Estée Lauder Companies (ELC) is set to slash nearly 3,100 jobs as it accelerates its financial recovery plan.
The job cuts, which will incur restructuring charges of up to US$700m, are expected to bolster its profits and reduce overhead expenses in the long term.
This will see the complete removal of a number of positions, as well as the retraining and redeployment of certain staff members to other areas of the business.
Fabrizio Freda, President and CEO, said the move was a “difficult decision”, but believed it was necessary for the company to return to more “sustainable profitability”.
Global consulting firm Alvarez and Marsal has been brought on by ELC to act as advisor during the restructuring process.
The announcement resulted in a shares jump of 13.8% to $152.52 in early trading, despite another consecutive quarter of sales declines in Q2 2024.
Sales fell by 7% to $4.28bn during three months to 31 December 2023, with organic sales also down 8%.
The business was primarily impacted by challenges in its Asia travel retail segment.
Softer demand for prestige beauty in mainland China also affected the company during Q2.
ELC’s skin care division saw the largest declines due to the slowdown in China, down 10% compared with the same quarter last year.
This was coupled with a 8% decline in sales for the brand owner’s make-up segment, largely dragged down by a sluggish performance from MAC.
The cosmetics brand was affected by changes to its Back-To-MAC loyalty programme, as well as the aforementioned challenges in Asia travel retail.
Fragrance experienced a flat performance during Q2, with sales increases from luxury brands Le Labo and Jo Malone London being offset by declines from Estée Lauder.
Sales from Le Labo increased due to a more robust consumer demand for the brand’s hero products including Santal 33 and Another 13.
“While mainland China and Asia travel retail declined, our retail sales trended ahead of organic sales, and these businesses are poised to return to organic sales growth in the second half,” said Freda.
Freda added that he is aware of the current challenging financial situation, and said the business will continue to accelerate its profit recovery plan during the second half of the year.
This has already seen Estée Lauder reduce inventory capacity for its Asia travel retail division, as well as improving working capital during H1.
But the second half of the year will also see the company increase its focus on its dermatologist heritage brands such as Clinique.
This will include an increase in marketing from the skin care brand, as well as a greater focus on derma education for consumers.
Despite the difficult market conditions in China, Freda said Estée Lauder will also continue to invest in the country.
“We believe we have a great team there and determination to continue building market share and winning in the long term,” he added.
The business will focus on building its distribution network in China, as well as improving market share in new cities through new bricks-and-mortar stores.
On the cosmetics and fragrance side, ELCis also expecting a strong performance from new launches including MAC’s upcoming Silky Matte Lipstick.
Tom Ford’s Oud Mineral edp is also anticipated to perform well during the second half of the year, based on its strong sales during H1.
The ongoing recovery plan is expected to deliver profits of up to $1.4bn by 2025 and 2026, claimed Freda, who remains optimistic about the business’ long term prospects.
Sales are anticipated to increase by up to 5% during Q3.
“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,” added Freda.
