Estee Lauder outlines 4-year strategy, will cut jobs

2/11/2009

NEW YORK Battling challenging global economic conditions, The Estee Lauder Cos. has unveiled a four-year strategy to drive sales, reduce costs and realign its organizational structure, a move that will result in the reduction of about 2,000 employees over the next two years.

“The factors that impacted our second-quarter results were challenging on multiple levels, and not different from what many other companies have experienced, especially those companies dependent on consumer spending,” stated William Lauder, CEO. “The current difficult environment, which is global in scale, is not expected to improve in the near term. This underscores how vital it is for us to execute on our long-term strategy, even as we address the short-term challenges.”

During the quarter ended Dec. 31, each of the company’s product categories and geographic regions were adversely impacted by the economy. The worldwide economic downturn has negatively affected consumer demand, according to the beauty company, resulting in weak retail sales and prompting significant inventory destocking by certain key retailers.

Net sales for the quarter were $2.04 billion compared with $2.31 billion in the year-ago period. Net earnings totaled $158 million compared with $224.4 million last year. Diluted net earnings per common share were 80 cents compared with $1.14 reported in the prior-year quarter.

Looking to build on its core strengths, sharpen its focus on execution capabilities and lower costs, the company has outlined a four-year strategic plan and set performance goals for fiscal year 2010 through fiscal 2013. The plan includes, but is not limited to:

  • Generating more than 60% of sales outside the United States, making the company more balanced and diversified. The Asia/Pacific region is expected to lead growth, followed by Europe, the Middle East and Africa.

  • Address underperforming brands by changing their business models to improve profitability within 18 to 24 months.

  • Cut costs by $450 million to $550 million, including improvements in cost of goods, organizational resizing and regional realignments, benefits from the 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 about 2,000 employees, or 6% of the work force, institute an immediate companywide freeze on merit raises and a continuation of the current hiring freeze. Reductions would occur through a combination of normal attrition, reorganizations and job eliminations.

  •  Reinvest about $50 million to fuel growth and gain global share.

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