The Estée Lauder Companies has reported its fiscal 2023 first quarter results, showing an 11% decrease in net sales, with headwinds set to ‘continue to pressure’ into the second quarter and ‘strong growth expected to gradually resume’ in the second half of the fiscal year 2023.

The beauty giant reported net sales of $3.93 billion for its first quarter ended 30 September 2022 – a decline of -11% from $4.39 billion in the prior-year period, including negative impacts from foreign currency.

Organic net sales fell 5%, which was ‘in line with the company’s expectations’, despite intensifying pressures during the period.

Elaborating on the results, the company highlights that Covid-19 restrictions in China had presented a ‘greater challenge than expected’ with tourism to Hainan ‘largely curtailed’, leading to ‘strict inventory management by certain retailers in travel retail, and traffic in brick-and-mortar in the rest of China limited’.

These factors were offset by several markets in Asia Pacific, says the company, as well as a number of emerging and developed markets in the west contributing to ‘strong’ organic net sales growth.

Skincare ‘impacted in China travel retail’

The company reported net earnings of $489 million, compared with net earnings of $692 million in the prior-year period.

“For the first quarter, we delivered organic sales in line with our outlook and adjusted EPS ahead of it even as the transitory external pressures of Covid-19 restrictions in China, high inflation globally, and a strong US dollar intensified,” said Fabrizio Freda, President and Chief Executive Officer.

“Our multiple engines of growth strategy empowered us to seize prevailing growth opportunities amid the complexity. Fragrance and Hair Care each rose double digits organically, and Makeup’s renaissance continued to realise its promise in markets reopening.

“Skin Care was the most challenged by Covid-19 restrictions in China, which significantly impacted the category in travel retail. All told, 13 brands grew organically, as MAC excelled in Makeup, La Mer in luxury Skin Care, Jo Malone London in Fragrance, and Aveda in Hair Care. Encouragingly, we realised strong double-digit gains in many large developed and emerging markets around the world.”

Reported net sales are forecast to decrease between -8% and -6% for the full year fiscal 2023, versus the prior-year period.

“For fiscal 2023, we are lowering our outlook primarily to reflect tighter inventory management in Asia travel retail, given reduced traffic as a result of Covid-19 restrictions, tightening of inventory by some retailers in the United States, and a greater negative impact from the far-stronger US dollar,” said Freda.

“We anticipate sequential acceleration to strong organic sales and adjusted EPS growth in the second half of our fiscal year as these pressures begin to abate, momentum continues to build in other areas of our business, and our ongoing investments in innovation and advertising drive growth. Our optimism in the long-term growth opportunities for our brands and for prestige beauty remains intact.”

In a separate update, the company also highlighted advancements toward its social impact and sustainability strategy, programmes, and goals that have been made over the past fiscal year.

Among these was the announcement of a new commitment to transition ELC’s global corporate vehicle fleet to electric by the end of calendar year 2030 and becoming the first beauty company to join the Supplier Leadership on Climate Transition (a consortium created to accelerate action toward Net Zero GHG emissions).

“We’ve hit important milestones over the past fiscal year, including in our climate, packaging, ingredient transparency, racial equity, and gender equality efforts, but we know there is more work ahead of us,” said Nancy Mahon, Senior Vice President, Global Corporate Citizenship and Sustainability, The Estée Lauder Companies.

“We’ll continue to raise our ambitions to help address global challenges facing our employees, consumers, suppliers, peers, and continue to push the limits of what we can achieve in the years ahead.”