Today, Estée Lauder Companies’s (ELC) newly appointed CEO Stéphane de la Faverie outlined the company’s new direction and plan to course correct with its ‘Beauty Reimagined’ strategy, a move ELC hopes will restore growth after yet another sluggish earnings quarter. The company reported sales were down 6 per cent to $4 billion in Q2.
“While we recognise there is much work to do, we are confident that Beauty Reimagined is the way to realise our ambition,” said de la Faverie in a statement. “We are significantly transforming our operating model to be leaner, faster and more agile while taking decisive actions to expand consumer coverage, step-change innovation and increase consumer-facing investments to better capture growth and drive profitability.”
The first step is a sizable internal restructuring, including between 5,800 and 7,000 job cuts. “It’s the biggest operational change within our company’s history,” de la Faverie told investors on Tuesday’s earnings call. New brand “clusters” have been created within the makeup, fragrance, skincare and haircare categories to increase speed to market, with dedicated leads for each brand group. The company also appointed several executives to new roles, including its first chief brand officer Jane Hertzmark Hudis, formerly executive group president. De la Faverie has also appointed head of supply chain Roberto Canevari to chief value chain officer, who will now oversee operations to increase agility as the market shifts and evolves.
Shares plunged 18 per cent on Tuesday following the results. “We think the company needs to increase innovative collaborations to drive faster product development. We also think the supply chain needs to be faster, and the company needs to be able to do M&A,” wrote Oliver Chen, managing director of investment firm TD Cowen, in a note.
Muted moves
By category, fragrance remains a bright spot, with a net sales increase of 2 per cent to $744 million. The category’s performance was led by brands such as Le Labo, which boasted double-digit growth. De la Faverie also highlighted Jo Malone London for its “tremendous growth”, noting its ability to tap into the growing male consumer base.
Otherwise, makeup, skincare and haircare saw a continued decline in sales performance. Makeup (a portfolio made up of Mac Cosmetics, Smashbox, Clinique and Tom Ford) decreased by 1 per cent to $1.15 billion, primarily due to the ongoing headwinds across travel retail in Asia-Pacific as well as the soft performances of Tom Ford Fragrances and Mac Cosmetics. Category performance was slightly offset by high-single-digit growth from Clinique, which has seen strong results from launching on Amazon last March. Haircare net sales decreased 8 per cent.
The skincare category dragged by 12 per cent to $1.92 billion, down from $2.17 billion. The company reported that slow sales were primarily due to impacts in the Asia-Pacific travel retail business and ongoing subdued sentiment from Chinese consumers, driving declines for Estée Lauder Skincare and La Mer. One highlight was The Ordinary, which has seen success thanks to its transparent ingredient-forward products and low prices. The brand also recently launched on Amazon.
“[ELC] challenges stem from two key factors,” says Marissa Lepor, partner and head of beauty and personal care at The Sage Group, an investment management firm. “One, their portfolio hasn’t evolved as quickly as customer shopping patterns have. Consumers are increasingly mixing high and low, understanding the true value proposition of products in their routine; it’s why The Ordinary continues to perform while other brands with a higher price point struggle to benefit. Secondly, their portfolio is too heavily weighted towards luxury products.” De la Faverie echoed this sentiment, outlining that its price point mix will be essential moving forward as it focuses on meeting the consumer’s newly adapted shopping habits.
By region, net sales decreased across the board. In Europe, the Middle East and Africa (EMEA), sales declined 6 per cent, driven by the company’s global travel retail business. Asia-Pacific saw a double-digit decline of 11 per cent due to the challenging retail environment and ongoing soft consumer sentiment. To recoup, Chen said, “Asia travel retail needs to be rebased”, while pointing out that sluggish sales in China is an industry-wide problem. Moving forward, de la Faverie said the group will be strengthening its travel retail business in the West to help rebalance, and as a result, ELC will be seeking new opportunities, brands and categories to allow for greater success.
Net sales in the US and Latin America were flat. Slow performance was driven by retail softness, regardless of the conglomerate’s push to launch its brands on Amazon’s US marketplace.
After announcing the departure of international group president Peter Jueptner last week, ELC will be downsizing its geographic clusters from seven to four: combining North America with Latin America and moving the UK and Ireland to sit within the EMEA market. The travel retail business will now be part of Asia-Pacific to closely align with the market’s needs, while Mainland China operates as an independent region. All changes are effective from 1 April 2025.
Looking ahead
De la Faverie was the first to admit that the conglomerate hadn’t moved with consumers in recent years, resulting in them missing demand and investing behind the curve. “We need to be faster than ever before,” he said.
As for M&A, the CEO said he is focused on strengthening performance across the current brand portfolio. “We will come to it [M&A] in the future, and we have a team constantly evaluating the market to scout what compliments our portfolio — but we need to manage and balance the sheet,” de la Faverie said.
Looking ahead to the conglomerate’s third-quarter earnings, de la Faverie still expects challenges to remain, only delivering a quarter-to-quarter sales outlook. “For the third quarter, we expect overall soft retail trends to persist in Asia travel retail, significantly pressuring our organic net sales despite the improvement we made with in-trade inventory levels in the first half of fiscal 2025, which we intend to maintain around current levels,” he said.
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