Estee Lauder Q1 Sales Dip Slightly, Earnings Decline

Ticker: EL · Form: 10-Q · Filed: 2024-10-31T00:00:00.000Z

Sentiment: neutral

Topics: earnings, cosmetics, retail

TL;DR

Estee Lauder Q1 sales down slightly to $3.55B, EPS drops to $0.77.

AI Summary

Estee Lauder Companies Inc. reported its first quarter results for the period ending September 30, 2024. The company's net sales for the quarter were $3.55 billion, a decrease from $3.57 billion in the same period last year. Net earnings per diluted share were $0.77, down from $0.82 in the prior year's first quarter.

Why It Matters

This filing provides insight into Estee Lauder's performance in a key quarter, impacting investor sentiment and future strategic decisions for the beauty giant.

Risk Assessment

Risk Level: medium — The company faces risks related to customer concentration and potential impacts on accounts receivable.

Key Numbers

Key Players & Entities

FAQ

What were Estee Lauder's net sales for the first quarter of fiscal year 2025?

Estee Lauder's net sales for the first quarter ended September 30, 2024, were $3.55 billion.

How did the net earnings per diluted share compare to the prior year's first quarter?

Net earnings per diluted share were $0.77 for the first quarter ended September 30, 2024, down from $0.82 in the prior year's first quarter.

What is the company's primary business sector?

Estee Lauder Companies Inc. operates in the 'Perfumes, Cosmetics & Other Toilet Preparations' sector, SIC code 2844.

When is Estee Lauder's fiscal year end?

Estee Lauder's fiscal year ends on June 30.

Does the filing indicate any customer concentration risk?

Yes, the filing mentions 'el:LargestCustomerMember' and 'us-gaap:CustomerConcentrationRiskMember' in relation to accounts receivable.

Filing Stats: 4,544 words · 18 min read · ~15 pages · Grade level 15.3 · Accepted 2024-10-31 12:02:53

Filing Documents

Financial Information

Part I. Financial Information

Financial Statements (Unaudited)

Item 1. Financial Statements (Unaudited) Consolidated Statements of Earnings (Loss) — Three Months Ended September 30, 2024 and 2023 2 Consolidated Statements of Comprehensive Incom e (Loss) — Three Months Ended September 30, 2024 and 2023 3 Consolidated Balance Sheets — September 30, 2024 and June 30, 2024 4 Consolidated Statements of Cash Flows — Three Months Ended September 30, 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 34

Quantitative and Qualitative Disclosures About Market Risk

Item 3. Quantitative and Qualitative Disclosures About Market Risk 59

Controls and Procedures

Item 4. Controls and Procedures 59

Other Information

Part II. Other Information

Legal Proceedings

Item 1. Legal Proceedings 59

Unregistered Sales of Equity Securities and Use of Proceeds

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 59

Other Information

Item 5. Other Information 60

Exhibits

Item 6. Exhibits 60

Signatures

Signatures 61 Table of Contents

FINANCIAL INFORMATION

PART I. FINANCIAL INFORMATION

Financial Statements

Item 1. Financial Statements. THE ESTE LAUDER COMPANIES INC. CONSOLIDATED STATEMENTS OF EARNINGS (LOSS) (Unaudited) Three Months Ended September 30 (In millions, except per share data) 2024 2023 Net sales $ 3,361 $ 3,518 Cost of sales 928 1,070 Gross profit 2,433 2,448 Operating expenses Selling, general and administrative 2,298 2,349 Restructuring and other charges 97 1 Talcum litigation settlement agreements 159 — Total operating expenses 2,554 2,350 Operating income (loss) ( 121 ) 98 Interest expense 92 95 Interest income and investment income, net 35 41 Other components of net periodic benefit cost 2 ( 2 ) Earnings (loss) before income taxes ( 180 ) 46 Provision (benefit) for income taxes ( 24 ) 10 Net earnings (loss) ( 156 ) 36 Net earnings attributable to redeemable noncontrolling interest — ( 5 ) Net earnings (loss) attributable to The Este Lauder Companies Inc. $ ( 156 ) $ 31 Net earnings (loss) attributable to The Este Lauder Companies Inc. per common share Basic $ ( .43 ) $ 0.09 Diluted $ ( .43 ) $ 0.09 Weighted average common shares outstanding Basic 359.6 358.4 Diluted 359.6 360.5 See notes to consolidated financial statements. 2 Table of Contents THE ESTE LAUDER COMPANIES INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited) Three Months Ended September 30 (In millions) 2024 2023 Net earnings (loss) $ ( 156 ) $ 36 Other comprehensive income (loss): Net cash flow hedge gain (loss) ( 57 ) 19 Cross-currency swap contract gain 12 — Retirement plan and other retiree benefit adjustments 2 ( 1 ) Translation adjustments 108 ( 120 ) Benefit (provision) for income taxes on components of other comprehensive income 18 ( 38 ) Total other comprehensive income (loss), net of tax 83 ( 140 ) Comprehensive loss ( 73 ) ( 104 ) Comprehensive loss (income) attributable to redeemable noncontrolling interest: Net earnings — ( 5 ) Translation adjustments — 11 Total

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, 2024. 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 first quarter of fiscal 2025 sells products primarily within the United States and accounted for $ 200 million, or 10 %, and $ 78 million, or 4 %, of the Company's accounts receivable at September 30, 2024 and June 30, 2024, respectively. Inventory and Promotional Merchandise Inventory and promotional merchandise consists of the following: (In millions) September 30, 2024 June 30, 2024 Raw materials $ 673 $ 696 Work in process 272 308 Finished goods 1,025 903 Promotional merchandise 285 268 $ 2,255 $ 2,175 Property, Plant and Equipment Property, plant and equipment consists of the following: (In millions) September 30, 2024 June 30, 2024 Assets (Useful Life) Land and improvements (1) $ 76 $ 68 Buildings and improvements ( 10 to 40 years) 1,028 929 Machinery and equipment ( 3 to 20 years) 1,339 1,253 Computer hardware and software ( 4 to 10 years) 1,932 1,861 Furniture and fixtures ( 5 to 10 years) 141 137 Leasehold improvements 2,504 2,418 Construction in progress 470 500 7,490 7,166 Less accumulated depreciation and amortization ( 4,257 ) ( 4,030 ) $ 3,233 $ 3,136 (1) Land improvements are depreciated over a 10 year useful life. Depreciation and amortization of property, plant and equipment was $ 168 million and $ 162 million during the three months e

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Income Taxes The effective rate for income taxes was 13.3 % and 21.7 % for the three months ended September 30, 2024 and 2023, respectively. The decrease in the effective tax rate of 840 basis points was primarily attributable to the impact of the discrete treatment of the charge associated with the talcum litigation settlement agreements (See Note 8 - Commitments and Contingencies for further discussion) and charges associated with restructuring and other activities recorded in the first quarter of fiscal 2025. The loss before income taxes in the first quarter of fiscal 2025 increased the impact of these discrete items on the effective tax rate. 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 did not have an impact on the Company's consolidated financial statements for the three months ended September 30, 2024 and 2023. On August 26, 2024, the U.S. Tax Court issued a decision in Varian Medical Systems, Inc. v. Commissioner. The decision related to the Tax Cuts and Jobs Act deduction for certain deemed foreign dividends otherwise subject to the Transition Tax on unrepatriated earnings of applicable foreign subsidiaries. Based on the Company's evaluation of the technical merits of this decision, the Company intends to timely file a protective refund claim with the U.S. Internal Revenue Service in fiscal 2025 claiming a Transition Tax payable reduction of approximately $ 73 million. Although the Company has accrued the $ 73 million estimated tax benefit in the provision for income taxes and reduced the Transition Tax payable in the fiscal 2025 first quarter by $ 73 million, at this time the Company believes it is more-likely-than-not that the intended Transition Tax payable reduction claim will not be sustained. As

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Outstanding obligations confirmed as valid totaling $ 58 million as of September 30, 2024 and June 30, 2024, are included in Accounts payable in the accompanying consolidated balance sheets. Other Accrued Liabilities Other accrued liabilities consist of the following: (In millions) September 30, 2024 June 30, 2024 Advertising, merchandising and sampling $ 298 $ 276 Employee compensation 442 576 Accrued sales incentives 397 426 Deferred revenue 338 327 Payroll and other non-income taxes 356 333 Accrued income taxes 182 335 Other 1,441 1,131 $ 3,454 $ 3,404 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 Finance Programs above within Note 1 – Summar

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FASB ASU No. 2023-09 – Income Taxes (Topic 740): Improvements to Income Tax Disclosures In December 2023, the FASB issued authoritative guidance to amend and enhance existing annual in come tax disclosures primarily focusing on two reporting areas: (1) greater disaggregation of information in the effective tax rate reconciliations and (2) disclosure of income taxes paid, disaggregated by applicable jurisdiction. Companies are required to use specific categories to prepare and disclose a tabular rate reconciliation (using both percentages and reporting currency amounts) of: the reported income tax expense (or benefit) from continuing operations and the product of the income (or loss) from continuing operations before income taxes and the applicable statutory federal income tax rate of the jurisdiction of domicile; and reconciling items within certain categories that are equal to or greater than a specified quantitative threshold, including the nature, effect, and underlying causes of the reconciling items and the judgment used in categorizing the reconciling items. The guidance also requires companies to disclose the amount of income taxes paid (net of refunds received) disaggregated by federal, state, and foreign jurisdictions including individual jurisdictions with amounts paid equal to or greater than a specified quantitative threshold. The guidance also codifies existing SEC rules that require companies to disclose income (or loss) from continuing operations before income tax expense (or benefit) disaggregated between domestic and foreign as well as income tax expense (or benefit) from continuing operations disaggregated by federal, state, and foreign jurisdictions. Effective for the Company – The guidance is effective for the Company's fiscal year ending June 30, 2026 Form 10-K. Early adoption is permitted. The guidance should be applied on a prospective basis with the option to apply the standard retrospecti

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