Organic net sales decreased by 5%, mostly due to worsened consumer sentiment in China, lower sales overall in mainland China’s prestige beauty, low conversion rates in Asia travel retail and Hong Kong SAR, and lower inventory replenishment orders in Aisa travel retail.
Fabrizio Freda, President and Chief Executive Officer said,
“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. Our Profit Recovery and Growth Plan drove gross margin expansion, which was partially offset by operating deleverage. Other pillars of our strategic reset also delivered promising initial results.”
ELC announced its PRGP in November 2023, and initiatives under the plan are currently underway, delivering net benefits in the fiscal 2025 first quarter that primarily improved the cost of sales and resulted in gross margin expansion compared to the prior year.
Total reported operating loss was $121 million, a decrease from operating income of $98 million in the prior year. In constant currency, adjusted operating income increased 23% to $133 million.
Skincare
Skincare net sales decreased by 8%, primarily due to a lack of growth in the Chinese market. The category’s performance was driven by double-digit declines from La Mer and Estée Lauder, because of this continuing issue.
However, net sales grew in Europe, the Middle East & Africa (EMEA), and The Americas, benefiting from new product innovation within the Advanced Night Repair and Revitalizing Supreme+ product franchises.
The net sales growth in The Americas reflected shipments for the brand’s October 2024 launch in Amazon’s U.S. Premium Beauty store.
Freda added,
“As we reignite Skin Care, 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 Skin Care in China, led by La Mer.”
Hair Care
Hair Care net sales decreased by 6%, mostly due to Aveda, reflecting the timing of shipments and continued softness in the Company’s North American salon channel.
Makeup
Makeup net sales decreased 2%, led by MAC and Too Faced, partially offset by Clinique.
Too Faced net sales decreased, primarily in North America. Lower MAC sales were attributed to lower replenishment orders in North America and ongoing disruptions in the Middle East.
Net sales from Clinique increased double digits globally, with growth across all geographic regions, benefiting from continued strength in the lip subcategory. The brand’s launch in Amazon’s U.S. Premium Beauty store in fiscal 2024 Q3 also helped increase sales.
Fragrance
Fragrance net sales decreased by 1%, driven by the challenges in ELC’s global travel retail business. This was partially offset by growth in both Asia/Pacific and collectively in the markets of EMEA.
Reported and organic net sales from the company’s Luxury Brands, excluding its global travel retail business, grew mid-single-digits in total compared to the prior year, reflecting strategic investments to support direct-to-consumer expansion, particularly freestanding stores.
Freda stated,
“We advanced our ambitions to capitalize on the multiple growth drivers of Fragrance. We expanded consumer reach of our luxury and artisanal portfolio and launched BALMAIN Beauty, as we aim to strengthen our strategic leadership in luxury Fragrance, demonstrated in the quarter by having become the top-ranked company in Japan in the category driven by Le Labo and Jo Malone London. Moreover, we set the stage to reaccelerate our growth in the prestige tier of Fragrance.”
He added,
“In the rest of our business, we continue to expect the ongoing normalization of growth in prestige beauty, most notably in North America. With this complex industry landscape, including the particular difficulty in forecasting the timing of market stabilization and recovery in China and Asia travel retail, and in the context of leadership changes, we are solely issuing an outlook for the second quarter and withdrawing our fiscal 2025 outlook.”
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