Estée Lauder stock soars toward best day in 13 years after earnings, job cuts

By Tomi Kilgore

Restructuring plan includes cutting 3% to 5% of its workforce, which could represent up to about 3,150 jobs

Shares of Estée Lauder Companies soared Monday, after the beauty-products company reported fiscal second-quarter profit that beat expectations by a wide margin, despite continued challenges in the Asia market.

The company (EL) also announced an expansion of its profit-recovery plan, to include a restructuring program that will result in the cutting of 3% to 5% of its workforce. That could represent up to about 3,150 jobs.

"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," said Chief Executive Fabrizio Freda. "We are, encouragingly, at an inflection point."

The stock ran up 15.3% toward a five-month high in premarket trading, which would put it on track for the biggest one-day gain since it rocketed 17.9% on Nov. 3, 2011.

Net income for the quarter to Dec. 31 fell to $313 million, or 87 cents a share, in the same period a year ago. Excluding nonrecurring items, adjusted earnings per share of 88 cents were well above the FactSet consensus of 54 cents.

Sales declined 7.4% to $4.28 billion, reflecting challenges in Asia travel retail and softness in prestige beauty in China, but came in above the FactSet consensus of $4.19 billion.

Among the company's business segments, skin-care sales fell 10.5% to $2.17 billion, but beat the FactSet consensus of $1.95 billion.

Makeup sales declined 7.6% to $1.17 billion, missing the FactSet consensus of $1.25 billion; fragrance sales edged up 0.4% to $737 million, but missed expectations of $789 million; and hair-care sales were down 5.5% to $173 million, missing expectations of $180 million.

Looking ahead, the company expects double-digit percentage organic sales growth in the second half of the fiscal year.

Regarding the job cuts, the company said the workforce-reduction plan is based on the number of positions it had as of June 30, 2023. Based on the company's disclosure that it had approximately 62,000 to 63,000 employees worldwide at that time, a 5% reduction would suggest 3,150 employees would lose their jobs.

Estée Lauder said it expects to record charges of between $500 million and $700 million once the restructuring program is fully implemented, for severance, contract terminations and asset write-offs. Gross benefits of the program are expected to range between $350 million and $500 million.

Including the new restructuring program, the company expects its Profit Recovery Plan to yield $1.1 billion to $1.4 billion in operating profit.

The stock has rallied 20.9% over the past three months through Friday but has dropped 50.2% over the past 12 months. In comparison, the S&P 500 has rallied 19.9% over the past year.

-Tomi Kilgore

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02-05-24 0818ET

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