01—Abstract
Summary
Summary of the 10-Q filed November 1, 2023. Cited figures are marked; the original filing is the authoritative source.
The Estée Lauder Companies Inc. reported net sales of $3.52 billiona for the first quarter of fiscal 2024 (three months ended September 30, 2023), down from $3.93 billion in the prior-year period, a decrease of 10% as reported.
Reported net sales declined primarily in skin care, which fell $466 millionb, driven by lower Asia travel retail shipments tied to retailer inventory resets and slower recovery of prestige beauty in mainland China. Operating income fell to $98 million from $661 million, and net earnings attributable to The Estée Lauder Companies Inc. dropped to $31 million, or $0.09 per diluted share, from $489 million, or $1.35 per diluted share. Gross margin decreased to 69.6% from 74.0%, and operating expenses rose to 66.8% of net sales from 57.2%, reflecting obsolescence charges tied to excess inventory and higher employee-related and stock-based compensation costs.
Interest expense rose to $95 millionc from $46 million, reflecting a higher debt balance from financing the TOM FORD acquisition and higher interest rates. Cash and cash equivalents declined to $3.09 billion from $4.03 billion at June 30, 2023, and net cash flows used for operating activities were $408 million. Total debt was $8.09 billion, and total debt as a percent of total capitalization was 60%.
The company stated that its long-term debt is rated A+ with a negative outlook by Standard & Poor's and A1 with a negative outlook by Moody's. The filing also discloses a July 2023 cybersecurity incident that the company says is contained, which was $0.08d dilutive to earnings per share in the quarter and is expected to be dilutive by approximately $0.08 for the full fiscal year.
Management's outlook cites continued challenges in Asia travel retail, incremental headwinds from a slower-than-expected recovery of prestige beauty in mainland China, and business disruption risks in Israel and the Middle East. The company declared a quarterly dividend of $0.66 per share on October 31, 2023, and has temporarily suspended share repurchases since December 2022.
02—Key points
Key Highlights
- Net sales fell 10% to $3.52 billion from $3.93 billion, driven by volume declines of 13% partially offset by pricing of 2%.
- Skin care net sales declined 22% to $1.64 billion, down $466 million, mainly from Estée Lauder and La Mer in Asia travel retail and mainland China.
- Operating income dropped 85% to $98 million, and operating margin fell to 2.8% from 16.8%.
- Diluted EPS was $0.09 versus $1.35 a year earlier; net earnings attributable to the company were $31 million versus $489 million.
- Gross margin contracted to 69.6% from 74.0%, with obsolescence charges from excess inventory and manufacturing under-absorption cited as key drivers.
- Cash and cash equivalents fell to $3.09 billion from $4.03 billion, and interest expense more than doubled to $95 million from $46 million.
- Share repurchases have been temporarily suspended since December 2022, and a $0.66 per share dividend was declared October 31, 2023.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q1 FY2024, Estée Lauder Companies kept $0.01.
- Revenue$3.52B100.0%
- Cost of revenue−$1.07B30.4%
- Gross profit$2.45B69.6%
- Operating costs−$2.35B66.8%
- Operating income$98.0M2.8%
- Interest, other & tax−$67.0M1.9%
- Net income$31.0M0.9%
04—Financials
Financial Highlights
Figures from 10-QQ1 FY2024filed November 1, 2023Financial Statements
Q1 FY2024 against Q1 FY2023
| Line item | Q1 FY2024Q1 FY2023 | Change |
|---|---|---|
| Revenue | $3.52B$3.93B | −10.5% |
| Cost of Revenue | $1.07B$1.02B | +4.6% |
| Gross Profit | $2.45B$2.91B | −15.8% |
| SG&A Expenses | $2.35B$2.24B | +4.7% |
| Operating Expenses | $2.35B$2.25B | +4.6% |
| Operating Income | $98.00M$661.00M | −85.2% |
| Interest Expense | $95.00M$46.00M | +106.5% |
| Net Income | $31.00M$489.00M | −93.7% |
| EPS (Basic) | $0.09$1.37 | −93.4% |
| EPS (Diluted) | $0.09$1.35 | −93.3% |
| Shares Outstanding (Basic) | 358.40M357.90M | +0.1% |
| Shares Outstanding (Diluted) | 360.50M361.40M | −0.2% |
05—Questions
Frequently Asked Questions
Why did net sales and profitability decline so sharply this quarter?
The filing attributes the net sales decline mainly to lower Asia travel retail shipments, driven by retailer inventory resets and changes in government and retailer policies related to unstructured market activity, along with a slower-than-expected recovery of prestige beauty in mainland China. Lower sales, higher obsolescence charges tied to excess inventory, and higher operating expense as a percentage of sales drove the sharp drop in operating income.
How much did the cybersecurity incident affect results?
The company said the incident did not have a material impact on net sales and was $0.08 dilutive to earnings per share in the first quarter of fiscal 2024. It expects the incident to be dilutive by approximately $0.08 per share for the full fiscal year, and it believes the incident is contained.
How is the company's balance sheet and debt position?
Total debt was $8.09 billion at September 30, 2023, with total debt at 60% of total capitalization, up from 59% at June 30, 2023. Cash and cash equivalents were $3.09 billion. The company's long-term debt is rated A+ with a negative outlook by Standard & Poor's and A1 with a negative outlook by Moody's.
What is the outlook for the business?
Management expects Asia travel retail challenges and a slower-than-expected recovery of prestige beauty in mainland China to continue to negatively affect net sales and profitability. It also cited risks from business disruption in Israel and the Middle East, which accounted for approximately 2% of consolidated net sales in each of fiscal 2023 and the first quarter of fiscal 2024.
What are the company's capital return plans?
The company declared a quarterly dividend of $0.66 per share on October 31, 2023, payable December 15, 2023, to holders of record on November 30, 2023. Share repurchases of Class A Common Stock have been temporarily suspended since December 2022, and the company may resume repurchases in the future.
06—Continue