Estée Lauder: Global prestige beauty rebound by 2026 contingent on China recovery

Fabrizio Freda, president and chief executive of the Estée Lauder Companies was speaking at the firm’s fiscal 2024 earnings conference, when he said the prestige beauty segment was unlike to recover in the next fiscal year.

“We expect the global prestige beauty industry to reaccelerate to historical mid-single-digit growth in fiscal year 2026, assuming China progressively stabilises and then returns to growth.”

For fiscal 2025, the company expects global prestige beauty to grow 2% to 3%.

This forecast reflected the strength of the developed and emerging markets, which the firm believes will offset what looks to be continued declines in China and the Asian travel retail markets.

The Western markets such as North America, have ended the year “relatively strongly”, and is set to drive the industry moving forward.

However, the firm expects things in Asia to be less straightforward.

“The markets in the East in total are expected to be tempered as strengths in Japan and South East Asia is offset by ongoing declines in mainland China and Asia travel retail,” said Freda.

He added: “For fiscal 2025, we anticipate continued declines in the prestige beauty segment in China, mainly reflecting persistent weak sentiment among Chinese consumers.

Against this backdrop, Freda delivered a grim outlook for the company for the next year.

“With this industry landscape and given the size of our business in some areas most challenged, our fiscal year 2025 organic sales growth outlook range is in a decline of 1% to an increase of 2%.”

China’s impact on ELC

The softness in China resulted in a 3% decline in skin care net sales to USD7.9bn while operating income fell by 42% to USD735m.

“The prestige beauty industry reported retail sales trends in mainland China further weakening sequentially in the fourth quarter from a decline of mid-single-digit in the third quarter to a decrease of low double-digits,” said Freda.

Skin care represents over half of the firm’s sales and is its most profitable product category.

The declines in the Asia travel retail market exacerbated losses in skin care.

“This was most notable in Hainan, where retail sales in the beauty market declined over 40% despite a more favourable comparison to the previous period as the quarter unfolded. For Hainan and Asia travel retail overall, as traffic returns, conversion levels remained subdued and significantly lower than pre-pandemic levels owing to weak consumer sentiment reducing basket sizes, and to an extent, consumer diversity spending to experiences,” said Freda.

According to the firm, excluding the declines in China and the global travel retail business, reported and organic net sales would have increased by 3%.

Despite the softness in China’s prestige skin care market, Estée Lauder gained market share in the market with the help of two of its most well-known brands

Freda said: “As the consumer confidence remains subdued, importantly, we gained share in the prestige beauty industry in mainland China in the fourth quarter, driven by La Mer and Estée Lauder progress in the market's far largest category of skin care.”