Q1 2025 Earnings Summary
| Metric | Period | Guidance | Actual | Performance |
|---|---|---|---|---|
Organic Net Sales Growth | Q1 2025 | Expected to decline by 3% to 5% | Declined by approximately 4.46%, derived from Q1 2024 revenue of 3,518Vs. Q1 2025 revenue of 3,361 | Met |
Diluted EPS | Q1 2025 | Expected to range between $0.02 and $0.10 | Actual was −$0.43 | Missed |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Profit Recovery and Growth Plan | Central strategy to restore margins, deliver $1.1–$1.4B in operating profit, and accelerate growth. | Continued emphasis; evaluating additional cost-saving measures and adjusting for sales pressures. | Recurring topic, plan execution intensified in response to prolonged challenges. |
Gross margin expansion and cost savings | Consistent focus on margin recovery through pricing, inventory management, and restructuring. | Achieved over 300 bps of gross margin improvement; most savings realized in gross margin, with ~20% in opex. | Consistently mentioned, showing improved gross margin but facing deleverage pressures. |
Gaining market share in China and Japan | Gains in China skin care (e.g., La Mer); strong fragrance growth in Japan, but not always mentioned each quarter. | Gained >1 point in China skin care; 200 points in Japan fragrance. | Ongoing positive momentum, maintained share gains despite market headwinds. |
Innovation and precision marketing | Cited as a growth driver with bigger innovation pipelines and AI-driven marketing in previous calls. | Emphasis on nighttime skin care, fragrance launches, data-driven targeting for ROI improvements. | Core growth driver, continues to be refined with data/AI focus. |
Focus on online and specialty-multi channels | Consistent expansion in specialty-multi and online (e.g., Sephora, Ulta, Amazon), viewed as crucial for new consumer acquisition. | Highlighted double-digit online growth in North America; brand launches on Amazon U.S. Premium Beauty store. | Consistent expansion, integral to future channel strategy. |
Continued sales declines in Mainland China and Asia travel retail | Persistent declines in high-margin markets (China, Hainan), creating deleverage and profit pressures. | Organic net sales in APAC –11%, slower inventory reduction, and lower conversion rates. | Major headwind, remains a top concern with uncertain recovery timing. |
Inventory challenges in Asia travel retail | Ongoing destocking efforts and higher-than-desired inventory levels; gradual normalization targeted. | Progress made but still slower than expected; lower-than-anticipated replenishment orders. | Persistent issue, impacting sales and requiring careful management. |
Withdrawal of full-year outlook | No mention of withdrawing full-year outlook; prior calls provided annual forecasts and updates. | Withdrew FY25 guidance due to worsening conditions in China/Asia Travel Retail and leadership transitions. | New topic, underscores uncertainty around macro headwinds and leadership changes. |
Dividend reduction | No mention of dividend reduction in prior calls [–]. | Reduced quarterly dividend from $0.66 to $0.35 to maintain flexibility amid prolonged pressures. | New topic, indicates cautious capital-allocation stance. |
Leadership changes | CEO retirement intention mentioned in Q4 2024; CFO transition also signaled, but not in earlier calls. | CEO and CFO announced retirements; emphasis on internal successors for agility and speed. | Recently emerging, significant for company’s strategic continuity and future direction. |
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Cost Structure and Investments
Q: How will you manage costs and investments amid worsening conditions?
A: We are evaluating additional actions beyond the PRGP to offset volume pressures, identifying more cost savings, and protecting key investments in marketing and consumer-facing areas. We will continue to invest selectively to fuel growth for our brands while adapting plans under the PRGP. -
Dividend Reduction
Q: Why did you reduce the dividend now, and what does it signal?
A: Reducing the dividend was appropriate to rightsize it given the current earnings outlook, preserving cash for potential actions under the PRGP and future growth investments. Despite pressures, we still offer a good dividend yield, and this decision does not reflect a change in our long-term growth opportunities. -
Market Share Outlook
Q: How is your market share trending, and what are your expectations?
A: We are gaining market share in key markets like China and Japan. In China, we achieved over 1 point of market share growth in skin care despite a declining market. In Japan, we gained 200 points in fragrance, becoming the #1 fragrance company in just one quarter. In the U.S., our retail trends are improving, and we are focused on stabilizing and growing market share further. -
Management Succession
Q: What qualities are essential in your new leadership?
A: We need leaders who understand global market dynamics, consumer trends, and can accelerate strategic initiatives with speed and agility. Our internal succession ensures that our new leadership can bring urgent and courageous changes while preserving the company's strengths and values. -
Capital Expenditures and Inventory
Q: Can you reduce CapEx and how is your inventory health?
A: We have already reduced CapEx expectations for this year and are focusing on cash management. Inventories are in good shape due to improvements made last year, but we are responding quickly to sales declines to keep obsolescence and discounting under tighter control. -
Asia Travel Retail Inventory
Q: What is the status of inventory levels in Asia Travel Retail?
A: Inventory levels in the trade are lower than last year and last quarter. While progress in reducing inventories has been slower than expected due to market deceleration, we expect to make further progress in Q2, assuming no significant market changes. We are in a much healthier position compared to a year ago. -
Q2 Profit Outlook
Q: What is driving higher costs and profit pressures in Q2?
A: Gross margin is expected to improve in Q2, but lower sales in profitable markets like China and Travel Retail put pressure on our expense base due to deleverage. We are protecting strategic investments in areas showing growth, such as innovative advertising and store investments for brands like Le Labo and Jo Malone. PRGP benefits are helping but are offset by sales declines, leading to overall deleverage.