LRLCF - Estée Lauder: Poor Q1 FY23 Results Much Worse Than Peers

Summary

• EL's Q1 FY23 results were poor, with sales down 5% organically and Adjusted EBIT down 26%; FY23 outlook was cut.
• EL's peers grew their sales by 9% in the same quarter. EL's larger exposure to China explains part of the underperformance.
• COVID restrictions hit Travel Retail and brick-and-mortar stores in China; EL also suffered from inventory tightening at some U.S. retailers.
• There were anecdotal datapoints of good performance. EL expects double-digit organic sales growth to resume in H1 FY23.
• We give EL benefit of the doubt. With shares at $220.67, we expect a total return of 52% (12.5% annualized) by June 2026. Buy.

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