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Estée Lauder Companies (ELC) plans to cut approximately 5 per cent of staff in order to drive sales and lower costs as part of its “Profit Recovery Plan”, the company said on Monday. The announcement came as ELC reported that net sales declined 7 per cent to $4.28 billion in the second quarter of 2024, due to persistent challenges in Asia travel retail as well as a softening demand for prestige beauty in China.
If the recovery plan is successful, the American beauty giant says it expects to drive incremental operating profits of $1.1 to $1.4 billion. Shares rose nearly 17 per cent on Monday afternoon. ELC didn’t specify which jobs would be cut.
“We are at an inflection point,” president and CEO Fabrizio Freda said on a conference call with analysts. “While [the restructuring recovery plan] is a difficult decision, we believe this will better position the company to restore stronger and more sustainable profitability, while also supporting sales growth acceleration and increasing agility and speed to market.”
In response to the ongoing challenges, the conglomerate is lowering its organic sales outlook and forecast growth to between 4 and 6 per cent. Organic sales fell 8 per cent for the quarter, in line with expectations.
Net sales in Europe, the Middle East and Africa declined 14 per cent due to persistent challenges in its Asia travel retail business, as well as disruptions in Israel and other parts of the Middle East. In Asia Pacific, net sales declined 7 per cent driven by a change in consumer demand for prestige beauty. Net sales in the Americas declined 1 per cent on challenges in the US, partially offset by double-digit growth in Latin America, where net sales increased in nearly every country, led by Brazil and Mexico.
Beauty conglomerates have struggled to stabilise their travel retail businesses, which have long accounted for significant global sales. Last quarter, ELC faced similar challenges: sales fell 10 per cent to $3.52 billion on a decline in its Asia travel retail division as well as a prestige beauty slowdown in China. In October, French beauty giant L’Oréal also reported a similar slowdown in Asia travel retail for the third quarter, though overall sales fared better at an 11 per cent increase.
Freda told investors on Monday that travel retail and retail sales in Mainland China and Asia are expected to return to growth in the second half of the year.
By category for ELC, fragrance sales were flat, according to the company. However, an uptick from its hero brands Le Labo, Tom Ford and Jo Malone London offset a decline from Estée Lauder. Skincare net sales fell 10 per cent, with Estée Lauder, Clinique and Origins seeing a decline, on a softer performance in China. ELC’s makeup division also declined 8 per cent. Haircare net sales dropped 6 per cent driven by its Aveda brand experiencing slowdown in North America.
“We believe this now-larger plan will better position the company to restore stronger, and more sustainable, profitability while also supporting sales growth acceleration and increasing agility and speed to market,” Freda said.
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