Stung by a 6% decline in fiscal second quarter sales, Estée Lauder will cut 2000 jobs (6% of its workforce) over the next two years as part of a four-year restructuring program. Net sales for Estée Lauder’s fiscal second quarter ended Dec. 31, 2008 dropped 6% to $2.04 billion, while net earnings slipped 42% to $158.0 million, as compared with $224.4 million last year.
The company highlighted elements of its new, four-year strategic plan and set performance goals for fiscal year 2010 through fiscal year 2013 that include:
• Grow share by increasing sales at least one percentage point higher than global prestige beauty every year. The first building block of growth is market assumptions, which for fiscal 2010 are particularly unpredictable given the current economic conditions.
• Generate more than 60% of sales outside the U.S., with the Asia/Pacific region expected to lead growth, followed by Europe, the Middle East and Africa.
• Achieve operating margin of 12% to 13% by fiscal 2013, showing step-change improvement annually, starting from a lower fiscal 2009 base.
• Reduce days of inventory 15% to 20% by fiscal 2013.
• Focus resources on core brands, geographies and consumer segments.
• Address underperforming brands by changing their business models to improve profitability within 18 to 24 months.
• Realign and optimize the structure of the company’s geographic regions to better leverage scale, improve productivity and reduce complexity.
• Cut costs by $450 million to $550 million, including improvements in cost of goods, organizational resizing and regional realignments, benefits from its Strategic Modernization Initiative, reduction and management of SKUs, logistic optimization, indirect procurement savings and selective outsourcing opportunities.
• Reduce headcount over the next two years by approximately 2,000 employees, or 6% of the workforce, institute an immediate company-wide freeze on merit raises and a continuation of its current hiring freeze. Reductions would occur through a combination of normal attrition, reorganizations and job eliminations. This should strongly realign productivity.
• Take potential restructuring and other one-time charges of between $350-450 million during the next few years.
• Reinvest approximately $50 million to fuel growth and gain global share, including strengthening competency in consumer insights; accelerating presence in fast growing markets and channels; intensifying research and development and brand creation capabilities, particularly internationally; and additional funding for the company’s equity-based rewards program.
At press time, Standard & Poor’s Ratings Services also revised its outlook on Estée Lauder to “negative” from “stable” amid a tough economy that has dampened demand for cosmetics.