The Stock of Estée Lauder Soars After Earnings and Job Cuts Lead to Its Best Day in 13 Years

Estée Lauder Companies witnessed a significant surge in its stock value on Monday, following the release of fiscal second-quarter profit figures that surpassed expectations by a considerable margin, despite ongoing challenges in the Asian market.

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The beauty-products company, denoted by the ticker EL, +13.52%, also unveiled an expansion of its profit-recovery strategy, incorporating a restructuring initiative that will lead to a reduction of 3% to 5% of its workforce, potentially affecting approximately 3,150 jobs.

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Fabrizio Freda, Chief Executive, remarked, “We made progress in the first half across several strategic priorities, including reducing inventory in the trade of Asia travel retail, improving working capital, realizing higher levels of net pricing, and managing expenses with discipline. We are, encouragingly, at an inflection point.”

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In premarket trading, the stock experienced a notable 15.3% increase, propelling it towards a five-month high. This surge marked the most substantial one-day gain since the impressive 17.9% jump recorded on November 3, 2011.

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Comparing the quarter ending December 31, net income dwindled to $313 million, or 87 cents per share, from the previous year. However, excluding nonrecurring items, adjusted earnings per share reached 88 cents, significantly surpassing the FactSet consensus of 54 cents.

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Despite a 7.4% decline in sales to $4.28 billion, reflecting challenges in Asia travel retail and softness in prestige beauty in China, the results exceeded the FactSet consensus of $4.19 billion. Among the company's business segments, skincare sales fell 10.5% to $2.17 billion, yet surpassed the FactSet consensus of $1.95 billion.

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Makeup sales experienced a 7.6% decline to $1.17 billion, missing the FactSet consensus of $1.25 billion. Fragrance sales marginally increased by 0.4% to $737 million but fell short of expectations, set at $789 million. Hair-care sales saw a 5.5% decrease to $173 million, also below the anticipated $180 million.

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Looking ahead, Estée Lauder anticipates double-digit percentage organic sales growth in the second half of the fiscal year.

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Concerning the announced job cuts, the company clarified that the workforce-reduction plan is based on the positions it held as of June 30, 2023. With approximately 62,000 to 63,000 employees globally at that time, a 5% reduction implies that 3,150 employees may face job cuts.

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Estée Lauder foresees charges ranging from $500 million to $700 million upon full implementation of the restructuring program, covering severance, contract terminations, and asset write-offs. However, the company expects gross benefits to range between $350 million and $500 million.

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Inclusive of the new restructuring program, the company envisions its Profit Recovery Plan yielding operating profits ranging from $1.1 billion to $1.4 billion.

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Over the past three months leading up to Friday, the stock witnessed a robust 20.9% rally, but it has experienced a significant 50.2% drop over the past 12 months. In comparison, the S&P 500 index, denoted by SPX, -0.51%, has rallied 19.9% over the past year.

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