Why did Estée Lauder's sales and earnings decline in the fiscal 2024 second quarter?

Net sales fell 7% reported and 8% organically, primarily reflecting challenges in Asia travel retail, where retailer inventory is being reset, and ongoing softness in overall prestige beauty in mainland China. Net earnings attributable to the Company fell to $313 million from $394 million, and the effective tax rate rose to 37.6% from 25.4%.

What is the restructuring program and what does it cost?

The two-year restructuring program, part of an expanded Profit Recovery Plan for fiscal 2025 and 2026, focuses on reorganizing and rightsizing certain areas and simplifying processes. The Company expects restructuring and other charges of $500 million to $700 million before taxes and annual target gross benefits of $350 million to $500 million, a portion of which will be reinvested in consumer-facing activities.

How many jobs will be affected by the restructuring?

The Company estimates a net reduction of approximately 1,800 to 3,000 positions globally, which it describes as about 3-5% of its positions, including temporary and part-time employees, as of June 30, 2023. The estimate accounts for retraining and redeployment of some employees.

How did the fiscal 2024 outlook change?

The Company narrowed its full-year reported and organic net sales outlook to a decrease of 1% to an increase of 1%. Reported diluted EPS is projected at $2.04 to $2.20, and adjusted diluted EPS at $2.08 to $2.23, with the change reflecting an anticipated higher global effective tax rate of approximately 35%. The Company is maintaining its adjusted full-year operating margin outlook.

Are the restructuring cost details final?

No. The Company states its analysis is preliminary and subject to change, and it cannot yet determine the estimated amount or range of costs for each major type, or the associated charges and future cash expenditures. It will file an amendment to this report once those amounts are determined.

EL 8-K: Earnings & Results & Financial Events

01—Abstract

Summary

Summary of the 8-K filed February 5, 2024. Cited figures are marked; the original filing is the authoritative source.

The Estée Lauder Companies Inc. reported fiscal 2024 second-quarter results for the quarter ended December 31, 2023, with net sales of $4.28 billion^a, down 7% from $4.62 billion, and an organic net sales decline of 8%.

Reported net earnings attributable to the Company were $313 million^b, compared with $394 million a year earlier, and diluted EPS was $.87 versus $1.09. Adjusted diluted EPS declined to $.88 from $1.54 in the prior-year period. The Company attributed the sales decline primarily to challenges in Asia travel retail and softness in mainland China prestige beauty, and cited a higher effective tax rate of 37.6%.

The company revised its fiscal 2024 outlook, narrowing the net sales range to a decrease of 1% to an increase of 1% and lowering its adjusted diluted EPS range to $2.08 to $2.23^c, reflecting a higher expected tax rate. It also announced a restructuring program as part of an expanded Profit Recovery Plan for fiscal 2025 and 2026. The program is expected to involve a net reduction of roughly 1,800 to 3,000 positions (about 3-5% of positions), with restructuring and other charges of $500 million to $700 million before taxes and annual gross benefits of $350 million to $500 million.

The Company now expects incremental operating profit from the Profit Recovery Plan of $1.1 billion to $1.4 billion^d, up from $800 million to $1 billion previously communicated. The Company stated that its restructuring cost analysis is preliminary, and it has not yet determined the amount or range of costs by major type; it will file an amendment to this report once those amounts are determined.

02—Key points

Key Highlights

Q2 fiscal 2024 net sales were $4.28 billion, down 7% reported and down 8% organic, driven by Asia travel retail and mainland China.
Diluted EPS was $.87 versus $1.09 a year earlier; adjusted diluted EPS was $.88 versus $1.54.
Effective tax rate rose to 37.6% from 25.4%, reflecting geographic earnings mix and unfavorable share-based compensation impact.
Fiscal 2024 full-year reported net sales outlook narrowed to a decrease of 1% to an increase of 1%; adjusted diluted EPS outlook lowered to $2.08 to $2.23.
Restructuring program announced with an estimated net reduction of approximately 1,800 to 3,000 positions and charges of $500 million to $700 million before taxes.
Annual target gross benefits of the restructuring program are $350 million to $500 million before taxes; incremental Profit Recovery Plan operating profit now expected at $1.1 billion to $1.4 billion.
Six-month operating cash flow was $937 million, up from $751 million, with cash and cash equivalents of $3.94 billion at quarter end.

03—Questions

Frequently Asked Questions

Why did Estée Lauder's sales and earnings decline in the fiscal 2024 second quarter?
Net sales fell 7% reported and 8% organically, primarily reflecting challenges in Asia travel retail, where retailer inventory is being reset, and ongoing softness in overall prestige beauty in mainland China. Net earnings attributable to the Company fell to $313 million from $394 million, and the effective tax rate rose to 37.6% from 25.4%.
What is the restructuring program and what does it cost?
The two-year restructuring program, part of an expanded Profit Recovery Plan for fiscal 2025 and 2026, focuses on reorganizing and rightsizing certain areas and simplifying processes. The Company expects restructuring and other charges of $500 million to $700 million before taxes and annual target gross benefits of $350 million to $500 million, a portion of which will be reinvested in consumer-facing activities.
How many jobs will be affected by the restructuring?
The Company estimates a net reduction of approximately 1,800 to 3,000 positions globally, which it describes as about 3-5% of its positions, including temporary and part-time employees, as of June 30, 2023. The estimate accounts for retraining and redeployment of some employees.
How did the fiscal 2024 outlook change?
The Company narrowed its full-year reported and organic net sales outlook to a decrease of 1% to an increase of 1%. Reported diluted EPS is projected at $2.04 to $2.20, and adjusted diluted EPS at $2.08 to $2.23, with the change reflecting an anticipated higher global effective tax rate of approximately 35%. The Company is maintaining its adjusted full-year operating margin outlook.
Are the restructuring cost details final?
No. The Company states its analysis is preliminary and subject to change, and it cannot yet determine the estimated amount or range of costs for each major type, or the associated charges and future cash expenditures. It will file an amendment to this report once those amounts are determined.

04—Continue

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