Why Estée Lauder Stock Dropped 23% This Week: Weak Demand in China and Dividend Cut Signal Rough Waters

Why Estée Lauder Stock Dropped 23% This Week: Weak Demand in China and Dividend Cut Signal Rough Waters

Estée Lauder (EL -3.42%) is facing a challenging period, as the beauty and skincare giant reported weak earnings for the first quarter of its fiscal year 2025, leading to a significant 23% drop in stock value. This decline comes on the back of slowed demand for several core products, particularly in the Asia-Pacific region, and a decision to halve its dividend payout.

China’s Demand Slump Hits Estée Lauder Hard

Asia, especially China, represents a critical market for Estée Lauder, as it does for many other beauty companies. However, due to a spending slowdown in China, largely impacted by economic challenges in sectors like real estate, Estée Lauder’s revenue from the Asia-Pacific region saw an 11% year-over-year drop, settling at $944 million. Over the past four years, Estée Lauder’s Q1 revenue in Asia-Pacific has been declining steadily—from $1.33 billion to $944 million—signaling a troubling trend that has directly impacted the company’s profitability.

Dividend Cut Adds to Investor Concerns

In a surprising move, Estée Lauder slashed its quarterly dividend payout from $0.66 to $0.35 per share, reducing the yield to approximately 2%. Dividend cuts typically concern investors, especially in a scenario where the company is already struggling to maintain growth. This reduction hints that management may not foresee a quick recovery, dampening investor confidence further.

Is Estée Lauder Stock a Buy on the Dip?

Estée Lauder remains a powerhouse in the beauty sector, boasting strong brands such as Tom Ford Beauty and Clinique. These products have a longstanding reputation and enjoy global consumer loyalty. However, the recent cuts in both dividends and revenue growth might deter some investors in the short term. For those considering buying the dip, evaluating Estée Lauder’s strategy to regain its foothold in the Chinese market and boost sales in other regions will be essential.

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