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The challenges facing Estée Lauder Companies’s incoming CEO Stéphane de la Faverie became clearer on Thursday when the conglomerate reported a 4 per cent fall in net sales to $3.36 billion in the first quarter. Organic net sales were also down 5 per cent as weak consumer sentiment in Mainland China and a slump in travel retail sales across Asia continue to weigh on the company.
Outgoing CEO Fabrizio Freda, whose plan to retire in 2025 was announced in August, remained bullish. “Our first-quarter results are largely aligned with our outlook on an adjusted basis, despite the fact that the expected headwinds in China and Asia travel retail were greater than anticipated,” he said in a statement. “While we believe the new economic stimulus measures in China present medium to long-term potential for stabilisation and growth in prestige beauty, we anticipate still-strong declines in the near term for the industry in China and Asia’s travel retail.”
However, the company has withdrawn its 2025 full-year outlook. “With this complex industry landscape, including the particular difficulty in forecasting the timing of market stabilisation and recovery in China and travel retail in Asia, and in the context of leadership changes, we are solely issuing an outlook for the second quarter,” Freda said.
Sales in Asia-Pacific, led by Mainland China and Hong Kong, decreased 11 per cent for the quarter. Net sales in Europe, the Middle East and Africa (including travel retail) were down 4 per cent. North America declined 1 per cent, offset partially by Latin America, which was driven by high-single-digit growth in Brazil (the company did not share percentages for Latin America).
ELC’s sales slump mirrors the wider market slowdown (L’Oréal also reported a sluggish quarter). However, analysts say the American conglomerate, which owns brands including Jo Malone London, Balmain Beauty, Mac Cosmetics and Tom Ford Beauty, needs to double down on product innovation, develop a clearer distribution strategy and be more agile when it comes to acquisitions, snapping up buzzy brands with younger consumer bases.
“The main challenge is to swing the company back into generating growth and producing market share gains. ELC has been on the back foot during a time when the beauty market has been growing strongly and it has been losing ground to newer and more innovative brands,” says Neil Saunders, managing director and retail analyst at data research firm Globaldata.
Global headwinds and opportunities
China remains volatile as consumers continue to moderate their spending while investing more in homegrown beauty brands. For ELC, that’s a concern given its sizable investment in the region pre-pandemic. China accounted for 36 per cent of ELC’s revenue in 2023, versus L’Oréal’s 20 per cent, according to analyst estimates. De la Faverie will have his work cut out to strengthen ELC’s sales performance in the market.
Saunders says part of the problem is its positioning: “[ELC is] firmly in the middle market, which is where Chinese consumers are cutting back as they either trade down to value or trade up to luxury goods.” Prestige beauty has also become increasingly crowded with local brands, he adds. To better its position, Freda said, product innovation remains a priority to strengthen brand equity.
While rebalancing its portfolio and presence in China, the beauty giant should also continue to focus its attention in the US, says Korinne Wolfmeyer, VP and senior research analyst at investment firm Piper Sandler. “They’ve been underinvesting there for several years as they’ve been focusing on China, but, for them, the [US] market is an easy opportunity,” she says.
This could include capitalising on its partnership with Amazon by onboarding more of its brands; Clinique launched on Amazon’s Premium Beauty platform in March, followed by the Estée Lauder brand in October. ELC said Clinique had five consecutive months of prestige beauty share gains in the US.
Other markets are also an opportunity. Latin America, led by Mexico and Brazil, is ripe for heavier penetration, analysts say. “Right now, it’s a big region for beauty. There’s a lot of white space and high growth,” says Wolfmeyer. ELC should continue to strengthen its presence in the region with brand expansions and rollouts.
Reigniting skincare
Skincare net sales decreased 8 per cent in Q1, dragged down by a continued soft demand for prestige skincare in Mainland China, as well as double-digit declines from La Mer and Estée Lauder. The outlier was Clinique, which continues to see a growing market share with increased double digits in makeup, with growth from all regions.
Analysts point to opportunities to revive some of its brands, taking learnings from Clinique. “ELC does have a strong skincare portfolio and especially with Clinique, they’ve gone back to a dermatologist point of view but you also have La Mer. It’s a fantastic brand but it feels outdated within the prestige category,” says Jessica Ramírez, senior analyst at research firm Jane Hali Associates.
“They’ve done a great job rebuilding Clinique and leaning into its dermatological strengths — it’s played in their favour because the younger consumer wants efficacy and they want professionals back behind the products they’re using,” agrees Wolfmeyer.
ELC called out night-time beauty as a bright spot for Q1. “As we reignite skincare, our night-time innovations proved highly sought after, driving strong organic sales growth for the category in the markets of EMEA as well as strong share gains for the second consecutive quarter in prestige skincare in China, led by La Mer,” said Freda.
On the earnings call, Freda pointed out the market success of its July launches for the Estée Lauder Revitalising Supreme+: Night Power Bounce Cream and Advanced Night Repair Overnight Treatment; La Mer’s Rejuvenating Night Cream; and Clinique’s Smart Clinical Repair AM/PM Retinoid Balm. He said that the conglomerate’s ability to jump on trends faster with product innovations that speak to wider consumer trends (such as the ‘sleep moment’), coupled with product newness, “invigorated its customers”.
A wider strategy shake-up is required
Saunders says innovation needs to thread through to ELC’s marketing and distribution strategy if it wants to keep pace with how beauty retail players like Sephora and Ulta Beauty capture consumers’ (notably younger consumers’) attention. “ELC needs to make more noise and expand its distribution, it’s the only way to appeal to different budgets and tastes,” he says.
This could include leaning more heavily into fast-growing retail channels like Amazon and TikTok Shop, and better leveraging social media platforms to meet the younger consumer online — for example, with more ‘edutainment’ content in 2025. “It’s not just about using influencers to market your products. Now, it’s about coming up with really creative ways to engage your consumers via different campaigns and implementing other forms of marketing that meet your consumers everywhere including TV, ads, billboards and pop-up shops in local areas — social media strategies need to complement all marketing forms,” Wolfmeyer adds.
However, she cautions that, when it comes to operating across different channels, there must be a balance. “You don’t want to dilute brands by over-distributing, or on platforms like Amazon, not having the correct product assortment and appealing brand page. An elevated experience is important,” she says. “They need to be very thoughtful and methodical going forward.”
ELC says it is using this time to evaluate more changes to better support its profit recovery and growth plan to fuel growth. Freda and outgoing CFO Tracey Travis said that reactivating skincare, capitalising on the fragrance category, moving faster on channel growth — including on platforms like TikTok Shop and Amazon — and modernising its marketing using data and AI will be the focus.
Analysts add that de la Faverie must keep his eye on the bigger picture. “He needs to create a very clear vision and in doing this it’s important to have a clear strategy for each individual brand but also keep hold of the bigger picture of how these brands fit together to serve the consumer market,” concludes Saunders.
This article has since been updated.
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