Estée Lauder(EL) - 2024 Q4 - Earnings Call Transcript

Financial Data and Key Metrics - Organic sales declined 2% for fiscal year 2024, with adjusted operating margin contracting 120 basis points to 10.2% [4] - Fourth quarter organic net sales increased by 8%, with diluted EPS rising to $0.64 from$ 0.07 last year [21] - Gross margin expanded 380 basis points to 71.8% in Q4, driven by lower obsolescence and overhead charges, and higher skincare sales [24] - Full-year operating income declined 13% to $1.6 billion, with operating margin contracting 120 basis points to 10.2% [30] - Net earnings for the full year were$ 935 million, with diluted EPS at $2.59, both declining 25% compared to last year [31] Business Line Performance - Skincare organic net sales increased 15% in Q4, driven by La Mer and Estée Lauder, with The Ordinary growing over 20% in fiscal year 2024 [12][23] - Makeup organic net sales increased 1%, with strong performance from Clinique's Almost Lipstick product franchise, offset by declines from M·A·C and TOM FORD [23] - Fragrance organic net sales rose mid-single-digit in fiscal year 2024, led by luxury brands like Jo Malone London and Le Labo [15] - Hair care organic net sales increased 2%, while fragrance net sales rose 1% in Q4 [23] Market Performance - Organic net sales in Asia Pacific decreased 4%, primarily due to softness in mainland China and lower shipments in Hong Kong SAR [22] - Organic net sales in EMEA rose 32%, driven by Asia travel retail and strong performance in developed European and emerging markets [22] - Organic net sales in the Americas decreased 5%, with North America facing intense competition and a slowdown in prestige beauty growth [23] - Online sales grew mid-single-digits in the Americas, benefiting from retailer.com growth and the launch of Clinique on Amazon [23] Strategic Priorities and Industry Competition - The company's strategic priorities for fiscal year 2025 include reigniting skincare, capitalizing on high-end fragrance growth, leveraging fast-growing channels, and enhancing precision marketing [5][6] - The Profit Recovery and Growth Plan (PRGP) aims to accelerate margin expansion, create fuel for growth, and simplify processes for faster execution [34][36] - The company expects the global prestige beauty industry to grow 2% to 3% in fiscal year 2025, with a reacceleration to mid-single-digit growth in fiscal year 2026 [9][10] Management Commentary on Operating Environment and Future Outlook - The company remains unsatisfied with fiscal year 2024 performance, citing challenges in mainland China and Asia travel retail [4] - Management expects fiscal year 2025 to be a transitional year, with continued macroeconomic softness and challenges in key markets, but with early signs of progress in North America [39][41] - The company forecasts fiscal year 2025 organic net sales to range between a decrease of 1% and an increase of 2%, with diluted EPS expected to range between$ 2.75 and $2.95 [39] Other Important Information - The company completed the acquisition of DECIEM in May 2024 for$ 859 million, with $829 million paid as of June 30, 2024 [31] - The company recorded$ 471 million in impairment charges related to Dr.Jart+ in Q4, exiting the brand from heavily discounted travel retail channels [25] - The company expects to take restructuring and other charges of $100 million to$ 120 million in fiscal year 2025 [36] Q&A Session Summary Question: Succession Planning and Attributes for the Next CEO - Fabrizio Freda emphasized the importance of finding a successor who can drive global growth and reshape the cost structure, with the Board well-advanced in the selection process [45][46] Question: Impact of China and Travel Retail on Earnings - Tracey Travis highlighted the significant pressure on earnings from declines in mainland China and Asia travel retail, with the PRGP helping to offset some of the impact [48] Question: Investment Constraints and Market Competition - Tracey Travis explained that the company is protecting consumer-facing investments, particularly in high-growth areas like fragrance and active derm, while managing expense deleverage [51][52] Question: Travel Retail Inventory Levels and Outlook - Tracey Travis noted higher inventory levels in travel retail due to decelerating sales, with efforts to normalize stock levels in Q1 [55] - Fabrizio Freda added that the company is building a distribution center in Hainan to improve inventory management [56] Question: Channel Shifts and Margin Impact - Tracey Travis discussed the shift to faster-growing channels like Amazon, which is expected to be margin accretive despite varying channel margins [59] - Fabrizio Freda emphasized the efficiency of online channels and the positive long-term impact of channel rebalancing [60] Question: Long-Term Category Growth Expectations - Fabrizio Freda projected a return to mid-single-digit global category growth, assuming stabilization in China and Asia travel retail, with the company aiming to grow at least 1 point ahead of the market [63] Question: North America Competitive Environment - Fabrizio Freda acknowledged the moderation in the US prestige market but highlighted progress in Q4 and July, with brands like Clinique showing strong performance [65]