EL Stock Plummets Despite Q2 Earnings Beat Amid China Weakness

The Estee Lauder Companies Inc.’s EL shares plunged 5.7% in the pre-market session on Tuesday after reporting second-quarter fiscal 2025 results. The company's top and bottom lines declined year over year amid persistent challenges across China and travel retail. Due to challenges across its Asia travel retail business, weak consumer sentiment in China and Korea, and ongoing global geopolitical uncertainty, the company expects continued volatility and limited visibility in the near term. As a result, the company offered a disappointing third-quarter fiscal 2025 outlook.Adjusted earnings of 62 cents per share surpassed the Zacks Consensus Estimate of 32 cents in the fiscal second quarter. The bottom line decreased 29% from earnings of 88 cents in the year-ago quarter.Find the latest EPS estimates and surprises on Zacks Earnings Calendar.The Estee Lauder Companies’ quarterly net sales of $4,004 million surpassed the Zacks Consensus Estimate of $3,975.4 million. However, the top line declined 6% year over year.The Estee Lauder Companies Inc. Price, Consensus and EPS Surprise The Estee Lauder Companies Inc. price-consensus-eps-surprise-chart | The Estee Lauder Companies Inc. QuoteEL’s Product-Based Segmental ResultsSkin Care’s sales were down 12% year over year to $1,921 million. The downside can be attributed to a challenging retail condition in the Asia/Pacific region and the company’s Asia travel retail sector. The decline was due to continued weak consumer sentiment in China, leading to reduced sales for Estee Lauder and La Mer.Makeup revenues fell 1% year over year to $1,150 million, thanks to a decline in TOM FORD sales, which were impacted by the difficult retail conditions in the Asia/Pacific region and the company's Asia travel retail business. In addition, net sales for M·A·C and Smashbox decreased.In the Fragrance category, revenues of $744 million inched up 1%, fueled by strong performance from the company’s Luxury Brands, particularly Le Labo.Hair Care sales totaled $159 million, down 8% year over year, mainly due to decreased performance from Aveda, reflecting ongoing challenges in the company’s salon channel and the timing of shipments.Regional Revenue Results for EL's Q2Sales in the Americas fell 2% year over year to $1,223 million. Revenues in the Europe, the Middle East & Africa (EMEA) region declined 6% to $1,494 million. In the Asia-Pacific region, sales tumbled 11% to $1,287 million.EL’s Q2 Margin Breakdown: Key InsightsThe Estee Lauder Companies’ adjusted gross margin increased by 310 basis points (bps) to 76.1%, despite the drop in net sales, mainly driven by net benefits from the Profit Recovery and Growth Plan (PRGP).The adjusted operating margin decreased by 200 bps to 11.5%, stemming from sales volume deleverage in the fiscal second quarter. This was somewhat mitigated by net benefits from the PRGP.EL’s Financial Health SnapshotThis Zacks Rank #3 (Hold) company exited the quarter with cash and cash equivalents of $2,586 million, long-term debt of $7,276 million and total equity of $4,169 million.The net cash flow provided for operating activities for the six months ended Dec. 31, 2024, was $387 million. Capital expenditures during this time amounted to $273 million. The company said it paid a dividend totaling $366 million during this time.The company announced a quarterly dividend of 35 cents per share on its Class A and Class B Common Stock, payable March 17, 2025, to shareholders of record as of Feb. 28, 2025.EL’s Restructuring Program of PRGPThrough the fiscal second quarter, The Estee Lauder Companies realized greater net benefits from its PRGP than anticipated. However, these benefits were more than offset by sales volume deleverage, and investments aimed at restoring sustainable growth and inflation. As a result, the company announced an expansion of its PRGP, which includes a restructuring program. Actions under this expanded plan are expected to be largely executed in fiscal 2025 and 2026, with completion by fiscal 2027. The goal of the expanded plan is to transform EL’s operating model to drive sales growth, restore a solid double-digit adjusted operating margin over the next few years and manage external volatility, such as potential global tariff increases.The restructuring program will focus on reorganizing and rightsizing certain areas, simplifying and accelerating processes, outsourcing some services, and evolving the go-to-market footprint and selling models. The program is expected to generate annual gross benefits between $0.8 billion and $1.0 billion before taxes, contributing to the restoration of operating margins and fueling reinvestment in consumer-facing areas to drive sustainable sales growth. As part of the plan, the company estimates a net reduction of 5,800 to 7,000 positions.Image Source: Zacks Investment ResearchEL Launches Beauty ReimaginedThe Estee Lauder Companies introduced "Beauty Reimagined," an ambitious strategic vision designed to restore sustainable sales growth and achieve a solid double-digit adjusted operating margin in the coming years. This initiative aims to position the company as the leading consumer-centric prestige beauty brand. EL is undergoing a significant transformation of its operating model to become leaner, faster and more agile while taking decisive actions to expand consumer reach, accelerate innovation and increase investments in consumer-facing areas. These efforts are aimed at capturing growth opportunities and driving profitability.What to Expect From EL in Q3For the third quarter of fiscal 2025, reported net sales are projected to decline 10-12% compared to the prior year’s level. The company’s adjusted organic net sales are anticipated to fall 8-10% in the quarter.The adjusted earnings per share (EPS) are likely to slump by 69-79%, ranging from 20 cents to 30 cents in the fiscal third quarter, reflecting challenges in the global travel retail business. The company’s fiscal third-quarter outlook reflects a significant double-digit decline in global travel retail net sales, driven by the challenging retail environment in Asia travel retail and added pressures from changes in selling policies at several Korean retailers. This decline is also influenced by a tough year-over-year comparison, due to the resumption of replenishment orders in the prior period.The company expects moderate adjusted gross margin expansion, benefiting from a favorable year-over-year comparison, though this will be partially offset by sales volume deleverage. In addition, the effective tax rate is anticipated to be approximately 36%.EL stock has gained 25.7% in the past three months compared with the industry’s growth of 14.3%.Better-Ranked Staple BetsBoot Barn BOOT, a lifestyle retail chain devoted to western and work-related footwear, apparel and accessories, currently sports a Zacks Rank of 1 (Strong Buy). The company delivered a trailing four-quarter earnings surprise of 7.2%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.The Zacks Consensus Estimate for Boot Barn’s current financial-year earnings per share (EPS) indicates growth of 21% from the year-ago figure.lululemon athletica inc. LULU is a yoga-inspired athletic apparel company that creates lifestyle components. It presently has a Zacks Rank #2 (Buy).The Zacks Consensus Estimate for LULU’s fiscal 2025 EPS and sales indicates growth of 12.5% and 9.7%, respectively, from the fiscal 2024 reported figures. LULU delivered a trailing four-quarter average earnings surprise of 6.7%.G-III Apparel Group, Ltd. GIII is a manufacturer, designer and distributor of apparel and accessories under licensed brands, owned brands and private label brands. It carries a Zacks Rank #2 at present.The consensus estimate for G-III Apparel’s current financial-year sales and EPS indicates growth of 1.7% and almost 3%, respectively, from the year-ago level. GIII has a trailing four-quarter average earnings surprise of 113.4%.Research Chief Names "Single Best Pick to Double"From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research Sheraz Mian hand-picks one to have the most explosive upside of all.This company targets millennial and Gen Z audiences, generating nearly $1 billion in revenue last quarter alone. A recent pullback makes now an ideal time to jump aboard. Of course, all our elite picks aren’t winners but this one could far surpass earlier Zacks’ Stocks Set to Double like Nano-X Imaging which shot up +129.6% in little more than 9 months.Free: See Our Top Stock And 4 Runners UpWant the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report The Estee Lauder Companies Inc. (EL): Free Stock Analysis Report lululemon athletica inc. (LULU): Free Stock Analysis Report Boot Barn Holdings, Inc. (BOOT): Free Stock Analysis Report G-III Apparel Group, LTD. (GIII): Free Stock Analysis ReportTo read this article on Zacks.com click here.Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks