Family Feud Turns Ugly for This Beauty Giant, Leading to Its Worst Stock Day Ever (-20%)

Well, Estée Lauder just turned its earnings report into an episode of Family Feud. And I hate to burst your bubble, but it’s not the happy ending where Steve Harvey rewards you with the $20,000 grand prize after you just embarrassed your entire lineage.

On Thursday, shares of the New York-based company crashed over 20%—the kind of plunge that gets your heart racing, like a Yankees fan watching a routine grounder in the World Series (too soon?). Adding to the pain, the stock has fallen more than 50% this year, hitting its lowest price since April 2014. Let’s just say, it’s been a challenging year.

The numbers were in, and while they beat expectations on earnings per share ($0.14 versus $0.09). Net sales of $3.36 billion fell short of the $3.37 billion analysts were banking on and they expect sales to drop 8% over the next quarter. 

But wait, before we get to the family feud, there’s more bad news. Estée Lauder decided to withdraw its outlook for fiscal 2025 and slash its dividend by nearly half—from $0.66 to $0.35. I can almost hear the gasps echoing through Wall Street. “What do you mean we’re cutting the dividend?!” It’s a classic case of “We’ve hit rock bottom, and we brought a shovel.” 

Now, what’s behind this beauty debacle? Well, let’s start with China, Estée Lauder's biggest market. Once upon a time, this market made up 35% of sales, but now it feels like the land of missed opportunities. Net sales in Asia Pacific have dropped by 11%, with double-digit declines in Mainland China and Hong Kong. The post-pandemic consumer sentiment in China shows that shoppers are steering clear of luxury beauty products like they’re auditioning for Survivor.

And while Estée Lauder tries to weather this storm, it’s facing fierce competition from local brands that offer products at a fraction of the cost. I mean, who wouldn’t choose a $10 moisturizer over one that costs more than a tank of gas?

In true Succession style, the leadership situation adds another layer to the drama. After some back-and-forth worthy of an episode of “Love Is Blind,” the company announced Stéphane de La Faverie as the new CEO, effective January 1, 2025. Some board members and family were not all in with this choice, believing the company needed a fresh perspective, while others were keen on sticking with an insider. This split decision is giving me major “which family member do I trust more?” vibes.

In a nutshell, as Estée Lauder exits this quarter, it’s left with $2.35 billion in cash and a towering $7.31 billion in long-term debt. They’ve definitely got some big hurdles right now, and China’s economic slowdown is hitting pretty much any company with a foot in the door there. 

When will the Chinese market bounce back? That’s the million-dollar question, and until there’s a clear sign, Estée Lauder stock might be one to steer clear of for now.

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Stock.News doesn’t have positions in the companies mentioned in article.