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Estée Lauder Asia travel retail and mainland China sales still waning, plans to reduce workforce

The Estée Lauder Companies Inc. said net sales fell 7 percent to USD 4.28 billion for the second quarter, on the back of challenges in the firm’s Asia travel retail segment, as well as ongoing softness in overall prestige beauty in mainland China.

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During the three months ending December 31, the U.S. company reported net earnings of USD 313 million, compared with net earnings of USD 394 million in the prior-year period.

In Asia Pacific, net sales decreased 7 percent, hurt by the ongoing challenges in mainland China, partially offset by growth across several other markets, led by Hong Kong.

In mainland China, net sales declined primarily due to skin care and reflected lower sales and mixed performance during the 11.11 Global Shopping Festival.

The company’s 11.11 net sales growth on Douyin more than doubled, led by Estée Lauder and La Mer, and was more than offset by the net sales decline on Tmall.

In mainland China, the decrease in skin care was partially offset by strong growth in fragrance, driven by the launch of Le Labo in the fourth quarter of fiscal 2023 and double-digit growth from Jo Malone London and Tom Ford, and in hair care, due to Aveda.

Elsewhere, net sales in Hong Kong increased by strong double digits, thanks to the reopening of borders and the corresponding resumption of travel in the region, leading to the return of brick-and-mortar traffic, compared to the prior-year period.

“For the second quarter of fiscal 2024, we delivered our organic sales outlook and exceeded expectations for profitability. The Ordinary and La Mer in skin care, Clinique in makeup, and Le Labo and Jo Malone London in fragrance performed strongly. Many developed and emerging markets around the world continued to grow organically and at retail. While mainland China and Asia travel retail declined, our retail sales trended ahead of organic sales, and these businesses are poised to return to organic sales growth in the second half,” said Fabrizio Freda, president and chief executive officer.

“We made progress in the first half across several strategic priorities, including reducing inventory in the trade of Asia travel retail, improving working capital, realizing higher levels of net pricing, and managing expenses with discipline. We are, encouragingly, at an inflection point. In the second half of fiscal 2024, we are positioned to return to strong organic sales growth and expand our profitability from the first half. Moreover, today we have announced that we are further expanding our Profit Recovery Plan, which benefits fiscal years 2025 and 2026, to include a restructuring program. We believe this now-larger plan will better position the company to restore stronger, and more sustainable, profitability while also supporting sales growth acceleration and increasing agility and speed-to-market.”

Coinciding with the earnings update, the beauty giant said it plans to cut between 3 percent and 5 percent of its workforce as part of its new “restructuring program.”

Effective June 30, the reduction takes into account the elimination of some positions, as well as retraining and redeployment of certain employees in select areas, the company added.

The New York-based company said the restructuring is expected to yield annual gross benefits of between USD 350 million and USD 500 million.