Estee Lauder raises 2019 forecast on increased China demand

(Reuters) - Estee Lauder Cos Inc raised its 2019 forecast for profit and sales on Wednesday after beating Wall Street expectations for third-quarter results on booming demand for luxury beauty products in China.

FILE PHOTO: Lipstick is displayed in the M.A.C flagship store in Paris, February 28, 2013. REUTERS/Philippe Wojazer

The company and its rivals such as Lancome owner L’Oreal have thrived in recent years on strong demand for cosmetics from affluent Chinese shoppers, who spend more on high-end luxury goods.

Sales in Asia-Pacific (APAC), which includes China, grew 25 percent to $966 million in the quarter, allaying investor concerns of a potential slowdown in China’s economy due to the U.S.-China trade war.

“We had anticipated a gradual moderation of growth in China and travel retail starting in the quarter, which didn’t happen and that contributed to our overachievement,” Chief Executive Fabrizio Freda said in a statement.

The company, which has been selling about 10 of its brands including M.A.C and Tom Ford on Alibaba’s online marketplace Tmall, said the site was the largest contributor to its online sales in China. Pop-up stores in key airports also helped to attract traveling Chinese consumers.

Sales in Europe, the Middle East and Africa (EMEA) - Estee Lauder’s biggest revenue generator - also rose 15 percent to $1.63 billion on higher demand for luxury brands at duty free stores.

Skincare sales surged 21 percent in the quarter, with strong growth at its namesake brand and La Mer.

“The combo of APAC + travel retail + Skincare is a powerful driver,” noted Jefferies analyst Stephanie Wissink.

Estee Lauder now expects fiscal 2019 net sales to increase between 7 percent and 8 percent, up from previous guidance of 5 percent and 6 percent.

Excluding restructuring and other charges, the company expects earnings per share in the range of $5.15 to $5.19, compared with prior expectations of $4.92 to $5.

For the quarter, net sales rose 11 percent to $3.74 billion, breezing past the average analyst estimate of $3.57 billion.

Excluding certain items, the company earned $1.55 per share, beating analysts’ estimate of $1.30, according to IBES data from Refinitiv.

Shares of Estee Lauder were up 2.4 percent at $176 and have risen 32 percent this year.

Reporting by Soundarya J and Jaslein Mahil in Bengaluru; Editing by Shinjini Ganguli and Sweta Singh