Estee Lauder plans more job cuts as weak Q3 forecast sends shares plummeting

By Anuja Bharat Mistry

(Reuters) -Estee Lauder on Tuesday expanded a restructuring plan that would now involve up to 7,000 job cuts as the cosmetics giant grapples with persistent demand weakness especially in Asia, sending its shares down 19%.

The company now expects third-quarter profit to come well below expectations, citing challenges in its Asia travel retail business, particularly at airports and travel destinations in Korea and China.

"For the third quarter, we expect overall soft retail trends to persist in Asia travel retail, significantly pressuring our organic net sales," new CEO Stephane de La Faverie, who took over at the start of the year, said in a statement on Tuesday.

Estee Lauder has faced challenges in boosting sales growth in China, which accounted for roughly a quarter of the company's sales in 2024, due to high unemployment, a struggling economy, and an increasing preference for local brands.

   "Simply said, we lost our agility. We did not capitalize on the higher growth opportunities," De La Faverie said on a post-earnings call, adding that Estee has been lagging behind owing to its inability to adapt to on-trend innovations in time.

In October, the parent company of Clinique and MAC lipstick withdrew its annual forecasts as part of a planned turnaround after facing several quarters of declining sales.

De La Faverie said on Tuesday that the turnaround strategy will involve new luxury price tiers and increasing investments in consumer-facing initiatives, and a simplified organizational structure.

"The company still has a long way to go in proving that it can innovate and adapt sufficiently to meet the needs of younger beauty consumers, but the announcement of a new strategic plan is a step in the right direction," said Sky Canaves, analyst with eMarketer.

The Manhattan-based company said the new plan is also aimed at "managing external volatility, such as potential tariff increases globally."

The comments come in the background of China imposing targeted tariffs on American imports on Tuesday in response to the sweeping duties on Chinese imports imposed by U.S. President Donald Trump.

The company estimates a net reduction of 5,800 to 7,000 jobs by the end of fiscal 2026. The newly announced layoffs are an expansion of its plans laid out last February when the company said it would reduce up to 5% of its global workforce.

As of June 30, 2024, the New York-based firm had about 62,000 employees worldwide.

Estee Lauder expects to take restructuring and other charges of between $1.2 billion and $1.6 billion.

Shares of the company, which expects third-quarter organic net sales to decline in the range of 8% to 10% compared to a year ago, fell about 49% in 2024.

(Reporting by Anuja Bharat Mistry in Bengaluru; Editing by Tasim Zahid)