Retail Investors Turn Bearish On Estee Lauder After Judge Allows Class-Action Lawsuit To Proceed

Cosmetics giant faces accusations of defrauding shareholders by concealing its overdependence on improper gray-market sales in China, leading to financial damages.

Retail investors turned bearish on Estee Lauder Cos. Inc (EL) after a U.S. judge on Monday reportedly allowed a class-action lawsuit against the company to proceed.

The cosmetics giant faces accusations of defrauding shareholders by concealing its overdependence on improper gray-market sales in China, leading to financial damages.

U.S. District Judge Arun Subramanian said shareholders identified "several misleading omissions" and "half-truths" in Estee disclosures, related to the negative sales impact from a January 2022 government crackdown on the "daigou" gray market, Reuters reported.

"Estee Lauder touted the reasons for its success while leaving out the parts of the truth it found inconvenient," the judge said.

Estee became dependent in China on "daigou," or duty-free purchases by resellers, after the COVID-19 pandemic began, aggrieved shareholders have said in their lawsuit.

In May 2023, the company announced weak sales and cut its profit outlook for the third consecutive time, citing continued pressure from a slower-than-expected recovery in Asia’s travel retail sector.

Following that, the stock dropped 17%, losing over $9.8 billion in shareholder value. Then, on Dec. 7, 2023, some shareholders filed a claim against the company.

The proposed class-action covers shareholders from Feb. 3, 2022 to Oct. 31, 2023.

On Stocktwits, retail sentiment for the company dropped to 'bearish' from 'bullish' a day ago, even as message volume remained low.

Several users commented about the lawsuit news, with one saying that the stock could be bottoming out.

Estee is a global cosmetics company specializing in skincare, makeup, fragrance, and hair care, and owns brands like MAC, Clinique, and La Mer. 

Shares of EL are down 9.5% year to date.

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