01—Abstract
Summary
Summary of the 10-K filed August 18, 2023. Cited figures are marked; the original filing is the authoritative source.
The Estée Lauder Companies Inc. reported fiscal 2023 (year ended June 30, 2023) net sales of $15.91 billiona, down 10% from $17.74 billion in fiscal 2022, with reported declines in every geographic region.
The filing attributes the decline primarily to a slower-than-anticipated recovery in Asia travel retail and mainland China, along with retailer inventory tightening, pressure from the strong U.S. dollar, and license terminations for certain designer fragrances. Skin care, the largest category, fell 17% to $8.20 billionb, while hair care rose 3% and fragrance was virtually flat. Profitability deteriorated sharply.
Operating income fell to $1.51 billionc from $3.17 billion, and operating margin dropped to 9.5% from 17.9%. Diluted EPS was $2.79 versus $6.55 in fiscal 2022. The results include $207 million of trademark impairments (Dr.Jart+, Too Faced and Smashbox), $85 million of restructuring charges, and a gross margin decline to 71.3% from 75.7%.
Net earnings attributable to the company were $1.01 billiond, versus $2.39 billion a year earlier. Balance sheet and cash flow shifted materially with the $2.55 billion acquisition of the TOM FORD brand. Total debt as a percentage of total capitalization rose to 59% from 49%, cash flow from operations fell to $1.73 billion from $3.04 billion, and the company issued $2.0 billion of senior notes in May 2023.
The Board declared a $0.66 quarterly dividend on August 17, 2023, and share repurchases remain suspended. The Lauder family controls approximately 84% of voting power. The filing also discloses a cybersecurity incident, which it expects to reduce diluted EPS by approximately $0.07 in the fiscal 2024 first quarter.
02—Key points
Key Highlights
- Net sales declined 10% to $15.91 billion, with decreases in all three regions: The Americas (-2%), Europe, the Middle East & Africa (-19%) and Asia/Pacific (-4%).
- Skin care net sales fell 17% to $8.20 billion, driven by Estée Lauder, La Mer, Dr.Jart+ and Clinique, largely tied to Asia travel retail challenges.
- Operating income fell 52% to $1.51 billion; operating margin compressed to 9.5% from 17.9%, and gross margin declined to 71.3% from 75.7%.
- Diluted EPS was $2.79 versus $6.55 in fiscal 2022; adjusted diluted EPS was $3.46 versus $7.24 (non-GAAP).
- Impairment charges of $207 million were recorded on trademarks for Dr.Jart+ ($100 million), Too Faced ($86 million) and Smashbox ($21 million).
- The $2.55 billion TOM FORD brand acquisition pushed total debt to 59% of total capitalization, up from 49%; operating cash flow fell to $1.73 billion from $3.04 billion.
- A cybersecurity incident disclosed in July 2023 is expected to reduce diluted EPS by approximately $0.07 in the fiscal 2024 first quarter and full year.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2023, Estée Lauder Companies kept $0.06.
- Revenue$15.91B100.0%
- Cost of revenue−$4.56B28.7%
- Gross profit$11.35B71.3%
- Operating costs−$9.84B61.8%
- Operating income$1.51B9.5%
- Interest, other & tax−$503.0M3.2%
- Net income$1.01B6.3%
Where FY2023 revenue went
$15.91B- SG&A: $9.57B, 60% of revenue
- Cost of revenue: $4.56B, 29% of revenue
- Net income: $1.01B, 6.3% of revenue
- Other operating costs: $262.0M, 1.6% of revenue
- Interest, other & tax: $503.0M, 3.2% of revenue
Kept 6.3% as net incomeNet income $1.01B · 6.3%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2023filed August 18, 2023Financial Statements
FY2023 against FY2022
| Line item | FY2023FY2022 | Change |
|---|---|---|
| Revenue | $15.91B$17.74B | −10.3% |
| Cost of Revenue | $4.56B$4.30B | +6.0% |
| Gross Profit | $11.35B$13.43B | −15.5% |
| SG&A Expenses | $9.57B$9.89B | −3.2% |
| Operating Expenses | $9.84B$10.26B | −4.1% |
| Operating Income | $1.51B$3.17B | −52.4% |
| Interest Expense | $255.00M$167.00M | +52.7% |
| Net Income | $1.01B$2.39B | −57.9% |
| EPS (Basic) | $2.81$6.64 | −57.7% |
| EPS (Diluted) | $2.79$6.55 | −57.4% |
| Shares Outstanding (Basic) | 357.90M360.00M | −0.6% |
| Shares Outstanding (Diluted) | 360.90M364.90M | −1.1% |
05—Questions
Frequently Asked Questions
Why did Estée Lauder's net sales and profits decline so much in fiscal 2023?
The filing attributes the decline mainly to a slower-than-anticipated recovery in Asia travel retail and mainland China, retailer inventory tightening, a strong U.S. dollar, inflation and recession concerns, and the license terminations for certain designer fragrances effective June 30, 2022. Lower volume drove a 7% decline, foreign currency translation reduced sales by 4%, and gross margin fell due to unfavorable product mix, higher obsolescence charges and manufacturing costs.
What were the main non-recurring or unusual charges in fiscal 2023?
The company recorded $207 million of trademark impairment charges, including $100 million for Dr.Jart+, $86 million for Too Faced and $21 million for Smashbox. It also recorded $85 million of charges associated with restructuring and other activities under the Post-COVID Business Acceleration Program. The fiscal 2023 impairments were reflected in the skin care category for Dr.Jart+ and the makeup category for Too Faced and Smashbox.
How did the TOM FORD acquisition affect the company's financial position?
The company acquired 001 Del LLC, the owner of the TOM FORD brand, on April 28, 2023, for $2,550 million in consideration, with a total cost of $2,578 million allocated to the TOM FORD trademark. Financing included commercial paper and $2.0 billion of Senior Notes issued in May 2023. Total debt rose to $8,114 million, and total debt as a percentage of total capitalization increased to 59% from 49%. Deferred consideration of $300 million is payable in July 2025 and July 2026.
What is the status of shareholder returns and the dividend?
On August 17, 2023, the Board declared a quarterly dividend of $0.66 per share, payable September 15, 2023. Cash dividends declared for fiscal 2023 totaled $2.58 per share. The company suspended share repurchases under its publicly announced program beginning in December 2022 and may resume them in the future. Approximately 25.1 million shares remained authorized for repurchase.
Who controls the company and what does that mean for investors?
Members of the Lauder family beneficially own shares representing approximately 84% of the outstanding voting power of common stock, through Class A shares (one vote each) and Class B shares (ten votes each). The company is a 'controlled company' under NYSE rules and relies on exemptions from certain corporate governance requirements, meaning the family can determine the outcome of matters requiring stockholder approval, including director elections and significant transactions.
06—Continue