The Chinese are not spending, sales of luxury brands are falling – News of the world

Several reasons can be found behind the drop in Estée Lauder shares based on the release of the company’s financial results for the third quarter. Revenue fell four percent year-on-year to $3.36 billion (CZK 78.4 billion), with the company admitting that the recovery in consumer demand in China was slower than expected. So sales in the Southeast Asia region fell by up to 11 percent year-on-year.

The cosmetics conglomerate, which in addition to Estée Lauder also includes brands such as La Mer, MAC or Clinique, has also abandoned the original forecast for future sales and profits and also broke -expect investors by significantly reducing the size of the sector.

“A real armageddon at Estée Lauder started the look for this season. In it, the company expects a profit per share of only 25 to 30 cents. At the same time, the market expected rates above one dollar. Sales should drop six to eight percent. The imaginary ax that brought down investor sentiment was the cut of the quarterly dividend by almost 50 percent to 35 cents,” Purple Trade analyst Petr Lajsek told Novinkám.

Investors cited the company’s poor results as its shares fell 20.9 percent on Thursday, after which they had weakened by more than 54 percent since the beginning of the year. “The last time they were this cheap was ten years ago,” Lajsek said.

At the same time, he offered a comparison with March 2020, when the coronavirus pandemic was full of movement and travel, from which Estée Lauder benefits thanks to airport stores, was very limited. “At its worst, the stock was at twice its current value. However, since the end of 2021, they have been falling continuously, currently they are even at about one fifth of the value compared to the historical peak,” he said.

However, the entire luxury goods sector is in trouble due to China’s weak economy. For example, the French company L’Oréal, the world’s number one in the cosmetics sector, last week did not meet expectations in terms of quarterly sales and, like Estée Lauder, drew attention to the continued weak numbers in China and tourism. Its shares have also suffered this year, falling 22 per cent.

Among the other cosmetic giants, Coty and Ulta Beauty are not doing well either, and their shares have written off 38 percent and almost 25 percent of their value since the beginning of the year. And the European concern LVMH – Moët Hennessy Louis Vuitton, uniting more than 60 brands of luxury goods, is not doing well either. Its shares have fallen 15 percent this year.

“Uncertainty about developments in trade relations between China and the EU is also weighing on the shares. This problem will only deepen if Donald Trump is elected US president. It would add up to 60 percent tariffs on the import of goods to the US, which could mean a new wave of uncertainty for the shareholders of these companies,” said Argos Capital analyst Kryštof Míšek for Novinky.

He agrees with Lajsk that despite improvements in industrial production and generous fiscal packages to support growth, “China’s economy may still struggle with deflationary pressures.” According to Lajesko, caution can Chinese consumers will be in the long run, which will be felt the most by manufacturers of luxury brands.