EPS of $-0.79 decreased by 757.8% from previous year
Gross margin of 71.8%
Net income of -284.00M
""The PRGP enables and accelerates these strategy priorities and is the foundation to restore sustainable long-term organic sales growth and to rebuild our operating profitability."" - Fabrizio Freda
Estee Lauder Companies Inc (EL) Q4 2024 Earnings Review: PRGP Strategy Reset Drives Margin Leverage Amid China/Travel Retail Headwinds with 2025 Outlook and Path to Sustainable Growth
Executive Summary
Estee Lauder reported a challenging Q4 2024, with organic net sales up 8% for the quarter driven by strength in Europe, Japan, and select Asia travel retail markets, but tempered by ongoing softness in Mainland China and North America. Full-year 2024 organic net sales declined 2%, while gross margin expanded modestly to 71.7% and the company delivered an operating margin of 10.2% on a full-year basis. The quarter featured a material one-off impairment related to Dr.Jart+ ($471 million), which weighed on reported net income, but did not alter the company’s long-term strategic trajectory. Management introduced a refreshed strategy reset, the Profit Recovery and Growth Plan (PRGP), designed to accelerate margin expansion, rebalance growth across regions, and invest selectively in consumer-facing initiatives. Looking ahead to fiscal 2025, EL guides a modest organic sales trajectory of -1% to +2% and an EPS range of $2.75 to $2.95 before restructuring, with currency effects expected to be a modest headwind. The plan contemplates a substantial gross-margin uplift (roughly 80% of PRGP benefits expected to accrue to gross margin in 2025) and incremental operating-profit contribution of $1.1–$1.4 billion over the full PRGP, albeit with fixed-cost deleverage and the potential for ongoing restructuring charges. In sum, EL is transitioning to a growth-and-margin resilience model, leveraging its premier skincare and luxury fragrance franchises, expanding faster-growing channels (notably online/social commerce and Amazon Premium Beauty), and optimizing cost structure to weather near-term volatility while positioning for mid-to-long-term outperformance relative to the prestige beauty market.
Quarter and full-year highlights (USD):
- Revenue (Q4 2024): $3.871 billion; YoY growth ~+7.3%; QoQ change ~-1.75%
- Gross Profit (Q4 2024): $2.778 billion; Gross Margin 71.76%; YoY gross profit up ~+13.6%; QoQ margin change ~-1.94%
- Operating Income (Q4 2024): -$0.233 billion; Operating Margin -6.02%; QoQ margin deterioration reflected in line items and impairment charges
- Net Income (Q4 2024): -$0.284 billion; Net Margin -7.34%; YoY and QoQ declines driven by one-off impairment and weaker China/travel retail dynamics
- Diluted EPS (Q4 2024): -$0.79; YoY EPS change ~-757.8%; QoQ ~-185.9%
- Cash flow (Q4 2024): Net cash provided by operating activities $0.889 billion; Free cash flow $0.672 billion; Capex $0.217 billion; Cash balance end of period $3.395 billion
- Balance sheet (as of 2024-06-30): Total assets $21.677 billion; Total liabilities $16.363 billion; Total stockholders’ equity $5.314 billion; Net debt $6.431 billion; Debt-to-capitalization 0.649; Debt/Equity 1.849
- Full-year highlights (FY2024): Revenue not disclosed in summary here, but Organic net sales declined 2%; Gross margin 71.7%; Operating margin 10.2%; Net earnings $0.935 billion; Diluted EPS $2.59; Free cash flow (full year) robust; Cash flows from operations ~$2.4 billion
- Key efficiency metrics: Operating cash flow per share (Q4) $2.47; Free cash flow per share $1.87; Inventory turnover 0.503x; Receivables turnover 2.24x; Days inventory outstanding ~179 days; Days sales outstanding ~40 days; Overall liquidity remains solid despite near-term earnings volatility.
Income Statement
Metric
Value
YoY Change
QoQ Change
Revenue
3.87B
7.26%
-1.75%
Gross Profit
2.78B
13.57%
-1.94%
Operating Income
-233.00M
-4 560.00%
-143.88%
Net Income
-284.00M
-760.61%
-186.06%
EPS
-0.79
-757.76%
-185.87%
Key Financial Ratios
currentRatio
1.39
grossProfitMargin
71.8%
operatingProfitMargin
-6.02%
netProfitMargin
-7.34%
returnOnAssets
-1.25%
returnOnEquity
-5.34%
debtEquityRatio
1.85
operatingCashFlowPerShare
$2.47
freeCashFlowPerShare
$1.87
dividendPayoutRatio
-83.5%
priceToBookRatio
7.13
priceEarningsRatio
-33.34
Net Income vs. Revenue
Expense Breakdown
Management Commentary
Management conveyed a thoughtful, multi-pronged plan to navigate near-term industry softness while positioning for longer-term growth. Key themes include:
- Strategy reset and PRGP: Fabrizio Freda highlighted that the Profit Recovery and Growth Plan is foundational to return sustainable top-line growth and profitability, with a bias toward margin expansion and cost leverage. “The PRGP enables and accelerates these strategy priorities and is the foundation to restore sustainable long-term organic sales growth and to rebuild our operating profitability.”
- China and Asia travel retail headwinds: Tracey Travis stressed continued declines in Mainland China and Asia travel retail, noting that 2025 organic sales outlook assumes a decline in these regions, with recovery gradual and below prior mid-single-digit trend achievements.
- Channel and digital transformation: Both executives emphasized shifts toward high-growth channels and platforms (Amazon Premium Beauty, specialty-multi, social commerce) as channels that improve consumer recruitment and profitability; they cited early successes with Clinique on Amazon and plan further storefront launches globally.
- Margin and cost actions: The call underscored inventory rationalization, reduced obsolescence, and price-promotion discipline as drivers of gross margin expansion, while acknowledging fixed-cost deleverage from slower growth. They also signaled ongoing restructuring and the expectation of roughly $1.1–$1.4 billion of incremental operating profit from PRGP over the full program.
- Leadership transition and succession: Fabrizio Freda announced retirement plans, with the Board advancing succession planning to sustain momentum and ensure leadership continuity through the reset.
"The PRGP enables and accelerates these strategy priorities and is the foundation to restore sustainable long-term organic sales growth and to rebuild our operating profitability."
— Fabrizio Freda
"We began pilot studying in market around the world to marry trends with our rich portfolio of existing products and innovation to activate against trends with speed."
— Tracey Travis
Forward Guidance
Fiscal 2025 outlook and KPIs (management guidance) – USD basis:
- Organic net sales: -1% to +2% versus prior year, reflecting ongoing China/Asia travel headwinds and mixed regional trends, with acceleration in developed markets and non-China regions.
- Diluted EPS: $2.75 to $2.95 before restructuring and other charges; currency translation impact ~$0.03; in constant currency, EPS growth ~7%–15%
- Net cash from operating activities: $1.8B to $2.0B; capital expenditures: ~5.0%–5.5% of forecast net sales
- First-quarter outlook: Organic net sales down 3% to 5%; diluted EPS $0.02 to $0.10 before restructuring; currency impact ~+$0.01 to $0.09 in constant currency
- Profitability and margin: Approximately 80% of PRGP net benefits expected to improve gross profit in 2025, with remainder accruing to operating expenses; overall, margin expansion anticipated to outpace pre-pandemic historical averages as pricing discipline, mix shift, and efficiency gains take hold
- Restructuring charges: Expect roughly $100M to $120M in 2025, with additional charges possible as initiatives finalize
- Growth catalysts and risk monitoring: The company plans to accelerate growth in skincare, high-end fragrance, and premium channels, while monitoring China/Asia travel retail dynamics; investors should watch breadth and pace of PRGP savings realization, margin progression, and effectiveness of precision marketing investments.
Overall investment thesis: The strategic reset aims to transform Estee Lauder into a faster, leaner organization able to leverage its brand equity in skincare and fragrance, expand high-growth channels, and deliver margin expansion even in a slower top-line environment. The success hinges on stabilized top-line growth in key regions outside China, effective deployment of PRGP benefits, and resilient consumer spending in developed markets.
Competitive Position
Company
Gross Margin
Operating Margin
Return on Equity
P/E Ratio
EL Focus
71.76%
-6.02%
-5.34%
-33.34%
CL
59.50%
23.00%
1.18%
22.85%
COTY
60.70%
2.67%
-2.53%
-21.85%
ELF
70.70%
5.30%
2.26%
183.24%
KVUE
56.50%
13.20%
3.03%
34.63%
Gross Profit Margin
Operating Profit Margin
Return on Equity
P/E Ratio Comparison
Investment Outlook
Investment thesis: EL is navigating a challenging near term characterized by China/travel-retail softness, while implementing a comprehensive strategy reset (PRGP) designed to restore margin expansion and accelerate profitable growth across skincare and luxury fragrance. The company’s focus on high-growth channels (online/social commerce, Amazon Premium Beauty), product innovation (The Ordinary, Clinique, La Mer), and a leaner operating model should help offset macro headwinds. The 2025 guidance implies a subdued top line with meaningful margin improvement and incremental operating profit from PRGP, which could translate into a stronger growth trajectory in 2026 and beyond if China/Asia travel retail stabilizes. Key investment considerations include the pace and sustainability of PRGP benefits (gross margin uplift vs. SG&A leverage), the evolution of online and social channels, and the resilience of demand in developed markets. Relative to peers, EL trades at a high price-to-sales multiple and a negative near-term P/E due to quarterly earnings volatility, but possesses a diversified, premium brand portfolio with significant long-term growth potential in skincare and fragrance. Monitoring points: quarterly progress on PRGP benefits, the velocity of top-line stabilization outside China, and the execution of new product launches and channel strategies.
Key Investment Factors
Growth Potential
The Ordinary-driven skincare growth with new product launches (lip care, body care) and geographic expansion; Clinique’s US/Amazon footprint and US premium beauty growth; Le Labo, Jo Malone London, TOM FORD and Balmain Beauty expansions across luxury fragrance; online/social commerce and platform partnerships to recruit new consumers; North America is a significant growth lever given prestige makeup leadership and four of top five prestige skincare brands.
Profitability Risk
China slowdown and Asia travel retail weakness; elevated fixed costs and potential operating deleverage if top-line growth falters; impairment charges (Dr.Jart+ in FY2024) highlighting brand-specific profitability risk; channel shifts could pressure gross margins if online/offline mix deteriorates; geopolitical and currency volatility; dependence on travel retail as a material sales contributor historically.
Financial Position
Healthy liquidity with approximately $3.4B in cash; net debt ~$6.43B; total debt ~$9.83B; conservative balance sheet with a long track record of robust operating cash flows; margin resilience through PRGP and price/mix improvements; leverage remains high (debt-to-capitalization ~0.65; debt/equity ~1.85), necessitating disciplined capital allocation and efficiency initiatives.
SWOT Analysis
Strengths
Leading prestige skincare portfolio (La Mer, Estee Lauder, The Ordinary) with strong pricing power and high repeat rates
Extensive luxury fragrance portfolio (Jo Malone London, Le Labo, TOM FORD, Kilian Paris) with broad global reach
Strong brand equity and a diversified global footprint across developed and emerging markets
Robust online and social-commerce initiatives; successful Amazon Premium Beauty pilots (Clinique, Too Faced, Bumble and bumble)
Positive margin trajectory potential from PRGP and improved inventory management
Weaknesses
Significant exposure to China and Asia travel retail, which remain volatile and affected by consumer sentiment and policy changes
One-off impairment charges (Dr.Jart+ in FY2024 Q4) highlight brand profitability risk in certain channels
Near-term fixed-cost deleverage risk if top-line growth remains muted
Dependency on travel retail and luxury channels for a substantial share of revenue
Opportunities
Expansion of The Ordinary and Clinique into new subcategories and geographies; accelerated skin-care innovations
Growth in high-end fragrances and new Balmain Beauty launch to broaden luxury portfolio
Acceleration of high-growth channels and platforms (Amazon Premium Beauty, Line/Rakuten, Kakao, social commerce) to acquire new consumers
Price/mix discipline and reduced discounting under PRGP to improve gross margins
Threats
Continued macro volatility in China/Asia; risk of travel retail declines pressuring sales mix
Intense competition across premium beauty and makeup in North America and Europe
Geopolitical tensions and currency fluctuations impacting earnings translation