Estée Lauder’s CEO, Fabrizio Freda, is determined to lead the company’s recovery despite a significant drop in shares over the past year. To turn the company around, Freda has unveiled a turnaround plan that includes a reduction of up to 3,000 positions to cut costs and increase profitability. The announcement of these measures resulted in a 12% increase in Estée Lauder’s shares, indicating investor confidence in the plan.
However, some critics argue that bringing in a new leader would be beneficial for executing the recovery plan. HSB analysts suggest that a refresh of the management team could be viewed positively by investors. Despite these suggestions, Freda remains committed to restoring the company’s performance in the coming years and carrying out the necessary work.
Freda has mentioned that duty-free shops in Asia are expected to return to normal levels by April 1, signaling a recovery in the crucial travel retail business. Although net sales of skin-care products declined by 10% in the most recent quarter, Freda highlighted growth in certain brands and regions. Estée Lauder is expanding its market share in China, particularly through its brick-and-mortar stores, and the recent resurgence in sales in Hong Kong is seen as a positive development for the industry and the company.
However, Freda acknowledged the challenges faced by global brands in China due to the country’s post-Covid economic slowdown. As households decrease discretionary spending, companies like Estée Lauder are impacted. To address this, Freda believes that the job cuts and other restructuring steps will generate significant additional profit, estimated to be between $1.1 billion and $1.4 billion. This profitability will enable Estée Lauder to deliver future growth and provide value to shareholders.
Revitalizing the Clinique brand is a particular focus for Estée Lauder. Freda acknowledged that the brand could have capitalized on the dermatological beauty trend earlier, but they are now establishing a dermatology center and increasing marketing efforts to regain its position. Additionally, the company plans to utilize social media platforms like TikTok and Instagram to drive more sales. While Estée Lauder has already seen success with its Ordinary brand, Freda emphasizes that they have not been passive in this area.
Analysts recognize the importance of Estée Lauder’s turnaround plan but seek more evidence of its successful execution. The past two years have presented challenges for the company, and investors require assurance that the turnaround story will yield positive results. With Freda’s commitment and the implementation of cost-cutting measures, Estée Lauder remains optimistic about its future prospects.