Estee Lauder to Trim 3% of Global Workforce to Curb Costs
The company said in an earnings release Thursday that it plans to close 10% to 15% of its free-standing stores.
(Bloomberg) -- Estee Lauder Cos. is cutting jobs and closing stores as part of a multiyear restructuring plan after the coronavirus pandemic threw the cosmetics industry into disarray.
The beauty giant plans to reduce its workforce by 1,500 to 2,000 jobs worldwide, or about 3% of total staff, and boost its digital operations after pandemic lockdowns hit demand for makeup. Most of the cuts will be store employees and support workers, the company said Thursday.
As part of the two-year initiative, management will close 10% to 15% of Estee Lauder’s free-standing stores and eliminate some department-store beauty counters as consumers shift to more online purchases. Estee Lauder said it expects to take restructuring and other pretax charges of between $400 million and $500 million.
“We are better aligning our brick-and-mortar footprint to improve productivity and invest for growth,” Chief Executive Officer Fabrizio Freda said in a statement. He said the company enters its new fiscal year with “cautious optimism.”
The shares fell by as much as 8.6% Thursday in New York.
The company has been preserving cash to manage the business during the pandemic. Measures including employee furloughs, temporary salary reductions and cuts to capital investments have led to nearly $1.1 billion in savings, the company said.
Estee Lauder’s caution reflects the severity of the beauty industry’s uphill climb as it recovers from pandemic-related sales declines. Overall, cosmetics sellers have fared better than other non-essential retailers, such apparel and fashion accessories, because consumers have retained interest in skin-care products like eye creams and moisturizers, even if they’re not buying clothing.
What Bloomberg Intelligence Says:
Estee Lauder’s speed and agility in formulating a post-Covid business-acceleration program is admirable, in our view, and we believe that could speed a return to 6-8% sales growth and expand its 50-bp annual operating-margin expansion plan, though the costs of realignment may be difficult to digest short term.
-- Deborah Aitken, BI luxury-goods analyst
Click here to read the research
In the fourth quarter that ended June 30, net sales fell 32% to $2.43 billion. The few bright spots, including a bounceback in the Asia-Pacific region as well as double-digit sales growth in the skincare business, wasn’t enough to offset big declines in makeup and fragrance.
The company’s forecast for adjusted first-quarter earnings of 80 cents to 85 cents a share fell well short of analysts’ estimate of $1.22 a share. Estee Lauder said net sales in the current period will fall by 12% to 13%.
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