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Estee Lauder sees weak annual profit on slow recovery in Asia travel retail

Estee Lauder sees weak annual profit on slow recovery in Asia travel retail
© Reuters. FILE PHOTO: An Estee Lauder cosmetics counter is seen in Los Angeles, California, U.S., August 19, 2019. REUTERS/Lucy Nicholson

By Granth Vanaik and Ananya Mariam Rajesh

(Reuters) -Estee Lauder forecast annual sales and profit below estimates on Friday, indicating a slower-than-expected rebound in its travel retail business, mainly in Asia, and waning demand in the United States, sending its shares down about 3%.

Major global companies have taken a cautious stance on their China recovery, as the world’s second-largest economy struggles to revive demand and battles rising youth unemployment rates and a high cost of living.

Analysts note that the drop in consumer demand in China and a slow recovery in Asia travel retail – sales made at airports or travel destinations like Korea and China’s Hainan – could impact luxury companies like Estee, which makes about 30% of its annual revenue from the Asia Pacific region.

“It’s been a bit volatile in terms of individual travelers traveling back to Hainan… it’s been slower than our customers thought, and certainly we thought as well,” Chief Financial Officer Tracey Travis said in an interview with Reuters.

“The business will pick up (in Hainan)… it is just taking a bit longer,” she added.

French cosmetics maker L’Oreal also said last month that the Chinese market was not picking up at the speed everyone had hoped for, while European rival LVMH flagged cooling demand in the U.S.

Estee’s Americas region reported flat net sales, while Asia Pacific reported a 29% increase in the quarter.

The company’s dour forecast, however, led analysts to raise questions about the continuing uncertainty in Hainan and Mainland China.

“De-stocking and inventory levels in Asian Travel Retail… likely to remain the biggest headwind to growth over the next few quarters,” said Bernstein analyst Callum Elliott.

Estee expects full-year sales to rise between 5% and 7%, compared with an estimated 8.8% increase, according to Refinitiv data.

It sees annual adjusted profit to be between $3.50 and $3.75 per share, compared with an expectation of $4.83.

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