The company says that net sales and net earnings for the second fiscal quarter and the full financial year are expected to be below initial expectations, citing in particular that the results for the all-important holiday shopping season were worse than previously thought.
Net sales for the second quarter are now expected to fall approximately 6 percent on a constant currency basis compared to the same period last year, in contrast to previous expectations that had estimated growth of between 2 and 3 percent for the period.
The company also pointed to the fact that a weakened US dollar is likely to further impact the results, which means that adjusting for currency calculations, the second quarter sales could fall by approximately 6.5 percent.
Sales could fall 3 percent in 2009
For the full fiscal year 2009, the company is expecting that net sales will either remain flat or fall by as much 3 percent, compared to previous expectation that estimated sales growth of 5 – 7 percent growth.
In response to the news share prices fell by as much as 14 percent on the New York Stock Exchange, ending 2.92 percent down to $26.11 per share at close of business on Friday, January 16.
“The unprecendented global economic crisis produced one of the worst holiday seasons in decades, with many US retailers experiencing double-digit sales declines in nearly all categories,” said CEO William Lauder.
What lipstick effect?
Although there has been much talk of the ‘lipstick’ effect amongst cosmetics and personal care players, retailers results have been significantly worse than expected, with many of the big traders pointing to double digit drop in sales figures during the holiday period.
Further more, with the credit crunch biting hard, many shoppers are turning to less expensive products, a factor that his hurting manufactures such as Estee Lauder who position themselves at the top end of the market.
However, Lauder did point out that not all the news has been bad, underlining the fact that preliminary results for the second quarter indicate that certain of its leading brands generating share improvements during the quarter.
Well placed to grow market share
He also stressed his belief that the company is well placed to grow its global market share, even taking into consideration the exceptionally challenging retail market conditions in the US.
The news that Estee Lauder is in trouble came at the same time as major rival Elizabeth Arden also announced poor holiday results.
The company slashed its estimates for the full financial year, stating that net earnings could fall by as much as half - news that saw the company’s share price fall by as much as 22 percent on Friday.