A bad quarter but solid fundementals

Estee Lauder produced another disappointing result for the quarter – organic net sales shrank 8% while net sales (incl. FX) decreased 12%. EPS came in at 0.43c.

China is given as the reason for the company’s subpar results, but delving into the results deeper it looks to be actually Europe, The Middle East and Africa which are showing weakness – net sales fell 24%. It’s a pretty bad result, and management should be starting to question their strategy in Europe — we think it is partially a wider reflection of actual economic weakness in the Eurozone driven by sticky inflation, but we don’t think that is a good enough explanation on management’s part: how will they get back to growth? We still like the company — over time it has compounded earnings extremely well and typically runs at ~18% operating margins, and its stable of premium products like La Mer and Tom Ford afford it strong pricing power. Yet this was not a good quarter. Expecting to under-perform rest of year. Upside +$250 downside -$180. Read more at: tradingview.com/chart/zJbpU0rM/?symbol=NYSE:EL