Estée Lauder has faced well-known challenges over the past few years. But is the company really struggling as much as it seems?
Since the global pandemic, Estée Lauder’s recovery has been sluggish, weighed down by higher costs for raw materials, logistics, and energy. Despite these headwinds, the company maintained a bullish strategy, discontinuing its licensed business and making bold acquisitions like the Tom Ford brand. The ongoing Ukraine crisis, combined with broader geopolitical tensions and luxury market dynamics in China, have led to additional challenges. But it’s crucial not to view China as the sole reason for Estée Lauder’s struggles—there’s more to the story.
In the latest earnings call, Estée Lauder’s stock dropped below the $70 mark, a level it hasn’t seen in over a decade. This raised concerns, and we highlighted some of these dynamics in an earlier post. Yet, could the market be overly pessimistic?
Despite a -4% YoY revenue decline in Q1 24/25, there are promising signs: ROCE is once again outpacing WACC, EBIT (excluding one-time restructuring and litigation costs) is up 36% YoY, inventory management has improved, with Days Inventory Outstanding (DIO) reduced from 488 to 443 year over year. Fundamentals are strengthening, and once Estée Lauder unlocks revenue growth, it could very well return to the industry leadership we know it for.
Are we seeing the beginning of a turnaround? Let’s keep an eye on what comes next with the new guard fully in place!
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