The Estée Lauder Companies Inc. reported better-than-expected third quarter results amid announcing the company’s new initiative, Leading Beauty Forward, as a way to insure sustainable long-term sales and margin growth in the fast-paced prestige beauty environment. As part of the multi-year initiative, the global beauty giant is estimating a cut in workforce of 900 to 1,200 world-wide, or 2.5 percent of its total employee base. The plan will realize $600 million to $700 million in restructuring costs and ultimately, annual cost savings of about $200 million to $300 million after full implementation in fiscal 2019.
Fabrezio Freda, President and Chief Executive Officer, said Leading Beauty Forward is designed to “sustain our momentum by reducing cost and freeing up more resources to invest in brands, capability and most profitable opportunities while better leveraging our growth…..To that end, as part of Leading Beauty Forward, we plan to redesign select areas of our go-to-market organizations in the regions, affiliates and brands to increase agility and strengthen their capabilities. As more of our consumer engagement moves to digital platforms, the markets will need the tools and authority to respond quickly to opportunities and bring our expertise in local relevance closer to consumers.”
The program was revealed at the same time as Lauder’s third quarter performance, where the company said it increased net sales by 3 percent to $2.66 billion from $2.58 billion in the prior-year period, driven by strong gains in makeup and international businesses.
Lauder’s makeup sales rose 7 percent to $1.16 billion, led by double-digit growth in M.A.C., Smashbox and Tom Ford, while particular strength in the lip and foundation categories drove growth at Bobbi Brown, Clinique and Estèe Lauder. Revenue of skin care declined 3 percent to $1.07 billion, hampered by a decline in the Estèe Lauder and Clinique brands, but helped by La Mer. Hair care showed higher net sales thanks to expanded global distribution of Aveda and from specialty-multi brand retailers and salons for Bumble and bumble, as well as sales from new product launches such as Shampure dry shampoo and the Thickening Tonic, as well as the Invati line of products by Aveda. Sales of fragrance products rose 5 percent to $275.2 million, with double-digit gains from its luxury portfolio, namely Jo Malone, Tom Ford and Le Labo. The Michael Kors Gold collection and Tory Burch stood out among the designer fragrances. Strength at the high end of the fragrance category was partially offset by lower fragrance sales from Estée Lauder and the remaining designer fragrances.
Earnings for the quarter dipped to $265.6 million, as opposed to $272.1 million the previous year.
When asked whether he thinks the trend toward color cosmetics will continue—and what’s driving it—Fabrezio said:
“I believe this is a long-term trend. The makeup category is growing, driven by several aspects. The first one is that Asian women are becoming more avid users of makeup. And so this is an enormous amount of growth [that is developing and] will continue to develop in the next years. The second big trend is that Millennials are on average using more makeup than the previous generation. So there is an increase of consumption per individual in all markets, including developed markets. And this long-term trend is driving…what historically has been our strength in our business model, which is education and customization.”