Estee Lauder Earnings: Persistent China Weakness Sets Up a Tough Fiscal 2025; CEO Plans to Retire

Wide-moat Estee Lauder reported fiscal 2024 profits that exceeded our estimates but issued a sobering fiscal 2025 outlook, projecting another year of subdued growth as a weak China backdrop and sluggish Asia travel retail sales are again expected to weigh on performance. While we never anticipated a V-shaped recovery in China after two difficult years, we have revised the 2025 Asia-Pacific sales estimate (primarily China) to incorporate a low-single-digit decline as we now deem our prior forecast for a mild China rebound too optimistic. As such, we have lowered our 2025 forecast for sales growth to 2% (from 7%) and adjusted earnings per share to $2.87 ($3.95), which aligns with the company outlook. We’ve also tapered our expectations for years 2026 through 2029, resulting in our 10-year assumptions for average annual sales growth and operating margin falling to 6% and 15%, respectively, from 7% and 16% prior. Our fair value estimate is lowered to $176 from $210, but we continue to view shares as deeply undervalued trading at a 45% discount.