Dive Brief:
- Estée Lauder Companies plans to cut between 5,800 and 7,000 jobs as part of an expanded restructuring program, which includes a revamp of its executive team, the company announced Tuesday.
- The cuts represent up to 11% of its overall global workforce, with plans to eliminate some positions after retraining and redeploying certain employees, the company said. The move will cost between $1.2 billion and $1.6 billion in restructuring charges including employee-related costs, contract terminations and asset write-offs.
- The company’s net sales for the quarter ended Dec. 31 fell 6% year over year to $4 billion from $4.28 billion. Estée Lauder swung to a $590 million net loss for the quarter from $324 million in net earnings the prior year.
Dive Insight:
Tuesday’s job cuts announcement is a substantial expansion of the plans Estée Lauder shared last February, which called for cutting its worldwide workforce by up to 5% or 3,000 people. Now, the changes extend into the C-suite as well, just a month after new CEO Stéphane de La Faverie took over the top spot.
Estée Lauder said it’s looking externally to fill its chief digital marketing officer and chief technology, data and analytics officer positions, according to an announcement Tuesday. The changes also include a consolidation of responsibilities and the creation of some new positions. Once fully implemented, Estée Lauder said the restructuring program should deliver annual pre-tax gross benefits of $800 million to $1 billion. The company plans to reinvest a portion of this into consumer-facing activities.
As part of the multitude of changes, Estée Lauder on Tuesday announced the initiation of Beauty Reimagined. The turnaround plan’s goals are restoring sustainable sales growth and achieving a double-digit adjusted operating margin during the next few years.
“We believe [Estée Lauder] has a myriad of challenges to work through in the near-term including factors that are out of management's control, such as weakness in consumer demand in Asia,” TD Cowen analysts, led by Oliver Chen, said in a Tuesday note. As a result, TD Cowen’s analysts expect the company to face continued sales pressure in the second half of the year.
To facilitate the turnaround, Estée Lauder plans to increase consumer-facing investments, like advertising; simplify and speed up processes; outsource some services; and bring innovations to market faster.
The company also plans to implement a more competitive approach to procurement and improve demand forecasting. Estée Lauder wants to take a zero-waste approach by minimizing excess inventory and product destruction.
Despite a 14.5% negative operating margin for the most recent quarter and a nearly complete flip from operating income of $574 million last year to a $580 million operating loss this year, the company reported some bright spots. Estée Lauder said it saw prestige beauty share gains in the U.S., China and Japan. It also said it ranked highly during Black Friday and Cyber Monday TikTok campaigns in the U.S.
“While we recognize there is much work to do, we are confident that Beauty Reimagined is the way to realize our ambition,” de La Faverie said 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.”
Citing factors that include global geopolitical uncertainty, and challenges in the company's business segments in Asia, Estée Lauder declined to provide an outlook for its full fiscal year. Its outlook for the upcoming quarter ending March 31 is for a net sales decline of 10% to 12%.
