Great expectations: Estée Lauder bullish on APAC fragrance, anticipates prolonged long-term growth phase - CEO

The US beauty major revealed a 5% increase in fragrance net sales, attributing the growth to notable contributions from Le Labo and Tom Ford.

This increase was underpinned by double-digit expansion in The Americas and the APAC region during its fiscal 2024 first quarter.

In China, the launch of Le Lebo, in the fourth quarter of fiscal 2023 helped to offset the net sales declined attributed to skin care.

In Japan, strong double-digit growth in Fragrance, led by Le Labo, drove the increase in net sales.
Furthermore, net sales in Australia rose double digits benefitting in part from Estée Lauder fragrances.

President and CEO Fabrizio Freda expressed an optimistic stance on the fragrance market’s future growth potential in the APAC region.

“We continue to believe that we’re still in the beginning of a promising long-term phase of growth for fragrance in Asia Pacific as consumers are increasingly embracing the category and penetration levels are low relatively to the West. Indeed, in Asia Pacific, fragrance represents 8% of the prestige beauty industry, whereas in Westem Europe, it’s 40% of the industry,”​ he said during Estée Lauder’s earnings conference on November 1.

Freda emphasised that the firm was “well-positioned for this growth opportunity” with its roster of luxury brands that their alignment with the current consumer trends.

In addition to Le Labo and Tom Ford, Estée Lauder has a number of fragrance brands under its portfolio, including Estée Lauder, Jo Malone, Frederic Malle, Aerin, Beauty, and Aramis.

In the APAC region net sales saw a 3% decline to USD1.058bn largely due to the added challenges stemming from a slower-than-expected recovery in China’s overall prestige beauty market.

This dip was partially mitigated by growth in several other regional markets, with Hong Kong SAR, Japan, and Australia taking the lead.

Operating income decreased to USD138m mainly due to the decline in net sales in mainland China, partially offset by disciplined expense management.

Estée Lauder lowers forecast​

The company announced that it lowered its forecast for the rest of the business year.

It attributed the declining sales to the sluggish recovery in the prestige beauty sector in China, along with underperformance in the company’s Asia travel retail business.

“While we had a better-than-expected start of the fiscal year, we are lowering our fiscal year 2024 outlook given the further incremental external headwinds in two specific areas of our business,”​ said Freda.

“First, the expected growth rate of overall prestige beauty has load in Asia travel retail and Mainland China, which is currently also evidenced in the presale phase of the 11.11 Shopping Festival. To reflect these inputs, as well as the ongoing policies and efforts to contain a structured market activity. We are moderating our expectation for fiscal year 2024 retail sales from Asia travel retail and mainland China.”​

Freda added that the lowered forecast also reflected the “risks of business disruption in Israel and other parts of the Middle East.”

He concluded: “We are accelerating and expanding our profit recovery plan to benefit fiscal years 2025 and 2026, to realise our ambitions in rebuilding profitability despite the external headwinds’ increased pressure on the business in fiscal 2024.”​