Estée Lauder(EL)2024-10-31 18:19Financial Data and Key Metrics Changes - For Q1 2025, organic sales decreased by 5%, primarily due to declines in mainland China, global travel retail, and Hong Kong SAR [8][34] - Adjusted gross margin expanded by over 300 basis points, and adjusted EPS was 0.11 [10][49] - Operating income increased by 33% to $144 million, with an operating margin expansion of 120 basis points to 4.3% [48] Business Line Data and Key Metrics Changes - Organic net sales in skin care declined by 8%, while makeup decreased by 2%, driven by declines from M·A·C and Too Faced [41][42] - Fragrance organic net sales decreased by 1%, with strong performance from luxury brands like Le Labo and Jo Malone [43][25] - The Americas saw a 1% decrease in organic net sales, with North America experiencing modest growth in retail sales [39] Market Data and Key Metrics Changes - Organic net sales in Asia Pacific decreased by 11%, mainly due to weakened consumer sentiment in mainland China [35] - EMEA region saw a 4% decline in organic net sales, largely impacted by challenges in Asia travel retail [36] - North America experienced a slowdown in prestige beauty retail sales growth, dropping from high single-digit growth to mid-single-digit growth [13] Company Strategy and Development Direction - The company is focused on a strategic reset aimed at restoring sustainable long-term organic sales growth through the Profit Recovery and Growth Plan (PRGP) [17][18] - Key priorities include enhancing skin care offerings, capitalizing on high-end fragrance growth, and leveraging winning channels [19] - The company plans to continue investing in innovation and expanding consumer reach despite current market challenges [16] Management's Comments on Operating Environment and Future Outlook - Management acknowledged greater macro headwinds for fiscal year 2025 than previously expected, particularly in China and Asia travel retail [11][14] - The company has withdrawn its fiscal year 2025 outlook due to ongoing uncertainties and is only providing guidance for Q2 [14][55] - Management remains cautiously optimistic about medium-to-long-term stabilization in China due to new economic stimulus measures [12] Other Important Information - The company announced a reduction in dividends to a more appropriate payout ratio to create financial flexibility for future growth initiatives [15][54] - A leadership transition is underway, with new appointments expected to bring fresh perspectives and strategies to navigate current challenges [30][32] Q&A Session All Questions and Answers Question: Internal reaction to worsening external circumstances - Management is evaluating additional actions related to the PRGP and has identified cost savings to offset volume pressure [70] Question: Market share expectations and regional contributions to organic growth - Management expects continued pressure from China and travel retail, with overall deceleration in other markets [78] Question: Timing and message behind the dividend cut - The dividend reduction is a proactive measure to protect cash for future investments and is not indicative of long-term growth outlook [94] Question: Qualities and skill sets sought in new leadership - New leadership should focus on brand building, agility, and understanding global market dynamics to navigate future challenges [102] Question: Opportunities to reduce CapEx and inventory health - CapEx has already been reduced, and inventory levels are healthier compared to last year, with ongoing focus on agility in planning [110] Question: Retail inventory levels in Asia Travel Retail - Inventory levels in trade have decreased, but progress is slower than expected due to market volatility [113]