Estee Lauder’s recent results erode the lipstick index

The most recent news and information professionals in finance and corporate should be aware of in order to stay abreast of the constantly changing sector.

The issue with the idiosyncratic economy gauges is that they’re not always held up.

A case in point: Decades after the former Estee Lauder director Leonard Lauder first spotted the notorious “lipstick index”–the notion that the sales of cosmetics are the same and can even increase in times of economic turmoil, the same company released the rather bleak earnings report.

At the moment, the economy’s not the best, but it’s also still not awful, which calls two possible interpretations of Estee Lauder’s recent report: either the economy is more robust than it appears or the index of lipstick has always been a bit shaky. Anything else you’d like to learn of the study, keep in mind that an important part of the story this time around is China.

The giant of cosmetics posted lower sales numbers, and the company lowered its forecast for the full year. “For full-year fiscal 2023, we delivered organic sales growth and prestige beauty share gains in many developed and emerging markets, but Asia travel retail pressured results, particularly in Skin Care, and we continued to experience softness in North America,” the report noted.

Estee Lauder is anticipating an ebb in Asia and says it’s “taking actions to capture demand from the returning individual travelers and continuing to reduce inventories in the trade as we navigate the current market headwinds.”

Particularly, China’s economy that was hampered due to three consecutive months of “zero-Covid” lockdowns, has had a slower turnaround than analysts anticipated. Companies that specialize in luxury, such as Estee Lauder, which typically gets a substantial portion of its revenue annually in its home in the Asia Pacific region, were anticipating a decline.

“Everyone had expected China to come back a little bit more strongly in terms of the rebound post Covid than it has so far,” Raymond James analyst Olivia Tong said to Reuters. “This has clearly led to some need to reset expectations for companies that have a lot of exposure there.”

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