Estee Lauder (EL) beat earnings expectations in Q2 but issued "underwhelming" guidance, causing a negative stock reaction, RBC Capital Markets said in a report Wednesday.

Despite this, the company's new CEO has implemented several initiatives like organizational changes, an expanded Profit Recovery & Growth Program, or PRGP, and the "Beauty Reimagined" strategy, aimed at long-term growth. But short-term challenges, particularly declining sales volume in Asian travel retail, especially in Korea, are hurting profits and obscuring the positive effects of these initiatives, the report said.

The company exceeded sales and margin expectations, led by Europe, the Middle East, and Africa and Asia-Pacific, but weak guidance and struggles in Korean travel retail are concerning. Issues in Korea stem from political unrest, policy changes, and EL's exit from the Dr. Jart travel retail channel. On the other hand, China showed some improvement, but growth remains slow, the report said.

"[Estee Lauder] continued to abstain from providing full year guidance given ongoing challenges in Asia travel retail, subdued consumer sentiment in China and Korea, and evolving global geopolitical uncertainty," RBC said, adding that the company forecasts fiscal Q3 organic sales growth of -10% to -8%, with net sales growth of -12% to -10%, and adjusted earnings per share of $0.20 to $0.30, well below consensus.

RBC has revised the company's fiscal Q3 organic growth estimate to -10%, from -7.2%, and cut its EPS estimate to $0.30, from $0.53, the report said.

"While we incorporate travel retail headwinds, we remain toward the high end of guidance given our belief that the outlook is conservative (particularly on EPS)," RBC said.

"With an improved growth plan set, [Estee Lauder] is primed to see a strong inflection in profitability once volumes recover," the investment firm added.

RBC maintained an outperform rating on Estee Lauder, with a price target of $100.

Shares of Estee Lauder were down more than 5% in recent trading.

Price: 65.98, Change: -3.49, Percent Change: -5.02