Pandemic Hits Lauder’s Results

The economic fallout from coronavirus hit The Estée Lauder Companies hard. Sales fell 4% to $14.86 billion for the fiscal year ended June 30, 2020. The company blamed the decline was driven by retail store closures as a result of the global spread of COVID-19 that was partially offset by the tremendous acceleration online. Net sales from the company’s acquisition of Have&Be Co. Ltd. (“Dr. Jart+”) contributed approximately one percentage point of growth to reported net sales. Net earnings declined from $1.79 billion to $680 million.

As it announced its FY2020 results, the company unveiled a new strategy that includes reducing its retail footprint, increasing its digital investment and eliminating up to 2,000 jobs.

“Fiscal 2020 was a year without parallel, as we delivered record sales and exceptionally strong adjusted EPS growth in our first half and navigated with agility through an unprecedented pandemic in our second half. The second half also marked a period of profound pain as tragic events in the United States highlighted the systemic racial injustice that has plagued our society for far too long,” observed President and CEO Fabrizio Freda. 

However, there were bright spots. Freda said the Estée Lauder brand grew double-digits for the third consecutive year. Asia/Pacific was strong with organic sales growth in mainland China and several other markets driving prestige beauty share gains, the skin care category grew and was further boosted by the acquisition of Dr. Jart+, and online salesl surged, as ELC pivoted to capture consumption online during COVID-19 as retail stores around the world temporarily closed.

“In this new fiscal year, we remain focused on the safety and well-being of our employees and consumers,” said Freda. “Our sense of urgency to act on our recently announced racial equity commitments is strong. We enter fiscal 2021 with cautious optimism, given the vibrancy of our skin care portfolio, acceleration in Asia/Pacific, momentum online globally, and robust innovation pipeline, which includes the exciting launch this month of Estée Lauder’s new Advanced Night Repair. We expect sales trends to improve sequentially each quarter.”

To accelerate growth, the company announced a two-year initiative to rebalance investments to address the dramatic shifts in the distribution landscape and consumer behavior post-COVID-19. This will include reducing ELC’s retail footprint, primarily in Europe, the Middle East & Africa and in North America, and increasing digital investments to reflect a dramatic shift in consumer shopping to online and omnichannel capabilities in the more productive brick-and-mortar footprint.

This program is expected to position ELC to better execute its long-term strategy while strengthening its financial flexibility. Post-COVID Business Acceleration Program will begin during ELC's s fiscal 2021 first quarter. Specific initiatives are expected to be approved through the end of fiscal 2022 and completed through fiscal 2023. Key actions include:

• Realignment of the distribution network, reflecting certain department store closures and freestanding store rationalization while accelerating the shift to online.
• Further investment in digital capabilities, omnichannel, talent, and advertising and promotional activities to support continued share improvement and business acceleration.
• Implementing increased confident beauty practices at retail and adoption of new ways of working, in light of the ongoing pandemic.

In connection with the Post-COVID Business Acceleration Program, at this time ELC estimates a net reduction in the range of approximately 1,500 to 2,000 positions globally, primarily point of sale employees and related support staff in the areas that were the most disrupted, which is about 3% of its current workforce including temporary and part-time employees. This reduction takes into account the elimination of some positions, retraining and redeployment of certain employees, and investment in new positions in key areas like online.

The company also estimates the closure of between 10-15% of its freestanding stores globally, as well as certain less productive department store counters that the company elects to close.

Once fully implemented, ELC expects to take restructuring and other charges of between $400 million and $500 million, before taxes, consisting of employee-related costs, contract terminations across areas being restructured, asset write-offs and other costs associated with implementing these initiatives.

Once fully implemented, Post-COVID Business Acceleration Program is expected to yield annual benefits of between $300 million and $400 million, before taxes, of which a portion is expected to be reinvested in future initiatives to drive sustainable, profitable sales growth.