Estée Lauder Says Chinese COVID ‘Headwinds’ Temporary, Sees Rapid Rebound

Two years into the pandemic and the world’s second-largest cosmetics company says COVID headwinds in China continue to hurt sales in the region that are also causing ripple effects in other markets around the world.

Although Estée Lauder said it expects to deliver record full-year results for the 12-months that will end June 30, the New York-based makeup and hair care products giant warned investors Tuesday (May 3) that the near term will be rocky as the impact of lockdowns in Asia’s largest economy persist.

“Given our outstanding performance year-to-date, we expect to deliver a record year in fiscal 2022 despite temporary COVID-driven headwinds that reduced our [fiscal] fourth-quarter outlook,” Estée Lauder President and CEO Fabrizio Freda said of the company’s crimped near-term forecast.

The news caused shares of Estee Lauder to fall sharply in early trading Tuesday, extending a year-to-date slump to 35% and pushing the stock to its lowest point in 15 months.

While Freda said local lockdowns and restrictions in several Chinese provinces that began in mid-March had curtailed retail foot-traffic, travel, and brick-and-mortar distribution capabilities, he stressed that the cutbacks were only temporary.

“We are confident that our business in China will rebound when COVID abates and accelerate our momentum,” Freda told investors and analysts on the company’s earnings call.

Temporary But Global

That may be so, but Freda said the impact of China’s lingering pandemic response were also being felt in other markets too and were delivering knock-on effects that were impacting Estée Lauder’s operations worldwide.

“The COVID-19 pandemic continued to disrupt the Company’s operating environment globally, primarily impacting retail traffic, travel, supply chain, inventory levels and other logistics” for the fiscal third quarter which ended March 31st, Freda said.

As PYMNTS reported last month, the entire makeup industry has been struggling for the past few months in the face of similar logistical and consumer challenges.

Read more: Investors Have a ‘Breakup With Makeup’ as Cosmetics Cos Struggle With Costs

Even so, Freda said Estée Lauder delivered positive growth in every category last quarter, led by a 28% increase in Fragrance, and a 15% rise in Hair Care — the company’s two smallest business segments. This, as Skin Care and Makeup — which drive 85% of company sales — rose 6% and 9% respectively.

Renaissance vs. Restraint

All totaled, Freda said a “makeup renaissance in western markets” was underway and pointed to the fact that 11 different brands delivered double-digit growth last quarter.

While makeup and cosmetics are considered to be less discretionary than many consumers products, they are not immune to the belt-tightening trend that is impacting spending decisions at 90% of American households right now, a shift that has triggered an array of adaptations including more bulk buying, downgrading to lower-cost brands or crimping in other areas.

For Estee Lauder, which sells over two dozen brands in over 150 different countries, the changing economic backdrop and impact of rising pricing were said to be muted.

“Consumer demand remained robust even in this more inflationary environment,” Freda said, before telling investors that the $90 billion business was well-positioned to deliver “gradual acceleration” as COVID wanes and return to the company’s normalized 6% to 8% growth rates.

To get there, Freda said the company would continue to invest in its digital business as well as in more advertising, research and development, and supply chain efficiencies in order to “drive growth in areas of opportunity and help nurture emerging trends in the rest of the business.”