Within hours of announcing imminent job cuts taking effect June 30 as part of a restructuring plan, The Estée Lauder Companies hosted an earnings call Monday morning, February 5, sharing its second quarter fiscal earnings and unpacking the strategy behind its profit recovery plan. Following the announcement, the NYSE reported an upswing in share prices, opening at a predicated three-month high.

For the quarter, Lauder reported a 7% decrease in net sales, ended December 31, down from $4.62 billion in the same period the previous year. Meanwhile, organic net sales decreased 8% — in line with Asia travel retail challenges, and an ongoing softness in mainland China’s prestige beauty market. It also takes into account a 1% headwind resulting from disruptions to business in Israel, and other Middle Eastern areas.

The company saw organic net sales growth, however, in some markets in Asia/Pacific and Europe, along with almost all of those in Latin America.

During the earnings call, co-hosted by President and Chief Executive Officer Fabrizio Freda, and Executive Vice President and Chief Financial Officer Tracey Travis, the team presented the financial community with an overview representing an “inflection point.”

Freda said the quarter’s organic sales exceeded the company’s expectations for profitability. “The Ordinary and La Mer in skin care, Clinique in makeup, and Le Labo and Jo Malone London in fragrance performed strong,” said Freda. “Many developed and emerging markets around the world continued to grow organically and at retail. 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.”

Lauder’s restructuring program is designed to right-size and streamline select areas within the organization “which unfortunately necessitates our making the difficult decision of an expected net reduction in positions globally of between 3% and 5%,” explained Travis, who confirmed this will take effect June 30, 2024. Some employees will be retrained and redeployed.

“While this is a difficult decision, 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,” said Freda. The program should be completed by the close of fiscal 2026. 

Some second quarter highlights within Lauder’s skin care business included:

• Sales saw a 10% decline, reflecting The Estée Lauder Cos.’ decrease in its Asia travel retail business, and the impact of ongoing softness in prestige beauty in mainland China (including lower sales during the 11.11 Global Shopping Festival).
• There was a decline in net sales of Estée Lauder, Clinique and Origins. However, Estée Lauder net sales increased by double digits in The Americas, where the Advanced Night Repair franchise flourished.
• Clinique will be “doubling down on its authentic, dermatologist brand heritage of over 55 years, deepening its relationship with the scientific community, strengthening its derma-messaging and engaging new consumers. As part of this Clinique will be dialing up its derma-education in consumer communications, including on social media and in-store; with new dermatologist partnerships and ingredient communication.”
• Clinique has also unveiled the Mount Sinai-Clinique Healthy Skin Dermatology Center. “Research is expected to produce breakthrough advancement in the study of allergic skin and premature aging,” said Freda. “Next month, Clinique will return to The American Academy of Dermatology Annual Meeting to showcase its derm-level science formulations as well as its unique eye safety promise.”
• For Estée Lauder skin care, Freda highlighted its pioneering “longevity age reversal research” and the success of its Renutriv franchise as well as the “breakthrough” Ultimate Diamond Transformative Brilliance Soft Creme Moisturizer, now launching globally. “We are encouraged by the global appeal of this innovation,” he said, also noting its collaboration with the Stanford Center on Longevity. 
• The Ordinary saw double-digit net sales growth, globally and across all regions. “The Ordinary delivered an excellent first half,” reported Freda. “Its new Soothing & Barrier Support Serum which launched during the first quarter is the brand’s most successful launch ever and is already among the top 10 products ranked in the U.S. prestige serum category.”
• Likewise, La Mer saw new sales increases in all regions, including a holiday boost. “La Mer further contributed to our strong underlying fundamentals in skin care, from the iconic cream, La Mer, to the new Lifting Serum, along with its exceptional services, proved highly sought after by discerning consumers around the world,” commented Freda.
• M.A.C enjoyed a double-digit net sales growth, boosted by the launch of the Hyper Real product range.
• Operating income in skin care decreased, a reflection of the net sales decline, offset in part by the $100 million intangible asset impairment relating to Dr.Jart+ and disciplined expense management.

Highlights in makeup included:

• Net sales declined 8% reflecting the challenges outlined for skin care. 
• Net sales of M.A.C. also decreased attributed to product phase-out in preparation for new launches, changes in the “take back” loyalty program, and Asian travel retail challenges. Net sales increased by double digits in Latin America and several Asia/Pacific markets, due to new product innovation.
• Estée Lauder net sales decreased, due mainly to Asia travel retail challenges. 
• Clinique saw a strong double-digit net sales growth, specifically in the lip, face, and eye subcategories.
• Makeup operating results increased reflecting intangible asset impairments from the previous year, relating to Too Faced and Smashbox.

Highlights in fragrance included:

• Net sales were flat. Increases from Le Labo and Jo Malone London were offset by a decline reported for Estée Lauder, due largely to the timing of holiday shipments.
• La Labo net sales grew strong double digits, thanks to franchises Santal 33, Another 13, and the City Exclusives range. Asia/Pacific sales more than doubled.
• Net sales for Jo Malone London increased, thanks to a strong holiday and social media activities.

Highlights in hair care included:

• Net sales decreased 6%, mostly driven by Aveda and as a reflection of softness in North America.
• Hair care operating results decreased.

“While we delivered on our Q2 expectations, we are lowering the high end of our fiscal 2024 organic net sales outlook range, to reflect continued risks from evolving macro-economic volatility and geo-political tensions in certain areas around the world,” Travis reported.

“Despite this change to our sales outlook, we are maintaining our full year operating profitability expectation. We are focused on strategically leveraging our strengths to accelerate our return to more sustainable, profitable growth while elevating our consumer activations and increasing our operating agility.” 

“We have more standout launches across brands in the third quarter, led by M.A.C. and Tom Ford,” added Freda, who named The Ordinary, La Mer, and Le Labo among brands with upcoming launches anticipated to build on momentum.

The company is revising its fiscal year 2024 outlook to narrow its net sales range, while reaffirming its operating profitability. Net sales are predicted to increase between 3% and 5% in comparison with the previous year. In terms of share price, The Estée Lauder Cos. expects a profit of $0.35-$0.46 per share this sales growth.