On February 5th, Est é e Lauder Group announced plans to lay off 3% to 5% of its global workforce to restore its profit margin. Based on the employee base as of June 30, 2023, Est é e Lauder is expected to lay off a maximum of 3100 employees worldwide.
Est é e Lauder China stated to Interface Fashion that there are no major adjustment plans in the Chinese market, and the profit recovery plan will help empower the Chinese team to better adapt to the development status of the Chinese market.
In November 2023, when announcing its first quarter report, Est é e Lauder Group announced that it would implement a Profit Recovery Plan to ensure a gradual reconstruction of profit margin expectations in fiscal years 2025 and 2026.
Now, Est é e Lauder will further expand the plan, and layoffs are part of the recently announced restructuring plan. The company will also increase its expected operating profit target from the profit recovery plan from the previously reported $800 million to $1 billion to $1.1 billion to $1.4 billion.
On the same day, Est é e Lauder Group released its second quarter financial report for the 2024 fiscal year.
As of December 31, 2023, Est é e Lauder Group's revenue decreased by 7% year-on-year to $4.28 billion (approximately RMB 30.79 billion), and its net profit attributable to shareholders decreased by 20.5% to $313 million (approximately RMB 2.25 billion). The main reason for the decline in performance is the weakness of Asian tourism retail and the high-end beauty market in mainland China.
By category, the skincare business, which accounts for more than half of the total revenue, saw a 10% decline in revenue. The performance of Est é e Lauder, Clinique, and Yuemuzhiyuan brands was inferior to The Order, La Mer, and Meike M A. C. The revenue of the cosmetics business decreased by 8%, with the main brand Meike's revenue decline mainly due to clearing some inventory in preparation for the launch of new products.
Perfume sales were flat, and the decline of Estee Lauder brand was offset by Le Labo and Jo Malone London. The hair care business declined by 6%, mainly due to Aveda's less than expected sales response in North America.
In the fiscal year 2023, tourism retail accounted for as much as 20% of Est é e Lauder's total revenue, indicating the impact of the decline in performance of this channel.
During the period, Est é e Lauder Group and its retailers unanimously prioritized reducing trade inventories in response to policy changes faced by tourism retail starting in the second half of the 2023 fiscal year. However, at the same time, Est é e Lauder's data on tourist consumption conversion rates has decreased.
Regarding the issue of price control in tourism retail channels, Fabrizio Freda, Chairman and CEO of Est é e Lauder Group, stated in a conference call after the financial report that in addition to destocking the Asian tourism retail channels in the first half of the 2024 fiscal year, the company has greatly improved the work mode and process of the tourism retail team. The Chinese team and public relations team will work together to make decisions on promotions, pricing, and channel priorities.
Est é e Lauder Group's sales have also declined during the e-commerce festival Double 11.
Tracey Travis, executive vice president of Estee Lauder Group, said on the conference call that although the performance of Tiktok channel almost doubled on the Double 11, the performance of Tmall channel was lower than expected, leading to a decline in total online sales.
According to the data provided by Estee Lauder China team, during the Double 11, Estee Lauder and Hailan Mystery were the main forces driving the growth of the whole group's Tiktok channel. Among them, Estee Lauder brand achieved a triple digit sales growth, ranking first in high-end beauty category in Tiktok Chinese Mainland, and its store live broadcast sales also ranked first.
However, the overall decline in Est é e Lauder Group's online channels offset the growth in offline physical sales, which was driven by double-digit growth in independent physical stores.
Fabrizio Freda stated that Est é e Lauder Group is optimistic about the long-term development of the Chinese market and plans to continue investing in online distribution channels and offline physical stores to expand its market share in China.
At the same time, the company is also optimistic about its opportunities in the luxury beauty field. In addition to Est é e Lauder's new Re Nutriv series, Mystery of Blue, Tom Ford, Le Labo, and Bobbi Brown will all have aggressive plans in the second half of the fiscal year. The China Innovation and Research Center located in Shanghai will also play a role during this period.
It is worth noting that in the second quarter, Est é e Lauder Group's early investment and incubation department, New Incubation Ventures, made a minority equity investment in the Chinese fragrance brand Melt Season. Previously, the company also invested in the beauty brand Wansu Skin, owned by internet celebrity Zhou Yangqing.
Fabrizio Freda stated that currently, the development of local Chinese brands is still mainly focused on Volkswagen brands, and local laboratories will continue to innovate to quickly respond to changes in the Chinese market.
Est é e Lauder Group expects to resume double-digit organic net sales growth in the second half of fiscal year 2024, and the aforementioned restructuring plan will begin in the third quarter of fiscal year 2024.