Estee Lauder will cut its workforce by 3% to 5%, the cosmetics giant said on Monday, expanding its efforts to boost profit margins as the recovery of its China business takes longer than expected. Shares rose 20% to $160.07 in premarket trading after the company beat estimates for its fiscal second-quarter profit. However, shares remain below their January 2022 record high of 374.20 USD.
Estee Lauder is trying to fend off a hit to margins from weakening demand for its products mainly in China and travel retail in Asia, unveiled a plan to restore profit last quarter.
Estee Lauder expects to achieve incremental operating profit from the savings of between 1.1 billion USD and 1.4 billion USD, up from a previous estimate of 800 million USD to 1 billion USD.
Bernstein analyst Callum Elliott said the restructuring “seems to acknowledge the need for change”.
The restructuring will begin in the third quarter of fiscal 2024, the company said, and expects record write-downs of between 500 million USD and 700 million USD before taxes.
Estee Lauder has 62,000 employees worldwide as of June 2023. Of these, 71% are full-time, 16% are temporary, and 13% are part-time.
The company cut its full-year profit forecast as the recovery is much slower and consumption is hit in China as the world’s second-largest economy struggles with high levels of youth unemployment and a property crisis.
Organic net sales in the Americas declined 1% in the second quarter, compared with growth of 6% in the prior three months.
Estee Lauder, like other larger companies in the luxury sector, faces competition from smaller rivals in the beauty products sector that are taking away market share.
The company now expects 2024 annual adjusted earnings per share between 2.08 USD and 2.23 USD, up from a previous forecast of 2.17-2.42 USD.
Estee Lauder’s net sales fell by 7.4% to$4.28 billion USD in the second quarter, compared with analysts’ estimates of 4.19 billion USD, LSEG data showed.
Excluding one-time effects, Estee’s earnings came to 88 cents per share, beating estimates of 55 cents.
