Estée Lauder plans to cut 3% to 5% of its global workforce as it expands efforts to shore up profits squeezed by Chinese customers cutting back on sales of expensive luxury goods rose 14%.
China’s boom after the lifting of pandemic restrictions never materialized, and recent results show mixed demand for luxury goods. While companies such as LVMH and Richemont have recorded strong sales growth, companies such as Burberry have tended to recover more slowly.
The New York-based company’s CEO, Fabrizio Frieda, said on a conference call with analysts that the company saw “some market share decline” in China in the second quarter.
Some analysts point to rising youth unemployment, a protracted real estate crisis and a shift towards local brands in response to the challenges faced by global brands.
“There are a lot of local Chinese brands emerging, many of which are of decent quality, and Chinese consumers are more willing to try and accept these products than before,” says Tema ETF Luxury. said Javier Gonzalez Lastra, a portfolio manager specializing in products.
Esty said Asia Pacific organic net sales declined 7% during the reporting quarter, and overall margins declined 60 basis points.
Estée expects its initiatives to increase operating income by $1.1 billion to $1.4 billion in fiscal years 2025 and 2026, up from its previous estimate of $800 million to $1.0 billion. The company said it could record a pre-tax charge of between $500 million and $700 million.
The stock was trading at $159.75, well below its all-time high of $374.20 set in January 2022, when the company benefited from a rebound in demand after the pandemic subsided.
Estée had approximately 62,000 employees worldwide as of June 2023.
Meanwhile, the company lowered its annual profit forecast for the second time as its U.S. business also slowed.
Americas organic net sales decreased 1% in the quarter, compared to a 6% increase in the prior quarter.
Estée currently expects full-year 2024 adjusted earnings per share to be in the range of $2.08 to $2.23, compared with the previous range of $2.17 to $2.42.
Excluding items, the company earned 88 cents per share, beating estimates of 55 cents.
