The Estée Lauder Companies (EL) Q1 2025 earnings summary

Executive summary

• Net sales decreased 4% year-over-year to $3.36 billion, with organic net sales down 5% due to double-digit declines in Mainland China, Asia travel retail, and Hong Kong SAR.

• Operating loss was $121 million, impacted by a $159 million charge for talcum litigation settlements and $106 million in restructuring charges.

• Net loss attributable to shareholders was $156 million, or $(0.43) per diluted share, versus net income of $31 million, or $0.09 per share, a year ago.

• Adjusted diluted EPS was $0.14, up from $0.11 last year, with gross margin expanding over 300 basis points due to PRGP initiatives.

• Leadership transitions announced: new CFO Akhil Shrivastava and incoming CEO Stéphane de La Faverie effective January 1, 2025.

Financial highlights

• Gross margin improved to 72.4% from 69.6% year-over-year, driven by lower obsolescence charges and improved manufacturing costs.

• Operating expenses rose to 76.0% of net sales from 66.8%, mainly due to litigation and restructuring charges.

• Adjusted operating income (excluding one-time items) was $144 million, up 33% year-over-year.

• Net cash used in operating activities was $670 million, up from $408 million last year.

• Ended the quarter with $2.35 billion in cash and cash equivalents.

Outlook and guidance

• Withdrew full-year fiscal 2025 outlook due to market uncertainty and leadership changes; only Q2 guidance provided.

• Q2 organic net sales expected to decline 6%-8% year-over-year, mainly due to continued weakness in China and Asia travel retail.

• Q2 adjusted EPS expected between $0.20-$0.35, a 60%-77% decrease versus prior year.

• Gross margin expected to expand in Q2, but less than in Q1.

• Assumptions include continued weakness in China and Hong Kong SAR, sustained investments in innovation, and a 43% effective tax rate for Q2.