According to the Financial Intelligence APP, Estee Lauder, one of the world's largest skincare, beauty, and fragrance companies, unexpectedly withdrew its full-year performance outlook for fiscal year 2025, mainly due to uncertainties in the selection of a new CEO and unexpectedly soft demand in the Chinese market. The company, headquartered in New York, stated in its performance announcement on Thursday that it will also reduce dividends to a 'more appropriate dividend rate,' which will provide our new leadership team with greater financial flexibility to accelerate our profit growth trajectory.

Estee Lauder's unexpected move led to a significant drop of over 18% in its stock price in pre-market trading on the US stock market. As of Wednesday's US stock market close, the stock has already dropped significantly by about 40% since the beginning of the year, substantially underperforming the overall US stock market, while the S&P 500 index has surged by 22% during the same period.

For the first quarter of the fiscal year 2025 ending September 30th, the company's sales declined by 4% year-on-year, as deteriorating consumer sentiment in the Chinese market and a decline in demand across Asia impacted the company's duty-free store product earnings. The cosmetic giant also reported a hefty net loss of 0.156 billion USD in the first fiscal quarter, mainly due to significant expenses related to talc litigation and weak product demand. In comparison, the company achieved a small profit in the same period last year, with a net income of approximately 36 million USD.

L'Oreal SA, one of Estee Lauder's largest competitors, also announced disappointing latest quarterly performance due to weak demand in the Chinese and Asian markets. However, this French conglomerate has a lower dependence on the Chinese market compared to Estee Lauder.

Stéphane de La Faverie, expected to take over as CEO of Estée Lauder in January, will have to address the rapid decline in sales and demonstrate to investors that he is effectively executing the company's transition plan inherited from the former CEO. Otherwise, he will face significant pressure to propose a new transformation strategy.

Estee Lauder stated in its performance announcement: "As the industry situation becomes increasingly complex, especially with the unpredictability of the Chinese market and the specific timing of stabilization and recovery in the Asian travel retail market, and against the backdrop of changes in leadership, the company has decided to only provide the outlook for the second fiscal quarter, retracting its full-year 2025 performance outlook."

For the outlook of the second quarter performance, Estee Lauder expects a decrease of 6% to 8% in net sales compared to the same period last year.

"Driving us forward."

Since 2024, Estee Lauder has been working hard to address a series of severe issues such as the decline in market share in the USA and soft sales in key demand markets in Asia like China, especially with continuous softness in the duty-free shop sales of the company's travel retail business in the Asian market.

However, Estee Lauder's management decision to completely withdraw performance guidance and unexpectedly cut the company's dividend indicates that the company's financial situation is worse than market expectations, as previously the owner of many top global brands including La Mer, Clinique, the Ordinary, and Le Labo had significantly lowered annual performance outlook data in August.

"While we believe that China's new economic stimulus measures provide medium to long-term potential for the stability and eventual growth trend of high-end beauty products, we expect recent strong downside trends in areas like travel retail in China and the overall Asian market." Outgoing CEO Fabrizio Freida stated in the performance declaration.

Over the past two years, Estee Lauder CEO Freida has repeatedly lowered performance outlook data, leaving Wall Street investment institutions with the impression that Estee Lauder executives are uncertain about what is happening and significantly reducing investors' long-term expectations for Estee Lauder's recovery promises.

Analyst Ashley Helgans from the Wall Street bank Jefferies wrote: "The biggest debate surrounding Estee Lauder is whether the current issues in the Chinese market (which accounts for 20% of total sales) and TR (travel retail business, accounting for 20% of total sales; peaking at around 28%) are structural or temporary."

This week, the company announced that 50-year-old Stéphane de La Faverie will succeed Freida, who has been Estee Lauder's CEO since 2009. The company also stated that two Lauder family members will resign from their positions, marking the first time since the company's founding 75 years ago that Lauder family members are not involved in the company's day-to-day operations and management.

On Thursday, Freda stated in the performance announcement that he hopes his successor can help "us to continue moving forward quickly and flexibly".