The Estee Lauder Companies (NYSE: EL) stock dropped 17% on results. The problem is that the Asian travel market is doing rather worse than anyone expected. While this is of course unhappy for EL stockholders it's a symptom of the same problem we saw with Sands China and Genting Singapore on Wednesday. Both of those were down on the lack of Chinese gambling travellers. There's a significant part of the economy out there that caters to those travelling from one country to another - the tourist traveller. It's become something of a cliche in fact, the foreign shopping trip.
If the local economy isn't doing so well then of course fewer travel. In a way stocks like EL (and Sands, Genting) can be seen as leveraged to the local economies with China being the largest. A slightly lower performance on the Mainlaind has a larger impact on travel which then has a larger effect again on revenues and profits from serving that travel market. A usual assumption is that if and when the Mainland economy roars back then so with these stocks. But shocks to the downside, like here at Estee Lauder, have a disproportionate effect as a result of that same gearing.
Estee Lauder stock price from New York Stock Exchange
More specifically, the company reported:”a 12% decline year-on-year” in sales with the most marked effect coming from “Organic net sales fell -8%, primarily driven by declining travel retail sales in Hainan and South Korea.” This is not something that is expected to reverse quickly. The really big effect on the stock price comes not from the past performance but from the prediction of this coming year: “full-year guidance to $3.29 to $3.32 from a prior range of $4.87 to $5.02.”. Some predictions are that as the tail end of covid restrictions fade away then the market will come booming back. But that's a prediction, not a certainty. Until we see actual evidence of that coming true there's likely to be continued weakness in Estee Lauder stock.
