Updated Feb. 5 at 2:25 p.m. EST
The Estée Lauder Cos. has revealed a restructuring plan, including layoffs, as it continues to tread water amid struggles in Asia and at home.
More from WWD
The owner of Clinique, Mac, Tom Ford and others will reduce its 62,000-strong global workforce by between 3 and 5 percent as part of the plans. It is not yet known which departments will be impacted.
Its share price shot up by around 12 percent to close at $150.28 on the back of the news, but this was still way below its peak of $370 in January 2022.
The other components of the restructuring program are yet to be announced, but the company said the plan will focus on reorganization and rightsizing certain areas of the company, as well as simplification and acceleration of processes. Once fully implemented, the program is expected to yield annual gross benefits of between $350 million and $500 million.
“We’ll look at everything as it relates to the restructuring and plans will be coming to us over the next couple of months and we’ll be approving those plans over the next several months,” said Tracey Travis, executive vice president and chief financial officer of Lauder, during an interview with WWD.
When asked if possible divestitures are being considered as part of restructuring talks, she said that is not a top priority right now, but “as we look at the right structure to increase our agility going forward, all things are on the table.”
The restructuring is part of the wider Profit Recovery Plan announced last quarter, which is now expected to drive incremental operating profit of $1.1 billion to $1.4 billion.
In a note, Erwan Rambourg, an analyst at HSBC, said he hopes much of the savings will be reinvested in brand equity and market share “for some of the brands which have been at the heart of the issues for the company.”
He also reiterated his belief that a management shakeup would help further. “There has been no mention of any change in management; however, should there be a refresh to the management team, we think investors could view the next chapter of growth in a better light.”
The news came as Lauder released its latest set of financial results. Net sales were $4.28 billion for its second quarter ended Dec. 31, a decline of 7 percent from $4.62 billion in the prior-year period. Organic net sales fell 8 percent, reflecting the expected challenges in Asia travel retail as well as ongoing softness in overall prestige beauty in mainland China.
Skin care net sales declined 10 percent, on the back of a decrease in its Asia travel retail business primarily due to the ongoing actions by the company and its retailers to reset retailer inventory levels. Net sales from Estée Lauder, Clinique and Origins all fell.
Elsewhere, makeup sales declined 8 percent, while fragrance sales were flat, as increases from luxury brands Le Labo and Jo Malone London were offset by a decline from Estée Lauder. Hair care net sales dropped 6 percent.
Net sales decreased 1 percent in the Americas, 14 percent in Europe, Middle East and Africa and 7 percent in Asia-Pacific.
Net earnings came in at $313 million, compared with net earnings of $394 million in the prior-year period. Adjusted diluted net earnings per common share declined to 88 cents, above Wall Street forecasts for 54 cents.
Fabrizio Freda, president and chief executive officer, said: “We are, encouragingly, at an inflection point. In the second half of fiscal 2024, we are positioned to return to strong organic sales growth and expand our profitability from the first half. Moreover, today we have announced that we are further expanding our Profit Recovery Plan, which benefits fiscal years 2025 and 2026, to include a restructuring program. We believe this now-larger plan will better position the company to restore stronger, and more sustainable, profitability.”
Excluding restructuring and other charges and adjustments, diluted net earnings per common share are projected to be between $2.08 and $2.23. Previously it was expecting $2.17 to $2.42.
Best of WWD