By Ananya Mariam Rajesh
(Reuters) -Estee Lauder plans to cut 3% to 5% of its global workforce as the cosmetics giant expands an effort to shore up margins squeezed by Chinese customers cutting back on higher-priced luxury products, sending its shares up as much as 19%.
A boom following the lifting of pandemic curbs in China never materialized and recent results have indicated mixed luxury demand. While companies like LVMH and Richemont have posted strong sales growth, others like Burberry have flagged a sluggish rebound.
Estee witnessed "a small reduction in market share" during the second quarter in China, CEO Fabrizio Freda said on an analysts call.
Some analysts have pointed to higher youth unemployment, a lingering property crisis and a shift to local brands for the challenges facing global brands.
"There are a lot of local Chinese brands that have emerged. Many of them are of decent quality, and Chinese consumers are more willing than before to try these products and embrace them," said Javier Gonzalez Lastra, luxury-focused portfolio manager at Tema ETFs.
Organic net sales in the Asia-Pacific region fell 7% during the reported quarter, Estee said, while overall margins dipped 60 basis points.
Estee expects incremental operating profit between $1.1 billion and $1.4 billion from the efforts in fiscal years 2025 and 2026, up from $800 million to $1 billion it had estimated earlier. The company said it may record between $500 million and $700 million in charges before taxes.
Shares were trading higher at $159.75, but well below the January 2022 record high of $374.20 when the company gained from a resurgence in demand after a pandemic lull.
Estee had about 62,000 employees worldwide, as of June 2023
Meanwhile, the company cut its annual profit forecast for a second time as its U.S. business also slowed down.
Organic net sales in the Americas fell 1% in the quarter, compared to the 6% growth in the prior quarter.
Estee now expects full-year 2024 adjusted profit per share between $2.08 and $2.23, compared with $2.17 to $2.42 earlier.
Excluding items, the company earned 88 cents per share, surpassing expectations of 55 cents.