Estée Lauder announced plans to cut up to 3,100 jobs – about 3% to 5% of its global workforce – expanding an effort to shore up its profit margins as a rebound in its China business takes longer than expected.
Shares in the cosmetics giant surged by 13.8% to $152.52 after it 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.
Estée’s quarterly results is the latest to highlight mixed demand in China. While companies like LVMH and the Cartier owner Richemont signaled strong sales growth, others like Burberry are seeing a slower rebound.
Estée expects incremental operating profit between $1.1bn and $1.4bn from the efforts, up from $800m to $1bn it estimated earlier and looks to record between $500m and $700m in charges before taxes.
The company had about 62,000 employees worldwide, as of June 2023.
The Bernstein analyst Callum Elliott said the restructuring “appears to acknowledge the need for change”.
Estée also cut its annual profit forecast for a second time as its US 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.
Estée now expects full-year 2024 adjusted profit per share between $2.08 and $2.23, compared with $2.17 to $2.42 earlier.