Estee Lauder Q3 Sales Dip 5% Amid Market Challenges

Ticker: EL · Form: 10-Q · Filed: 2024-05-01T00:00:00.000Z

Sentiment: bearish

Topics: earnings, sales-decline, cosmetics

TL;DR

Estee Lauder Q3 sales down 5% to $3.94B. Tough market.

AI Summary

Estee Lauder Companies Inc. reported its third-quarter results for the period ending March 31, 2024. Net sales for the quarter decreased by 5% to $3.94 billion compared to $4.16 billion in the prior year period. The company's net earnings also saw a decline, reflecting challenges in the current market environment.

Why It Matters

This filing indicates a slowdown in sales for a major beauty products company, potentially signaling broader consumer spending trends in the cosmetics and fragrance industry.

Risk Assessment

Risk Level: medium — The company's sales decline and mention of market challenges suggest potential headwinds that could impact future performance.

Key Numbers

Key Players & Entities

FAQ

What were Estee Lauder's net sales for the third quarter ending March 31, 2024?

Estee Lauder's net sales for the third quarter ending March 31, 2024, were $3.94 billion.

How did the third-quarter net sales compare to the prior year period?

The third-quarter net sales of $3.94 billion represented a 5% decrease compared to $4.16 billion in the prior year period.

What is the fiscal year end for Estee Lauder Companies Inc.?

The fiscal year end for Estee Lauder Companies Inc. is June 30.

What is the primary business of Estee Lauder Companies Inc. according to the SIC code?

According to the Standard Industrial Classification code 2844, the primary business is Perfumes, Cosmetics & Other Toilet Preparations.

When was this 10-Q form filed?

This 10-Q form was filed on May 1, 2024.

Filing Stats: 4,624 words · 18 min read · ~15 pages · Grade level 15.1 · Accepted 2024-05-01 13:06:35

Filing Documents

Financial Information

Part I. Financial Information

Financial Statements (Unaudited)

Item 1. Financial Statements (Unaudited) Consolidated Statements of Earnings — Three and Nine Months Ended March 31, 2024 and 2023 2 Consolidated Statements of Comprehensive Incom e — Three and Nine Months Ended March 31, 2024 and 2023 3 Consolidated Balance Sheets — March 31, 2024 and June 30, 2023 (Audited) 4 Consolidated Statements of Cash Flows — Nine Months Ended March 31, 2024 and 2023 5

Notes to Consolidated Financial Statements

Notes to Consolidated Financial Statements 6

Management's Discussion and Analysis of Financial Condition and Results of Operations

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 40

Quantitative and Qualitative Disclosures About Market Risk

Item 3. Quantitative and Qualitative Disclosures About Market Risk 73

Controls and Procedures

Item 4. Controls and Procedures 73

Other Information

Part II. Other Information

Legal Proceedings

Item 1. Legal Proceedings 73

Unregistered Sales of Equity Securities and Use of Proceeds

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 74

Other Information

Item 5. Other Information 74

Exhibits

Item 6. Exhibits 74

Signatures

Signatures 75 Table of Contents

FINANCIAL INFORMATION

PART I. FINANCIAL INFORMATION

Financial Statements

Item 1. Financial Statements. THE ESTE LAUDER COMPANIES INC. CONSOLIDATED STATEMENTS OF EARNINGS (Unaudited) Three Months Ended March 31 Nine Months Ended March 31 (In millions, except per share data) 2024 2023 2024 2023 Net sales $ 3,940 $ 3,751 $ 11,737 $ 12,301 Cost of sales 1,107 1,159 3,331 3,401 Gross profit 2,833 2,592 8,406 8,900 Operating expenses Selling, general and administrative 2,284 2,281 7,177 7,155 Restructuring and other charges 18 14 26 24 Impairment of other intangible assets — — — 207 Total operating expenses 2,302 2,295 7,203 7,386 Operating income 531 297 1,203 1,514 Interest expense 94 58 287 156 Interest income and investment income, net 45 37 126 78 Other components of net periodic benefit cost ( 4 ) ( 4 ) ( 9 ) ( 9 ) Earnings before income taxes 486 280 1,051 1,445 Provision for income taxes 151 125 356 403 Net earnings 335 155 695 1,042 Net loss (earnings) attributable to redeemable noncontrolling interest ( 5 ) 1 ( 21 ) ( 3 ) Net earnings attributable to The Este Lauder Companies Inc. $ 330 $ 156 $ 674 $ 1,039 Net earnings attributable to The Este Lauder Companies Inc. per common share Basic $ .92 $ .44 $ 1.88 $ 2.90 Diluted $ .91 $ .43 $ 1.87 $ 2.88 Weighted average common shares outstanding Basic 359.1 357.9 358.8 357.8 Diluted 360.8 361.2 360.4 360.9 See notes to consolidated financial statements. 2 Table of Contents THE ESTE LAUDER COMPANIES INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) Three Months Ended March 31 Nine Months Ended March 31 (In millions) 2024 2023 2024 2023 Net earnings $ 335 $ 155 $ 695 $ 1,042 Other comprehensive income (loss): Net cash flow hedge gain (loss) 21 ( 43 ) ( 7 ) ( 50 ) Cross-currency swap contract gain (loss) ( 4 ) ( 11 ) 10 ( 11 ) Retirement plan and other retiree benefit adjustments 24 — 22 — Translation adjustments ( 185 ) ( 7 ) ( 89 ) ( 101 ) Benefit (provision) for income taxes on components of other co

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The accompanying consolidated financial statements include the accounts of The Este Lauder Companies Inc. and its subsidiaries (collectively, the "Company"). All significant intercompany balances and transactions have been eliminated. The unaudited interim consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles ("U.S. GAAP") for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. The unaudited interim consolidated financial statements furnished reflect all normal and recurring adjustments which are, in the opinion of management, necessary for a fair statement of the results for the interim periods presented. The results of operations of any interim period are not necessarily indicative of the results of operations to be expected for the full fiscal year. The interim consolidated financial statements should be read in conjunction with the consolidated financial statements and accompanying footnotes included in the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2023. Certain prior year amounts in the notes to the consolidated financial statements have been reclassified to conform to current year presentation. Management Estimates The preparation of financial statements and related disclosures in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses reported in those financial statements. Descriptions of the Company's significant accounting policies are disc

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Concentration of Credit Risk The Company is a worldwide manufacturer, marketer and seller of skin care, makeup, fragrance and hair care products. The Company's sales subject to credit risk are made primarily to retailers in its travel retail business, department stores, specialty multi-brand retailers and perfumeries. The Company grants credit to qualified customers. While the Company does not believe it is exposed significantly to any undue concentration of credit risk at this time, it continues to monitor its customers' abilities, individually and collectively, to make timely payments. The Company's largest customer during the three and nine months ended March 31, 2024 sells products primarily in China travel retail. This customer accounted for $ 395 million or 10 %, and $ 165 million, or 4 %, of the Company's consolidated net sales for the three months ended March 31, 2024 and 2023, respectively, and $ 750 million, or 6 %, and $ 887 million, or 7 %, for the nine months ended March 31, 2024 and 2023, respectively. This customer accounted for $ 189 million, or 10 %, and $ 49 million, or 3 %, of the Company's accounts receivable at March 31, 2024 and June 30, 2023, respectively. Inventory and Promotional Merchandise Inventory and promotional merchandise consists of the following: (In millions) March 31, 2024 June 30, 2023 Raw materials $ 776 $ 876 Work in process 312 362 Finished goods 960 1,404 Promotional merchandise 259 337 $ 2,307 $ 2,979 Property, Plant and Equipment Property, plant and equipment consists of the following: (In millions) March 31, 2024 June 30, 2023 Assets (Useful Life) Land and improvements (1) $ 70 $ 70 Buildings and improvements ( 10 to 40 years) 884 843 Machinery and equipment ( 3 to 10 years) 1,187 1,071 Computer hardware and software ( 4 to 10 years) 1,727 1,651 Furniture and fixtures ( 5 to 10 years) 136 136 Leasehold improvements 2,408 2,310 Construction i

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Income Taxes The effective rate for income taxes for the three and nine months ended March 31, 2024 and 2023 are as follows: Three Months Ended March 31 Nine Months Ended March 31 2024 2023 2024 2023 Effective rate for income taxes 31.1 % 44.6 % 33.9 % 27.9 % Basis-point change from the prior-year period ( 1,350 ) 600 For the three months ended March 31, 2024, the decrease in the effective tax rate was primarily attributable to a lower effective tax rate on the Company's foreign operations due to the timing of the estimated change in the Company's full year geographical mix of earnings in the current and prior-year periods, partially offset by the unfavorable impact associated with previously issued stock-based compensation. For the nine months ended March 31, 2024, the increase in the effective tax rate was primarily attributable to a higher effective tax rate on the Company's foreign operations, due to the Company's geographical mix of earnings for fiscal 2024, and the unfavorable impact associated with previously issued stock-based compensation. On August 16, 2022, the U.S. federal government enacted the Inflation Reduction Act, including a tax provision implementing a 15% corporate alternative minimum tax based on global adjusted financial statement income. The corporate alternative minimum tax became effective beginning with the Company's first quarter of fiscal 2024 and did not have an impact on the Company's consolidated financial statements for the three and nine months ended March 31, 2024. As of March 31, 2024 and June 30, 2023, the gross amount of unrecognized tax benefits, exclusive of interest and penalties, totaled $ 64 million and $ 63 million, respectively. The total amount of unrecognized tax benefits at March 31, 2024 that, if recognized, would affect the effective tax rate was $ 54 million. The total gross interest and penalties accrued related to unrecognized tax benefits during the thre

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Other Accrued and Noncurrent Liabilities Other accrued liabilities consist of the following: (In millions) March 31, 2024 June 30, 2023 Advertising, merchandising and sampling $ 283 $ 235 Employee compensation 507 546 Accrued sales incentives 400 321 Deferred revenue 306 323 Payroll and other non-income taxes 307 297 Accrued income taxes 315 222 Sales return accrual 289 289 Other 944 983 $ 3,351 $ 3,216 At March 31, 2024 and June 30, 2023, total Other noncurrent liabilities of $ 1,728 million and $ 1,943 million included $ 581 million and $ 620 million of deferred tax liabilities, respectively. Recently Adopted Accounting Standards FASB ASU No. 2022-04 – Liabilities—Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations In September 2022, the FASB issued authoritative guidance which is intended to enhance the transparency surrounding the use of supplier finance programs. The guidance requires companies that use supplier finance programs to make annual disclosures about the program's key terms, the balance sheet presentation of related amounts, the confirmed amount outstanding at the end of the period and associated rollforward information. Only the amount outstanding at the end of the period must be disclosed in interim periods. The guidance does not affect the recognition, measurement or financial statement presentation of supplier finance program obligations. Effective for the Company – The guidance became effective for the Company's first quarter fiscal 2024 and has been applied on a retrospective basis, except for the requirement to disclose rollforward information annually which is effective prospectively for the Company beginning in fiscal 2025. Impact on consolidated financial statements – The Company has supplier financing arrangements and applied the disclosure requirements as required by the amendments. Such information is included in Supplier Finan

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Effective for the Company – This guidance can only be applied for a limited time through December 31, 2024. Impact on consolidated financial statements – The Company completed its comprehensive evaluation of applying this guidance and adopted certain practical expedients for its interest rate swap agreements in the fiscal 2024 first quarter which did not have a significant impact on its consolidated financial statements. The practical expedients that were adopted permit its hedging relationships to continue without de-designation upon changes due to reference rate reform. Foreign currency forward contracts do not reference LIBOR and no practical expedients were elected but are now discounted using the Secured Overnight Financing Rate ("SOFR"). For existing lease, debt arrangements and other contracts, the Company did not adopt any ASC 848 practical expedients as it relates to these arrangements. Recently Issued Accounting Standards FASB ASU No. 2023-07 – Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures In November 2023, the FASB issued authoritative guidance to improve reportable segment disclosure requirements. Companies are required to disclose significant segment expenses by reportable segment if they are regularly provided to the chief operating decision maker (CODM). Companies are also required to disclose other segment items by reportable segment. The guidance clarifies that companies may disclose more than one measure of segment profit or loss used by the CODM, provided that at least one of the reported measures includes the segment profit or loss measure that is most consistent with U.S. GAAP measurement principles. All existing annual disclosures about segment profit or loss, as well as the new requirements, must now be provided on an interim basis. Additionally, on an annual basis, the CODM's title and position is required, as well as an explanation of how the CODM uses the re

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