes it to fluctuations in currency rates, which can significantly impact its financial performance. The strengthening of the U.S. dollar has weighed heavily on the company’s earnings, with management warning that currency headwinds could negatively impact EPS by 3 cents in fiscal 2025.
Will Fiscal 2025 be a Turning Point for EL?
The Estee Lauder Companies continues to operate in a challenging macroeconomic environment. The ongoing volatility in the global prestige beauty market, particularly in mainland China and Asia travel retail, is a substantial hurdle. For the fiscal 2025, the company projects a more restrained performance compared with the industry average, largely due to its substantial business presence in mainland China and Asia travel retail.
Management is carefully monitoring potential risks, such as retailer destocking, which may be influenced by factors like weak consumer sentiment, causing declines in the prestige beauty market in mainland China and Asia travel retail. Changes in traveler behavior, with more people spending on experiences instead of products, are affecting Asia travel retail. EL also faces the challenge of adapting to shifts in sales channels and navigating tough competition, particularly as the prestige beauty market slows down in North America.
The Estee Lauder Companies anticipates that first-quarter results will face pressure due to persistent difficulties in mainland China and Asia travel retail, primarily due to persistent weak consumer sentiment, a shift toward more experiential spending and lower conversion rates. Management expects reported and organic net sales to decline 5-3% year over year in first-quarter fiscal 2025. Adjusted EPS, on a constant-currency or cc basis, is expected to slump 89-17% to 1-9 cents in the fiscal year.
What Should Investors Do About EL?
While The Estee Lauder Companies continues to be a dominant player in the global beauty industry, its exposure to market volatility, particularly in China and Asia, along with the impact of currency fluctuations, makes it a high-risk investment at present. Investors looking to navigate these challenges should remain cautious and consider the potential for continued short-term volatility before making any decisions regarding the EL stock. At present, the company carries a Zacks Rank of 5 (Strong Sell).
You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.
Some Better-Ranked Staple Bets
Here, we have highlighted three better-ranked food stocks — The Chef's Warehouse (CHEF - Free Report) , Flowers Foods (FLO - Free Report) and McCormick & Company, Inc. (MKC - Free Report) .
The Chef’s Warehouse, which distributes specialty food products, currently carries a Zacks Rank #2 (Buy). CHEF has a trailing four-quarter earnings surprise of 33.7%, on average. The Zacks Consensus Estimate for The Chef’s Warehouse’s current fiscal sales and earnings each indicates growth of 9.7% and 12.6%, respectively, from the year-ago reported numbers.
Flowers Foods, one of the largest producers of packaged bakery foods in the United States, currently carries a Zacks Rank #2. FLO has a trailing four-quarter earnings surprise of 1.9%, on average. The Zacks Consensus Estimate for Flowers Foods’ current financial-year sales and earnings implies growth of around 1% and 5%, respectively, from the year-ago reported numbers.
McCormick is a leading manufacturer, marketer and distributor of spices, seasonings, specialty foods and flavors. It currently carries a Zacks Rank # 2. The Zacks Consensus Estimate for McCormick & Company’s current fiscal-year sales and earnings indicates advancements of 0.6% and 7%, respectively, from the year-ago reported figures. MKC has a trailing four-quarter earnings surprise of 13.8%, on average.