ELC Q2 2025 performance impacted by challenges in Asia travel retail business

Stéphane de La Faverie became President and CEO of The Estée Lauder Companies on 1 January 2025.

The Estée Lauder Companies’ net sales decreased by 6% to $4 billion in the second quarter ended 31 December 2024 (fiscal 2025 Q2), with organic net sales also falling by 6% (yoy).

In the company’s financial report for the fiscal 2025 second quarter (unaudited), overall challenging retail environments in Asia Pacific and the company’s Asia travel retail business, were among the key factors influencing the results.

Delving into the results, released on 4 February, shows that from a category perspective, skincare net sales decreased by 12%.

This is said to be primarily due to knock-on effect of the challenges mentioned above, including ‘ongoing pressure from subdued sentiment from Chinese consumers, which drove declines from Estée Lauder and La Mer’.

The dip in operating income within skincare, primarily due to the decline in net sales, was ‘partially offset by lower cost of sales and disciplined expense management’, states the company.

Makeup net sales decreased 1%, mainly due to the declines from Tom Ford, impacted once again by overall retail and Asia travel retail challenges.

Furthermore, net sales decreased from MAC and Smashbox, driven respectively by their ‘softness in the eye and face subcategories’.

These declines were partially offset by high-single-digit growth from Clinique across each geographic region, aided by the brand’s launch in in Amazon’s U.S. Premium Beauty Store and the success of Almost Lipstick in Black Honey.

The Estée Lauder Companies Inc. Fiscal 2025 Second Quarter Select Financial Results (unaudited). Released 4 February, 2025. 

Taking a regional view, Europe, the Middle East & Africa saw net sales decreasing by 6%, driven by the double-digit decline in ELC’s global travel retail business, impacted by an overall challenging retail environment, including muted sentiment from Chinese consumers.

A mixed performance across the region’s markets resulted in flat overall net sales growth in this region. While operating income decreased, this was partially offset by lower cost of sales.

In Asia Pacific, net sales decreased by 11% – also mainly driven by retail environment challenges, including subdued consumer sentiment in mainland China, Korea and Hong Kong SAR.

ELC noted that the net sales decline in Korea reflects the strategic exit of Dr.Jart+ from the travel retail channel in November 2024.

The Estée Lauder Companies Inc. Fiscal 2025 Second Quarter Select Financial Results (unaudited). Released 4 February, 2025.

From a top line global perspective,  highlights of the business performance during the reporting period include prestige beauty share gains in key markets including the US (in skincare, led by Clinique, and haircare, led by Bumble & Bumble; China: (in makeup, led by Estée Lauder, as well as La Mer in skincare and Le Labo in fragrance); and Japan (in fragrance, led by Le Labo, and skincare, led by La Mer).

However, the Asia travel retail business challenges and consumer sentiment trends, added to the e’volving global geopolitical uncertainty’, means the company is anticipating ‘continued volatility and low visibility in the near term’. This has informed its fiscal 2025 third quarter outlook.

“While we are not satisfied with our third quarter outlook, it primarily reflects weak retail sales trends in our Asia travel retail business, which deteriorated in our second quarter driven by Korea,” said Stéphane de La Faverie, President and Chief Executive Officer.

“While our retail sales trends in Hainan were still negative in the second quarter, they improved sequentially, fuelled by our retail activations.

“For the third quarter, we expect overall soft retail trends to persist in Asia travel retail, significantly pressuring our organic net sales despite the improvement we made with in-trade inventory levels in the first half of fiscal 2025, which we intend to maintain around current levels.”

“In order to reignite our retail sales growth, we are strategically increasing consumer-facing investments around the world in the third quarter. We expect the benefits of the PRGP to both fund these investments and modestly offset the meaningful operating deleverage from the sales decline.”

The Estée Lauder Companies Inc. Fiscal 2025 Second Quarter Select Financial Results (unaudited). Released 4 February, 2025.

As a result, and including ‘incremental pressures from changes in selling policies at several Korean retailers’, the company is predicting that its fiscal 2025 third quarter will see strong double-digit net sales decline in the ELC’s global travel retail business.

‘This decline also reflects a difficult comparison to the prior-year period due to the resumption of replenishment orders,’ states the report.

Excluding the company’s global travel retail business, ELC’s net sales decline in the fiscal 2025 third quarter is expected to moderate from the second quarter, as retail trends, which while still negative, improved from the fiscal 2025 first quarter to the second.

Furthermore, given the company’s increased investments in consumer-facing activities, it expects ‘significant retail sales improvement in the fiscal 2025 third quarter.’

ELC’s new Beauty Reimagined vision aims to restore sales growth and stronger profitability for the company.

Alongside the release of the financial results, the company announced the launch of Beauty Reimagined, its new strategic vision that aims to restore sustainable sales growth and aid the company is achieving stronger profitability moving forward.

“While we recognise there is much work to do, we are confident that Beauty Reimagined is the way to realise our ambition,” said de La Faverie

“We are significantly transforming our operating model to be leaner, faster, and more agile, while taking decisive actions to expand consumer coverage, step-change innovation, and increase consumer-facing investments to better capture growth and drive profitability.”

Among the action plan priorities for Beauty Reimagined is putting the consumer at the heart of the business and rapidly expand ELC’s portfolio presence in ‘consumer-preferred, high-growth channels, markets, media and price tiers to participate in key growth opportunities in prestige beauty’.

At the same time, ELC announced a new organisational structure and Executive Team to lead the new vision, effective 1 April 2025.

The changes permeate the company’s regional, brand and function divisions, and include Matthew Growdon being appointed to lead an ‘evolved’ Asia Pacific region, excluding mainland China, as President, APAC and Travel Retail Worldwide.

As reported, Olivier Dubos was appointed Senior Vice President and General Manager, Travel Retail Worldwide at ELC on 10 December 2024, following the departure of Israel Assa. He will report directly into Growdon.

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