Pedestrians walk past the American multinational skincare, and beauty products brand, Estée Lauder (Estee Lauder) logo seen in Hong Kong.
Budrul Chukrut | Lightrocket | Getty Images
Estee Lauder will cut about 3% to 5% of its global workforce, the cosmetics giant said on Monday, expanding an effort to shore up its profit margins as a rebound in its China business takes longer than expected.
Shares were up 16% in early trading after the company also handily beat second-quarter profit estimates. Still, the stock remains well below its January 2022 record high of $374.20.
The MAC makeup brand owner has initiated a cost-cutting plan as spending in China, a prime focus for global luxury goods makers, comes under pressure from higher youth unemployment and a lingering property crisis.
Organic net sales in Asia-Pacific region fell 7% during the reported quarter, while margins dipped 60 basis points.
Estee’s quarterly results is the latest to highlight mixed demand in China. While companies like LVMH and Cartier owner Richemont signaled strong sales growth, others like Burberry are seeing an slower rebound.
Estee expects incremental operating profit between $1.1 billion and $1.4 billion from the efforts, up from $800 million to $1 billion it estimated earlier and looks to record between $500 million and $700 million in charges before taxes.
The company had about 62,000 employees worldwide, as of June 2023.
Bernstein analyst Callum Elliott said the restructuring “appears to acknowledge the need for change”.
Estee also cut its annual profit forecast for a second time as its U.S. business slowed down, with a post-pandemic spending spree sputtering.
Organic net sales in the Americas fell 1% in the quarter, compared to the 6% growth in the prior quarter.
However, a few investors and analysts flagged some concerns.
“Cost cutting is very good in the short term, but if you want to grow your top line you have to invest behind your brands,” said Javier Gonzalez Lastra, luxury-focused portfolio manager at Tema ETFs.
Estee now expects full-year 2024 adjusted profit per share between $2.08 and $2.23, compared with $2.17 to $2.42 earlier.
Excluding items, Estee earned 88 cents per share, surpassing expectations of 55 cents.