Estée Lauder lowered its annual organic sales estimate on persistent softness in Mainland China’s prestige beauty space, even as a demand rebound in the US and Asia-Pacific markets drove a profit forecast raise.

Shares of the New York-based company dropped 5 percent in pre-market trading on Wednesday.

Estée also beat Wall Street targets for third-quarter results, hinting at a recovery in demand for beauty and cosmetic products in the US after a long bout of inflation had pressured sales of luxury items in the world’s biggest economy.

A pick-up in China demand after several quarters of weakness also underscored customer willingness to splurge on “affordable luxuries” such as fragrances and make-up products.

“Estée Lauder’s management might have taken the view it is better to be cautious now and over-deliver, than continue with high expectations and fail to sell enough products,” said Dan Coatsworth, investment analyst at AJ Bell.

The company expects annual organic sales to fall 1 percent to 2 percent, compared with its previous forecast for a 1 percent decrease to a 1 percent increase.

Third-quarter organic net sales in the Americas grew 1 percent, with a 3 percent rise in the Asia Pacific region.

Last month, European rival L’Oréal also beat sales expectations and eased concerns about waning demand in the US and China - the two biggest beauty markets.

“The sector has held better than I expected and the question really around luxury and personal luxury goods is whether 2024 will be a hard or soft landing ... so far it speaks to the narrative of a soft landing,” said Javier Gonzalez Lastra, luxury-focused portfolio manager at Tema ETFs.

Estée now expects full-year 2024 adjusted profit per share between $2.14 and $2.24, compared with a prior forecast of $2.08 to $2.23.

Net sales rose 5 percent to $3.94 billion, compared with LSEG estimates of $3.91 billion. Adjusted profit of 97 cents per share surpassed expectations of 49 cents.

By Ananya Mariam Rajesh; Editing by Devika Syamnath

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