Estee Lauder says coronavirus outbreak to dent 2020 profit

Estee Lauder Cos Inc cut its profit forecast for fiscal 2020 on Thursday, citing the coronavirus epidemic in China, a key market for the maker of Clinique skincare products.

Shares of the New York-based company, however, rose 4% as investors looked past the forecast and focused instead on better-than-expected quarterly results, which were driven by strong demand for its products.

Cosmetics makers, including Estee Lauder, have been thriving as affluent Chinese consumers splurge on premium makeup products and fragrances sold at beauty retailers and duty-free stores.

The Jo Malone London fragrance maker posted a 29.3% increase in sales in the Asia Pacific region for the second quarter, driven by upbeat sales on Singles Day, China’s version of the United States’ Cyber Monday.
 
Overall, sales rose 15.5% to $4.62 billion in the quarter ended Dec. 31, well above Wall Street expectations of $4.35 billion.

“Our growth came from all facets of the business ... and we made progress towards the stabilization of our North American business despite continued softness in the makeup category,” Chief Executive Officer Fabrizio Freda said.
Estee Lauder’s quarterly profit of $2.11 per share also came in above estimates of $1.90.

Barclays analyst Lauren Lieberman said sales growth in the Americas was among many positive surprises. Sales in the Americas rose 1% for the first time in over a year.

However, the coronavirus outbreak - which has killed over 500 people and forced businesses in China to temporarily shut stores - forced Estee Lauder to trim its fiscal 2020 per-share earnings forecast to between $5.60 and $5.70 from between $5.85 and $5.93.

Estee Lauder said it has seen a significant decline in air travel and consumer traffic in key shopping and tourist areas, adding markets favored by tourists are likely to experience the greatest impact from the outbreak.

China accounted for about 17% of the company’s sales in fiscal 2019, nearly doubling from a 9% contribution in fiscal 2017, according to the company’s regulatory filing.

The company also cut the low end of its sales growth forecast range to 6% from 7%, while keeping the top end at 8%.