Cosmetics rebound out of China

hands spraying perfume

China’s recent Covid restrictions have dealt another setback to cosmetics giant Estee Lauder as it tries to emerge from a pandemic downturn.

The owner of Clinique and Bobbi Brown cut its sales forecast for the 12 months to July by nearly half, citing multi-week shutdowns that prevented it from shipping products to China.

He now expects overall growth of just 7% to 9%, down from 16% previously.

Executives said it marked a temporary blow to a broader “makeup renaissance”.

The beauty industry has struggled to recover from the pandemic, leading to a protracted shift to more minimal beauty routines.

Estée Lauder said that outside of China, shoppers are buying makeup and perfume again, boosted by returns to the office, increased restaurant dining and an increase in parties.

Sales in the Americas in the January-March period jumped 15% year-on-year, while in Europe, the Middle East and Africa, they were up 17%. The UK led growth in Europe as in-person shopping rebounded.

Shoppers are in the mood to be pampered, with high-profile skincare lines such as La Mer growing particularly rapidly, chief executive Fabrizio Freda said.

The company’s fragrance business is also booming, with sales up 31% in the quarter from a year earlier.

But restrictions in China – which typically accounts for more than a third of Estee Lauder’s business – weighed on its results, driving the company’s sales down 4% in the Asia-Pacific region.

While online demand remained strong, sales at brick-and-mortar stores fell precipitously and logistics were severely disrupted.

During the last 15 days of March, the company was unable to ship any orders due to shutdowns in Shanghai, its distribution center, executives said.

They said they don’t expect logistical hurdles to ease until mid-May at the earliest.

“It’s not about consumer demand,” Freda said. “It’s a question of access to consumers.

“Obviously it’s temporary,” he added.

Estee Lauder’s overall sales rose less than expected, up just 10% to $4.25 billion from the same period last year. Profits were $558 million, up more than 20%.

Shares fell more than 5% following the results.

As the beauty industry continues to deal with the challenges of the pandemic, its sales have increased as people opt for more expensive products – despite less frequent use of makeup and hair washes, according to the firm of Kantar search.

Estee Lauder’s rival L’Oreal said last month that sales rose 19% in the first three months of the year, compared to 2021 – ahead of analysts’ expectations.

He said buying behavior was unaffected by inflation.

Estée Lauder has already raised prices and plans to do so again in July, executives said.

Donovan B. Sanford