Estee Lauder Earnings: Sales Recovery Delayed on Weak Skincare Spending but Brand Standing Intact

We have cut our fair value estimate for wide-moat Estee Lauder to $200 from $249 to reflect a weaker-than-expected near-term outlook given soft spending in high-margin skin care products amid macro headwinds and lingering inventory issues in Asian travel retail. We now forecast fiscal 2024 sales to be flat (down from a 6.5% increase previously). This reflects a 5% contraction in skincare sales (versus a 6% growth in our prior model) driven by weak demand in China and in travel retail, while sales of the other segments remain in place. Further, the lower sales, unfavorable mix, and higher costs associated with the new factory in Japan and a step-up in digital marketing resulted in a lowered fiscal 2024 EPS of $2.31 (from $3.75), which squares with the firm’s revised outlook. Even with this, we see an attractive upside in this deeply undervalued stock.