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The Estée Lauder Companies Reports Fiscal 2025 Second Quarter Results

Press Release, Feb 4, 2025

The Estée Lauder Companies Reports Fiscal 2025 Second Quarter Results

Launches Beauty Reimagined, a Strategic Vision to Restore Sustainable Sales Growth and Achieve Stronger Profitability

Expands the Profit Recovery and Growth Plan to Enable the Vision

NEW YORK--(BUSINESS WIRE)-- The Estée Lauder Companies Inc. (NYSE: EL) today launched Beauty Reimagined, its new strategic vision, and reported its financial results for the second quarter ended December 31, 2024.

“Today, we are excited to launch Beauty Reimagined, a bold strategic vision to restore sustainable sales growth and achieve a solid double-digit adjusted operating margin over the next few years as we aim to become the best consumer-centric prestige beauty company,” said Stéphane de La Faverie, President and Chief Executive Officer. “While we recognize there is much work to do, we are confident that Beauty Reimagined is the way to realize our ambition. We are significantly transforming our operating model to be leaner, faster, and more agile, while taking decisive actions to expand consumer coverage, step-change innovation, and increase consumer-facing investments to better capture growth and drive profitability. Together with our talented employees, fundamental values, and incredible brands, Beauty Reimagined positions us to lead the prestige beauty industry once again.”

THE COMPANY’S ACTION PLAN PRIORITIES FOR BEAUTY REIMAGINED

  • Accelerate best-in-class consumer coverage: Put the consumer at the heart of our business and rapidly expand our portfolio presence in consumer-preferred, high-growth channels, markets, media and price tiers to participate in key growth opportunities in prestige beauty.
  • Create transformative innovation: Step-change innovation across prestige price tiers, to deliver fast-to-market, on-trend innovation focused on in-demand subcategories, benefits, and occasions.
  • Boost consumer-facing investments: Increase visible advertising spending, optimize marketing programs and eliminate low-return activities to accelerate new consumer acquisition.
  • Fuel sustainable growth through bold efficiencies: Expand Profit Recovery and Growth Plan to:
    • Address the impact of further volume deleverage since its inception, by (i) adopting a more competitive approach to procurement by further consolidating spending and strategically re-evaluating key supplier relationships, (ii) improving supply chain network efficiencies, and (iii) outsourcing of select services.
    • Fund consumer-facing investments to drive sales growth and position the Company for an accelerated return to a solid double-digit adjusted operating margin over the next few years.
  • Reimagine the way we work: Remove complexity and simplify how we work to (i) allow greater focus on execution excellence for the consumer, (ii) unburden our smaller brands so that they can be more successful in our organization, while driving greater benefits of scale for our larger brands, and (iii) empower faster decision-making, in part through a flatter and leaner organization.

DOWNLOAD THE PRESS RELEASE PDF(242KB) 

FISCAL 2025 SECOND QUARTER SELECT FINANCIAL RESULTS (unaudited)1,2

  • Net sales decreased 6% to $4.0 billion. Organic net sales decreased 6%.
  • As Reported and Adjusted Gross margin expanded 310 basis points, to 76.1%, despite the decline in net sales, primarily driven by net benefits from the Company’s Profit Recovery and Growth Plan (“PRGP”).
  • Operating margin declined to (14.5)% from 13.4% in the prior-year period, primarily reflecting $861 million from goodwill and other intangible asset impairments and $181 million from charges associated with restructuring and other activities. Adjusted operating margin contracted 200 basis points, to 11.5%. The net benefits from the Company’s PRGP partially mitigated its sales volume deleverage in the fiscal 2025 second quarter, while the Company strategically increased investments in consumer-facing activities.
  • Effective tax rate was 9.2% compared with 37.6% in the prior-year period and adjusted effective tax rate was 42.6%.
  • Diluted net earnings per common share decreased to net loss per common share of $1.64, compared with diluted net earnings per common share of $.87 in the prior-year period. Adjusted diluted net earnings per common share decreased to $.62.
  • For the six months ended December 31, 2024, net cash flows provided by operating activities decreased to $387 million, compared with $937 million in the prior-year period, driven by lower pre-tax earnings, excluding non-cash items.
  • Capital expenditures decreased to $273 million from $527 million in the prior-year period primarily due to the prior-year payments relating to the manufacturing facility in Japan.
  • The Company paid dividends of $366 million.

BEAUTY GAINS AND OPERATIONAL HIGHLIGHTS3

  • Achieved prestige beauty share gains for the fiscal 2025 second quarter in some key markets:
    • U.S.: Skin Care, led by Clinique, and Hair Care, led by Bumble & bumble.
    • China: Makeup, led by Estée Lauder, as well as La Mer in Skin Care and Le Labo in Fragrance.
    • Japan: Fragrance, led by Le Labo, and Skin Care, led by La Mer. For calendar 2024, the Company newly ranked #1 in Fragrance in Japan.
  • Ranked highly for 11.11 Global Shopping Festival, as Estée Lauder and La Mer held either #1 or #2 in Prestige Beauty and Luxury and Jo Malone London held either #1 or #2 in Fragrance across Douyin, JD, and TMall.
  • Ranked highly during TikTok’s Black Friday and Cyber Monday Campaigns in the U.S., with Estée Lauder and The Ordinary among top-selling brands.
  • Strengthened The Ordinary’s reach for new consumer acquisition:
    • Expanded presence in fast-growing channels with its December 2024 launch on the U.K. TikTok Shop and January 2025 launch in Amazon’s U.S. Premium Beauty store.
    • Launched an anti-aging serum at disruptive pricing with its GF 15% Solution in January 2025.
    • Expanded geographically with its January 2025 launch in Thailand and expected February 2025 launch in mainland China.
  • Expanded Fragrance distribution with over 20 net new freestanding stores opened globally in the fiscal 2025 second quarter, led by Jo Malone London and Le Labo.
  • Launched exciting innovations, including:
    • MACximal Sleek Satin Lipstick in October 2024.
    • Clinique introduced Clinique CX, a new advanced post-procedure treatment franchise for China in November 2024.
    • Estée Lauder’s Re-Nutriv longevity expansion into eye in January 2025.
  • Jo Malone London partnered with GQ for the Men of Year Awards 2024 in November.
  • Announced Fragrance Atelier location in Paris, France in December 2024; slated to open in 2025.
  • Announced the opening of a new BioTech Hub in Belgium in December 2024 and a collaboration with the Massachusetts Institute of Technology in January 2025, to further accelerate the Company’s cutting-edge biotechnology innovations.

FISCAL 2025 SECOND QUARTER RESULTS BY PRODUCT CATEGORY AND BY REGION

The product category net sales commentary below reflects organic net sales, excluding the negative impacts from foreign currency translation that are reflected in the preceding table. In addition to the Operational Highlights above, below are the drivers of the Company’s performance.

Skin Care

  • Skin Care net sales decreased 12%, primarily due to impacts from the overall challenging retail environments in Asia/Pacific and the Company’s Asia travel retail business, including ongoing pressure from subdued sentiment from Chinese consumers, which drove declines from Estée Lauder and La Mer.
  • Skin Care operating income decreased, primarily due to the decline in net sales, partially offset by lower cost of sales and disciplined expense management.

Makeup

  • Makeup net sales decreased 1%, primarily due to the declines from TOM FORD, reflecting the impacts from the overall challenging retail environment in Asia/Pacific and the Company’s Asia travel retail business, as noted above. In addition, net sales decreased from M·A·C and Smashbox, driven by their softness in the eye and face subcategories, respectively.
  • The declines noted above were partially offset by high-single-digit growth from Clinique, reflecting growth across each geographic region, driven by the brand’s launch in Amazon’s U.S. Premium Beauty Store and the continued success from Almost Lipstick in Black Honey.
  • Makeup operating results decreased, driven by $258 million of goodwill and other intangible asset impairments relating to TOM FORD and Too Faced.

Fragrance

  • Fragrance net sales increased 2%, driven by the Company’s Luxury Brands4, led by Le Labo and its strong double-digit growth across each geographic region, partially offset by the decline from Estée Lauder, due in part to reduced shipments of holiday sets. The growth from Le Labo benefited from both hero products, such as its Classic Collection, innovation, such as Osmanthus 19, the City Exclusive scent for Kyoto, and targeted expanded consumer reach.
  • Fragrance operating results decreased, primarily due to the $549 million other intangible asset impairment relating to TOM FORD.

Hair Care

  • Hair Care net sales decreased 8%, primarily driven by Aveda, reflecting continued softness in the Company’s salon channel and the timing of shipments.
  • Hair Care operating loss was flat, reflecting disciplined expense management and lower cost of sales, partially offset by the decline in net sales.

The geographic region net sales commentary below reflects organic net sales, excluding the negative impacts from foreign currency translation that are reflected in the preceding table. In addition to the Operational Highlights above, below are the drivers of the Company’s performance.

The Americas

  • Net sales were flat, primarily driven by the decline in North America, reflecting retail softness from some brands that led to lower replenishment orders, offset by the launch of several brands in Amazon’s U.S. Premium Beauty Store. Net sales were flat in Latin America.
  • Operating loss increased, primarily driven by $861 million of goodwill and other intangible asset impairments relating to TOM FORD and Too Faced, partially offset by lower cost of sales and the favorable year-over-year impact of net intercompany activity.

Europe, the Middle East & Africa

  • Net sales decreased 6%, driven by the double-digit decline in the Company’s global travel retail business, reflecting the impacts from an overall challenging retail environment, including subdued sentiment from Chinese consumers. Mixed performance across the region’s markets resulted in flat overall net sales growth.
  • Operating income decreased, primarily due to the decline in net sales and the unfavorable year-over-year impact of net intercompany activity, partially offset by lower cost of sales.

Asia/Pacific

  • Net sales decreased 11%, primarily driven by the impacts from an overall challenging retail environment, including subdued consumer sentiment in mainland China, Korea and Hong Kong SAR. The net sales decline in Korea also reflects the strategic exit of Dr.Jart+ from the travel retail channel in November 2024.
  • Operating income decreased, primarily driven by the decline in net sales and the year-over-year unfavorable impact of a change in policy related to local government subsidies in China.

QUARTERLY DIVIDEND
Today, the Company announced a quarterly dividend of $.35 per share on its Class A and Class B Common Stock, payable in cash on March 17, 2025 to stockholders of record at the close of business on February 28, 2025.

PROFIT RECOVERY AND GROWTH PLAN (“PRGP”)
Through the fiscal 2025 second quarter the Company has realized more net benefits under the PRGP than expected, however, these benefits have been more than offset by sales volume deleverage, investments to restore sustainable growth, and inflation. As a result, the Company today announced it is expanding its PRGP, including the restructuring program. Actions under the plan are expected to be substantially executed in fiscal 2025 and 2026 and completed in fiscal 2027, with nearly all of the full run-rate benefits expected to be realized during fiscal 2027. The expanded plan is designed to further transform the Company’s operating model to fund a return to sales growth and restore a solid double-digit adjusted operating margin over the next few years, and continue to manage external volatility, such as potential tariff increases globally.

The expansion is focused on three key areas. First, the Company plans to adopt a more competitive approach to procurement, a key pillar of savings, by further consolidating spending and strategically re-evaluating key supplier relationships. Second, the Company plans to further improve efficiencies within its supply chain network through a zero-waste approach, aiming to improve demand forecasting and innovation planning to minimize excess inventory and product destruction. Third, the Company is outsourcing select services to proven global partners.

Restructuring Program of PRGP
Inclusive of January 2025 approvals, the Company has approved initiatives that account for approximately 90% of the total estimated gross benefits of $500 million initially targeted and communicated, demonstrating its ability and focus on execution.

Today, the Company announced it is also significantly expanding the restructuring component of the PRGP. Once fully implemented, the Company expects to take restructuring and other charges of between $1.2 billion and $1.6 billion, before taxes, consisting of employee-related costs, contract terminations, asset write-offs, and other costs associated with implementing these initiatives. The restructuring program is expected to yield annual gross benefits of between $0.8 billion and $1.0 billion, before taxes, to help restore operating margin and also fuel reinvestment in consumer facing areas to drive sustainable sales growth.

The Company now estimates a net reduction in positions of 5,800 to 7,000, including approvals to date. This net reduction takes into account the elimination of positions after retraining and redeployment of certain employees in select areas. Approvals for specific initiatives under this restructuring program, in total, are still expected to be completed by the end of fiscal 2026. The restructuring program’s focus includes (i) reorganization and rightsizing of certain areas and (ii) simplification and acceleration of processes, along with the newly added focus on (i) outsourcing of select services and (ii) evolution of go-to-market footprint and selling models.

OUTLOOK FOR FISCAL 2025 THIRD QUARTER
Given challenges in the Company’s Asia travel retail business, subdued consumer sentiment in China and Korea, and evolving global geopolitical uncertainty, the Company anticipates continued volatility and low visibility in the near term. Therefore, it is solely providing a fiscal 2025 third quarter outlook.

Stéphane de La Faverie, President and Chief Executive Officer, said “While we are not satisfied with our third quarter outlook, it primarily reflects weak retail sales trends in our Asia travel retail business, which deteriorated in our second quarter driven by Korea. While our retail sales trends in Hainan were still negative in the second quarter, they improved sequentially, fueled by our retail activations. For the third quarter, we expect overall soft retail trends to persist in Asia travel retail, significantly pressuring our organic net sales despite the improvement we made with in-trade inventory levels in the first half of fiscal 2025, which we intend to maintain around current levels.”

de La Faverie emphasized, “In order to reignite our retail sales growth, we are strategically increasing consumer-facing investments around the world in the third quarter. We expect the benefits of the PRGP to both fund these investments and modestly offset the meaningful operating deleverage from the sales decline.”

The Company has reflected the following assumptions in its fiscal 2025 third quarter outlook:

  • Strong double-digit net sales decline in the Company’s global travel retail business, reflecting the impacts from the overall challenging retail environment in Asia travel retail, including incremental pressures from changes in selling policies at several Korean retailers. This decline also reflects a difficult comparison to the prior-year period due to the resumption of replenishment orders.
  • Excluding the Company’s global travel retail business: The Company’s net sales decline in the fiscal 2025 third quarter is expected to moderate from the second quarter, as retail trends, which while still negative, improved from the fiscal 2025 first quarter to the second. Given the Company’s increased investments in consumer-facing activities, it expects significant retail sales improvement in the fiscal 2025 third quarter.
  • Moderate adjusted gross margin expansion, reflecting a favorable comparison due to a charge in the prior-year period triggered by the previous pull-down of production, partially offset by sales volume deleverage.
  • An effective tax rate of approximately 36%, primarily reflecting the anticipated change in the Company’s geographical mix of earnings.
  • Adjusted EPS decline, primarily due to the challenges in the Company’s global travel retail business.

The Company continues to monitor the effects of the global macro environment, including the risk of recession; currency volatility; inflationary pressures; supply chain challenges; social and political issues; competitive pressures; legal and regulatory matters, including the imposition of tariffs and sanctions; geopolitical tensions; and global security issues. The Company is also mindful of inflationary pressures on its cost base and is monitoring the impact on consumer preferences and the impact of changes being made in the organization, including those related to the PRGP. The Company is also mindful of, and monitoring, the potential impact of changes expected to be made as part of the PRGP on suppliers, retailers and others, and challenges relating to successfully outsourcing select services. Declines in net sales and profitability have, and may continue to, adversely impact the goodwill and other intangible assets associated with our brands, as well as long-lived assets, potentially resulting in impairments.

CONFERENCE CALL AND WEBCAST DETAILS
The Estée Lauder Companies will host a conference call at 8:30 a.m. (ET) today, February 4, 2025 to discuss its results for the fiscal 2025 second quarter. The dial-in number for the call is 877-883-0383 in the U.S. or 412-902-6506 internationally (conference ID number: 2499757).

The call and presentation will also be webcast live at http://www.elcompanies.com/investors/events-and-presentations and will be available for replay until February 18, 2025.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Statements in this press release, in particular those in “Outlook,” as well as remarks by the CEO and other members of management, may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements may address the Company’s expectations regarding sales, earnings or other future financial performance and liquidity, other performance measures, product introductions, entry into new geographic regions, information technology initiatives, new methods of sale, the Company’s long-term strategy, restructuring and other charges and resulting cost savings, and future operations or operating results. These statements may contain words like “expect,” “will,” “will likely result,” “would,” “believe,” “estimate,” “planned,” “plans,” “intends,” “may,” “should,” “could,” “anticipate,” “estimate,” “project,” “projected,” “forecast,” and “forecasted” or similar expressions. Although the Company believes that its expectations are based on reasonable assumptions within the bounds of its knowledge of its business and operations, actual results may differ materially from the Company’s expectations.

Factors that could cause actual results to differ from expectations include, without limitation:

The Company assumes no responsibility to update forward-looking statements made herein or otherwise.

The Estée Lauder Companies Inc. is one of the world’s leading manufacturers, marketers and sellers of quality skin care, makeup, fragrance and hair care products, and is a steward of luxury and prestige brands globally. The Company’s products are sold in approximately 150 countries and territories under brand names including: Estée Lauder, Aramis, Clinique, Lab Series, Origins, M·A·C, La Mer, Bobbi Brown Cosmetics, Aveda, Jo Malone London, Bumble and bumble, Darphin Paris, TOM FORD, Smashbox, AERIN Beauty, Le Labo, Editions de Parfums Frédéric Malle, GLAMGLOW, KILIAN PARIS, Too Faced, Dr.Jart+, the DECIEM family of brands, including The Ordinary and NIOD, and BALMAIN Beauty.

ELC-F
ELC-E

This earnings release includes some non-GAAP financial measures relating to charges associated with restructuring and other activities and adjustments, as well as organic net sales. Included herein are reconciliations between the non-GAAP financial measures and the most directly comparable GAAP measures for certain consolidated statements of earnings accounts before and after these items. The Company uses certain non-GAAP financial measures, among other financial measures, to evaluate its operating performance, which represent the manner in which the Company conducts and views its business. Management believes that excluding certain items that are not comparable from period-to-period, or do not reflect the Company’s underlying ongoing business, provides transparency for such items and helps investors and others compare and analyze operating performance from period-to-period. In the future, the Company expects to incur charges or adjustments similar in nature to those presented herein; however, the impact to the Company’s results in a given period may be highly variable and difficult to predict. The Company’s non-GAAP financial measures may not be comparable to similarly titled measures used by, or determined in a manner consistent with, other companies. While the Company considers the non-GAAP measures useful in analyzing its results, they are not intended to replace, or act as a substitute for, any presentation included in the consolidated financial statements prepared in conformity with U.S. GAAP.

The Company operates on a global basis, with the majority of its net sales generated outside the United States. Accordingly, fluctuations in foreign currency exchange rates can affect the Company’s results of operations. Therefore, the Company presents certain net sales, operating results and diluted net earnings per common share information excluding the effect of foreign currency rate fluctuations to provide a framework for assessing the performance of its underlying business outside the United States. Constant currency information compares results between periods as if exchange rates had remained constant period-over-period. The Company calculates constant currency information by translating current-period results using prior-year period monthly average foreign currency exchange rates and adjusting for the period-over-period impact of foreign currency cash flow hedging activities.

 

Investors:

Rainey Mancini

[email protected]



Media:

Jill Marvin

[email protected]

Source: The Estée Lauder Companies Inc.

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