Why did reported earnings decline so sharply in fiscal 2024?

Reported diluted EPS of $1.08 reflected $471 million of goodwill and other intangible asset impairments, $124 million of restructuring and other charges, and $23 million related to the change in fair value of DECIEM acquisition-related stock options, along with lower net sales and a 47.0% effective tax rate that the filing attributes in part to nondeductible goodwill impairment charges.

What is driving the outlook for fiscal 2025?

The company expects continued declines in mainland China prestige beauty and Asia travel retail, with more tempered performance than the industry. It expects accelerated growth elsewhere, including a full-year net sales increase in North America, and projects adjusted diluted EPS growth of 7% to 15% on a constant currency basis.

What does the first quarter of fiscal 2025 look like?

The company forecasts reported and organic net sales to decrease between 3% and 5% versus the prior-year period. Reported diluted EPS is projected at $(.09) to flat, and adjusted diluted EPS is expected to be between $.02 and $.10.

What is the Profit Recovery and Growth Plan?

The plan, previously known as the Profit Recovery Plan, is designed to improve gross margin, lower the cost base including overhead, reinvest in consumer-facing activities, and increase agility. The company says its initiatives are on track and expected to deliver $1.1 billion to $1.4 billion in operating profit net savings in fiscal 2025 and 2026, though China and Asia travel retail headwinds will partially offset initial benefits.

What were the key drivers of the fourth-quarter net loss?

The fourth-quarter net loss of $284 million, or $.79 per diluted share, reflected charges totaling $582 million ($516 million after redeemable noncontrolling interest and tax, or $1.43 per diluted share), including $471 million of goodwill and other intangible asset impairments related to Dr.Jart+, $96 million of restructuring and other charges, and $15 million related to DECIEM stock options. Excluding these items, adjusted diluted EPS was $.64.

EL 8-K: Earnings & Results

01—Abstract

Summary

Summary of the 8-K filed August 19, 2024. Cited figures are marked; the original filing is the authoritative source.

The Estée Lauder Companies Inc. reported fiscal 2024 full-year net sales of $15.61 billion^a, a decrease of 2% from $15.91 billion, with diluted net earnings per common share of $1.08, down 61% from $2.79.

Adjusted diluted EPS was $2.59^b, a 25% decline (22% in constant currency), and the company said organic net sales returned to growth in the second half. The results were weighed down by ongoing softness in prestige beauty in mainland China and a decline in Asia travel retail, while the company also recorded $471 million of goodwill and other intangible asset impairments tied to Dr.Jart+ and a $124 million restructuring charge in the year. Fourth-quarter net sales rose 7% to $3.87 billion, but the company reported a net loss of $284 million, or $.79 per diluted share, including $582 million of restructuring, impairment and DECIEM-related charges.

For fiscal 2025, the company forecasts reported and organic net sales between a decrease of 1% and an increase of 2%, reported diluted EPS of $2.52 to $2.76^c, and adjusted diluted EPS of $2.75 to $2.95 excluding restructuring charges. Management described the sales and profit outlook as disappointing, citing expected declines in mainland China and Asia travel retail, and expects a full-year adjusted operating margin of 11.0% to 11.5% supported by the Profit Recovery and Growth Plan, which the company says is on track to deliver $1.1 billion to $1.4 billion in operating profit net savings across fiscal 2025 and 2026.

The filing furnishes Exhibit 99.1, the earnings press release, under Item 2.02. Cash flow from operations for fiscal 2024 was $2.36 billion^d, and the company completed its acquisition of DECIEM Beauty Group Inc. in May 2024 for $859 million.

02—Key points

Key Highlights

Fiscal 2024 net sales were $15.61 billion, down 2%; organic net sales also decreased 2%, with growth returning in the second half.
Reported diluted EPS fell to $1.08 from $2.79; adjusted diluted EPS was $2.59, down 25%.
Fourth-quarter net sales rose 7% to $3.87 billion, but the quarter posted a net loss of $284 million, or $.79 per diluted share, due to $582 million of restructuring, impairment and DECIEM-related charges.
Goodwill and other intangible asset impairments of $471 million relate to the Dr.Jart+ reporting unit and trademark.
Fiscal 2025 guidance calls for reported and organic net sales between a 1% decrease and a 2% increase, and reported diluted EPS of $2.52 to $2.76.
Full-year fiscal 2025 adjusted operating margin is expected at 11.0% to 11.5%, with the Profit Recovery and Growth Plan projected to deliver $1.1 billion to $1.4 billion in operating profit net savings across fiscal 2025 and 2026.
Operating cash flow was $2.36 billion for fiscal 2024, up from $1.73 billion, and the company completed the DECIEM acquisition for $859 million.

03—Questions

Frequently Asked Questions

Why did reported earnings decline so sharply in fiscal 2024?
Reported diluted EPS of $1.08 reflected $471 million of goodwill and other intangible asset impairments, $124 million of restructuring and other charges, and $23 million related to the change in fair value of DECIEM acquisition-related stock options, along with lower net sales and a 47.0% effective tax rate that the filing attributes in part to nondeductible goodwill impairment charges.
What is driving the outlook for fiscal 2025?
The company expects continued declines in mainland China prestige beauty and Asia travel retail, with more tempered performance than the industry. It expects accelerated growth elsewhere, including a full-year net sales increase in North America, and projects adjusted diluted EPS growth of 7% to 15% on a constant currency basis.
What does the first quarter of fiscal 2025 look like?
The company forecasts reported and organic net sales to decrease between 3% and 5% versus the prior-year period. Reported diluted EPS is projected at $(.09) to flat, and adjusted diluted EPS is expected to be between $.02 and $.10.
What is the Profit Recovery and Growth Plan?
The plan, previously known as the Profit Recovery Plan, is designed to improve gross margin, lower the cost base including overhead, reinvest in consumer-facing activities, and increase agility. The company says its initiatives are on track and expected to deliver $1.1 billion to $1.4 billion in operating profit net savings in fiscal 2025 and 2026, though China and Asia travel retail headwinds will partially offset initial benefits.
What were the key drivers of the fourth-quarter net loss?
The fourth-quarter net loss of $284 million, or $.79 per diluted share, reflected charges totaling $582 million ($516 million after redeemable noncontrolling interest and tax, or $1.43 per diluted share), including $471 million of goodwill and other intangible asset impairments related to Dr.Jart+, $96 million of restructuring and other charges, and $15 million related to DECIEM stock options. Excluding these items, adjusted diluted EPS was $.64.

04—Continue

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