Estée Lauder surges on plan to cut up to 5% of workforce

Estée Lauder Cos. said it’s cutting as many as 3,000 positions as part of a restructuring plan to put one of the world’s largest beauty companies back on track.

The shares jumped 15% in premarket trading at 8:08 a.m. in New York.

The owner of the Ordinary and Clinique brands has a global staff of around 62,000 and said Monday that it’s eliminating 3% to 5% of those jobs. 

As a result, Estée Lauder expects to take restructuring and other charges of between $500 million and $700 million, before taxes. The company now expects the job cuts and its broader restructuring plan to drive incremental operating profit of $1.1 billion to $1.4 billion. 

That’s an increase from the $800 million to $1 billion in profit the company said in November that it expects to generate in the next couple of years as it rolls out the restructuring. 

“We are, encouragingly, at an inflection point,” Chief Executive Officer Fabrizio Freda said in the company’s earnings statement.

The plan is aimed at making Estée Lauder a leaner and more profitable company, so it can respond more quickly to beauty trends fueled by social media and invest more in its brands. The company, whose labels also include MAC, Le Labo, Tom Ford and Jo Malone, has at times ceded market share to rivals due to lagging on what’s fresh and new.

Increased costs

S&P Global Ratings framed the challenge late last year, noting that Estée Lauder’s costs had increased to between 55% and 60% of revenue as of Sept. 30. A key profit metric — earnings before interest, taxes, depreciation and amortization — had declined by $2 billion in the prior year, while debt had increased to purchase the Tom Ford brand, S&P said.

Executives are expected to provide more details on the restructuring plan during a call with analysts that starts at 9:30 a.m. in New York.

Estée Lauder Executive Chairman William Lauder and Freda said they would make a “concerted effort to retrain and redeploy employees,” according to an internal company memo seen by Bloomberg News. The job cuts and the broader restructuring plan, they added, are aimed at enabling “rapid decisions so that we can execute our strategy more efficiently.”

A string of major US companies have announced staff cuts in recent weeks, including Amazon.com Inc., Citigroup Inc., Macy’s Inc., United Parcel Service Inc. and Google parent Alphabet Inc. 

Sales and profits at Estée Lauder have declined in the past year, dragged down by plummeting sales at duty-free shops in airports and elsewhere in Asia. The travel retail business, as it’s called, represented about a fifth of Estée Lauder’s revenue and had been a driver of stellar growth until the pandemic disrupted sales. Since then, China’s slower-than-expected economic growth has repeatedly pushed back executives’ forecasts for a recovery in the business. 

“While mainland China and Asia travel retail declined,” Freda said in the earnings statement, “these businesses are poised to return to organic sales growth in the second half.”

Outlook raised

For the remainder of its current fiscal year, Estée Lauder now sees adjusted earnings of $2.08 to $2.23 a share, down from a prior forecast of $2.17 to $2.42 and below estimates. It’s slightly more sanguine on net sales and now sees them in the range of down 1% to up 1%, whereas it previously projected down 2% to up 1%. 

“Its cut to fiscal 2024 earnings is tax-related, and could mark the nadir of a poor run,” Deborah Aitken, an analyst at Bloomberg Intelligence, wrote in a research note.

Estée Lauder has also been losing market share to French rival L’Oréal SA, which has boosted sales by seizing on the dermatological beauty trend with popular mass-market brands CeraVe and La Roche-Posay. On Monday, Estée Lauder said it’s “doubling down” on one aspect of that trend – ingredient-led beauty products — with new campaigns for its Clinique brands in the US and the UK in the next six months.

Up-and-coming competitors such as Elf Beauty Inc., meanwhile, have been more successful than Estée Lauder at generating sustained buzz on social media. 

If the 15% gain in premarket trading holds, Estée Lauder will be set for its biggest rise since Feb. 5, 2019, according to data compiled by Bloomberg.