Stock Market Predictions

Estée Lauder warns of potential China slowdown

Stock Market Predictions

The red flags overshadowed large sales gains of the company's skin-care products, particularly the fanciest lines, at U.S. department stores in the most recent quarter that helped mitigate declines in France and elsewhere in Europe, which the company called a "soft market."

Estée Lauder said in a statement it is "cautious of macroeconomic factors that could slow the growth trend of the Chinese economy." Last quarter the company's revenues in China rose by a "double-digit percentage."

Chief Executive Fabrizio Freda said Estée Lauder's expansion into smaller cities in China and into more airports there can shield it from a slowdown.

"We can defend ourselves by going where the growth is," he told Global Markets.

For the current fourth quarter, Estee Lauder expects net sales to rise 10 percent to 11 percent in constant currency terms.

Despite the expectations of continued sales gains, Estée Lauder's current-quarter adjusted profit forecast of between 11 and 16 cents per share missed the 20 cents analysts were projecting, according to Thomson Global Markets I/B/E/S.

Shares were down 4.3 percent to $61.38 in late morning trading.

Estée Lauder said it plans to ramp up its advertising expenses, including a U.S. television campaign for its Clinique brand starting next week.

The company's torrid growth at home and abroad in the last year sent shares to a 52-week high last week, setting them up for a drop at even a small sign of trouble, one analyst said.

"There is a lot a momentum priced into the stock," said Erin Lash, an analyst with Morningstar.

Estée Lauder's shares are trading at a price to forward earnings ratio of 28.5, making them expensive compared to shares of Elizabeth Arden (RDEN.O) and Revlon (REV.N), at 18.6 and 11.27 respectively.

STRENGTH AT DEPARTMENT STORES

Net sales last quarter rose 3.8 percent to $2.25 billion.

The sales gains in the quarter were led by Estée Lauder's skin care products, which include La Mer and Clinique moisturizers and were far above those of fragrances, makeup and hair care, categories that account for just over half of its revenue.

Estee Lauder's products benefited from a "high single digit" percentage jump in sales at U.S. department stores which include high-end chains Saks Inc (SKS.N) and Macy's Inc's (M.N) Bloomingdale's.

The maker of Bobbi Brown, MAC and other cosmetics, reported net profit rose 4.6 percent to $130.4 million, or 33 cents a share, in the third quarter ended March 31, up from $124.7 million, or 31 cents a share, a year earlier.

Excluding one-time items, Estée Lauder earned 38 cents per share, beating Wall Street analysts' estimates by 5 cents. The company raised its full year adjusted earnings per share forecast to a range of $2.21 to $2.26 from an earlier $2.16 to$2.23.

(Reporting By Phil Wahba; Editing by Gerald E. McCormick, Dave Zimmerman)