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    Estee Lauder Companies Inc (EL)

    CEO Change
    Board Change

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    The Estée Lauder Companies Inc. is a leading global manufacturer, marketer, and seller of prestige beauty products, including skin care, makeup, fragrance, and hair care, distributed in approximately 150 countries and territories . The company operates under well-known brand names such as Estée Lauder, Clinique, M·A·C, Bobbi Brown, La Mer, Aveda, Jo Malone London, and others . Leveraging consumer analytics and insights, the company drives innovation and maintains a broad, inclusive range of products to compete effectively in the prestige beauty market .

    1. Skin Care - Develops and markets a wide range of skin care products, with significant contributions from brands like Estée Lauder, Clinique, and Dr.Jart+ .
    2. Makeup - Offers a variety of makeup products, with key offerings from brands such as M·A·C and Estée Lauder .
    3. Fragrance - Produces and sells fragrances, with notable contributions from Le Labo and Jo Malone London .
    4. Hair Care - Provides hair care products, primarily through the Aveda brand .
    5. Other Products - Includes a diverse range of additional beauty products beyond the main categories .
    Initial Price$154.18March 30, 2024
    Final Price$106.40June 30, 2024
    Price Change$-47.78
    % Change-30.99%

    What went well

    • Retail growth in North America has accelerated, with brands like Clinique showing exciting progress following the implementation of new strategies.
    • The company expects to leverage strong market fundamentals globally, anticipating the prestige beauty market to return to mid-single-digit growth as China and travel retail stabilize.
    • Estée Lauder's strategy reset and Profit Recovery and Growth Plan position it to grow at least 1 point ahead of the market in the long term.

    What went wrong

    • Increased competition in North America is creating a strong competitive environment, leading to market share challenges for the company.
    • Moderation in the U.S. prestige market growth, with expectations of further slowing, could negatively impact future sales.
    • The planned retirement of CEO Fabrizio Freda may result in leadership uncertainty during a critical transformation period for the company.

    Q&A Summary

    1. CEO Succession Planning
      Q: What are the plans for your successor as CEO?
      A: Fabrizio Freda stated he will be heavily involved with the Board in selecting his successor, emphasizing that the Board has been working on this for some time and is well advanced in the process. He highlighted that the successor should be a great leader who understands the key elements of the company, including brand building, driving global growth, and reshaping the cost structure.

    2. China Slowdown Impact on Earnings
      Q: How has China's slowdown affected fiscal '25 earnings?
      A: Tracey Travis explained that the slowdown in China and travel retail, which are high-margin areas, puts significant pressure on earnings and EPS. Mainland China is expected to be flat to down high single digits, and travel retail Asia is expected to be down double digits. Despite this, EPS is projected to increase due to contributions from the Profit and Recovery Growth Plan (PRGP).

    3. Long-Term Growth in China and Travel Retail
      Q: What's the outlook for long-term growth in China and travel retail?
      A: Fabrizio Freda indicated that while the luxury prestige beauty market historically grows at mid-single digits, current forecasts are at 2–3% due to declines in China and travel retail Asia. He expects the market to return to normal growth rates once these areas stabilize, highlighting that demographic fundamentals remain intact globally. The company aims to grow at least one point ahead of the market in the long term.

    4. Investments vs. Earnings Focus
      Q: Are you cutting investments to boost earnings growth?
      A: Tracey Travis assured that they are funding consumer-facing investments through gross savings from the PRGP. They are protecting key investments even in a difficult year, funding growth areas from savings generated. Fabrizio Freda added that they aim to ensure sufficient investments in key business areas to leverage future growth momentum.

    5. Travel Retail Inventory Management
      Q: Can you update on travel retail inventory levels?
      A: Tracey Travis acknowledged that decelerating sales in China travel retail led to higher-than-desired inventory levels at year-end. The company is addressing this in the first quarter by managing inventory levels to align with customer demand amid volatility. Fabrizio Freda emphasized that normalizing stock in travel retail is a top priority and that they are improving management processes, including building a distribution center in Hainan to shorten delivery times.

    6. Channel Shifts and Margin Impact
      Q: How are channel shifts affecting margins?
      A: Tracey Travis noted that travel retail will comprise a lower percentage of sales in fiscal '25 due to expected declines. The company is pivoting to faster-growing channels like online platforms, which are allowing them to recruit new consumers and are margin accretive overall. Fabrizio Freda added that investing in high-growth channels improves the return on investment and offsets higher recruitment costs in declining channels.

    7. North America Market Outlook
      Q: What are you seeing in the North America market?
      A: Fabrizio Freda mentioned that despite a moderation in growth, the U.S. market is still growing at mid-single digits. The company is cautious but optimistic, having seen progress in the fourth quarter with retail growth and acceleration in July. Brands like Clinique are showing encouraging progress, and efforts are focused on stabilizing market share and aligning with market growth.

    NamePositionStart DateShort Bio
    Roberto CanevariExecutive Vice President – Global Supply Chain2021Roberto Canevari joined Estée Lauder in 2021. Previously, he was EVP, Supply Chain, Europe, at Unilever PLC and Chief Supply Chain Officer at Burberry Group PLC .
    Stéphane de La FaverieUpcoming President and Chief Executive OfficerJanuary 1, 2025Stéphane de La Faverie joined Estée Lauder in January 2011. He is currently Executive Group President and will become President and CEO on January 1, 2025 .
    Fabrizio FredaCurrent President and Chief Executive OfficerJuly 2009Fabrizio Freda has been President and CEO since July 2009. He was previously President and COO and held various positions at Procter & Gamble .
    Carl HaneyExecutive Vice President, Global Research Product and Innovation OfficerN/ACarl Haney has been with Estée Lauder for more than five years as of August 12, 2024 .
    Jane Hertzmark HudisExecutive Group PresidentJuly 12, 2018Jane Hertzmark Hudis has been with Estée Lauder for more than five years and continues under an employment agreement effective July 12, 2018 .
    Peter JueptnerPresident, InternationalFebruary 1, 2022Peter Jueptner became an executive officer on July 1, 2022, and assumed the role of Group President, International on January 1, 2023 .
    Jane LauderExecutive Vice President, Enterprise Marketing and Chief Data Officer1996Jane Lauder began her career at Clinique in 1996 and has held various leadership positions. She has been a Director since 2009 .
    Leonard A. LauderChairman EmeritusN/ALeonard A. Lauder is Chairman Emeritus and has been involved with the company since its early days .
    Ronald S. LauderChairman of Clinique Laboratories, LLC and Director2016Ronald S. Lauder joined Estée Lauder in 1964 and has served in various roles. He rejoined the Board in 2016 .
    William P. LauderExecutive ChairmanJuly 1, 2010William P. Lauder has been Executive Chairman since July 1, 2010, and will step down after November 8, 2024, but continue as Chair of the Board .
    Michael O’HareExecutive Vice President – Global Human ResourcesN/AMichael O’Hare has been with Estée Lauder for more than five years as of August 12, 2024 .
    Tracey T. TravisExecutive Vice President and Chief Financial OfficerAugust 20, 2012Tracey T. Travis has been CFO since August 20, 2012, and will retire effective June 30, 2025. She will transition to Senior Adviser until her retirement .
    Meridith WebsterExecutive Vice President – Global Communications and Public Affairs2021Meridith Webster joined Estée Lauder in 2021. She previously held roles at The White House, Vox Media, and Emerson Collective .
    Rashida La LandeExecutive Vice President and General CounselAugust 19, 2024Rashida La Lande became EVP and General Counsel on August 19, 2024. She previously worked at The Kraft Heinz Company and Gibson, Dunn & Crutcher .
    Akhil ShrivastavaExecutive Vice President and Chief Financial OfficerNovember 1, 2024Akhil Shrivastava became CFO on November 1, 2024. He has been with Estée Lauder for more than five years prior to his appointment .
    1. Given the ongoing declines in the prestige beauty industry in China and Asia travel retail, and your expectation for continued softness in fiscal 2025, can you elaborate on the specific actions you are taking to regain momentum in these markets and how confident you are in the timing of their recovery?

    2. With the announcement of your retirement at the end of the fiscal year and the search for your successor underway, how are you ensuring that the leadership transition will not disrupt the execution of your strategic reset and the Profit Recovery and Growth Plan?

    3. You mentioned the need to accelerate margin expansion despite facing sales declines and fixed expense deleverage; can you provide more details on how you plan to achieve this without compromising necessary investments in consumer-facing activities, especially in highly competitive markets like North America and China?

    4. Given the underperformance in the skin care category and the increased competition, what are the key initiatives you are implementing to reignite growth in skin care, and how will these initiatives differentiate you from competitors who are likely not pulling back investments?

    5. Regarding the execution of your strategy in some key areas of the business that has not met expectations, can you identify specific execution gaps and detail how the PRGP and organizational changes will address these issues to improve performance in fiscal 2025?

    Program DetailsProgram 1
    Approval DateOctober 31, 2018
    End Date/DurationNo expiration date
    Total additional amount256.0 million shares
    Remaining authorization amount25,073,242 shares
    DetailsAuthorized to repurchase shares of Class A Common Stock in the open market or in privately negotiated transactions

    Q1 2025 Earnings Call

    • Issued Period: Q1 2025
    • Guided Period: FY 2025
    • Guidance:
      • Organic Net Sales: Expected to fall 3% to 5%.
      • Diluted EPS: Expected to range between $0.02 to $0.10 before restructuring and other charges.
      • Currency Translation Impact: Includes approximately $0.01 of accretion from currency translation.
      • EPS in Constant Currency: Expected to be between $0.01 to $0.09 .

    Q4 2024 Earnings Call

    • Issued Period: Q4 2024
    • Guided Period: FY 2025
    • Guidance:
      • Fiscal Year 2025 Guidance:
        • Organic Net Sales: Expected to range between a decrease of 1% and an increase of 2%.
        • Effective Tax Rate: Expected to be approximately 32%.
        • Diluted EPS: Expected to range between $2.75 and $2.95 before restructuring and other charges, with approximately $0.03 of dilution from currency translation. In constant currency, EPS is expected to grow by approximately 7% to 15%.
        • Net Cash Flows from Operating Activities: Forecasted between $1.8 billion and $2 billion.
        • Capital Expenditures: Planned at approximately 5% to 5.5% of forecasted net sales.
      • First Quarter of Fiscal Year 2025 Guidance:
        • Organic Net Sales: Expected to fall 3% to 5%.
        • Diluted EPS: Expected to be between $0.02 to $0.10 before restructuring and other charges, including approximately $0.01 of accretion from currency translation. In constant currency, EPS is expected to be between $0.01 to $0.09.
      • Additional Information:
        • Restructuring and Other Charges: Expected to be at least approximately $100 million to $120 million in fiscal 2025, with additional charges expected during the course of the year as more initiatives are finalized and approved.
        • Travel Retail: Expected to be negative all year, leading to a lower percentage of the sales mix compared to fiscal 2024 .

    Q3 2024 Earnings Call

    • Issued Period: Q3 2024
    • Guided Period: FY 2024 and Q4 2024
    • Guidance:
      • Full Year Effective Tax Rate: Expected to be approximately 35%, compared to 26.5% last year.
      • Diluted EPS: Expected to range between $2.14 and $2.24 before restructuring and other charges.
      • Currency Translation Impact: Expected to dilute earnings per share by $0.09 and potential risks of business disruptions in Israel and other parts of the Middle East by $0.06.
      • EPS in Constant Currency: Expected to decrease between 33% to 36%.
      • Fourth Quarter Organic Net Sales: Expected to increase 6% to 10%.
      • Fourth Quarter Adjusted EPS: Expected to be between $0.18 to $0.28, an increase of over 100%. Currency translation is expected to dilute EPS by $0.01, and potential risks of business disruptions in the Middle East are expected to be dilutive by $0.03.
      • Full Year Organic Net Sales: Expected to range between a 1% to 2% decline. Currency translation is expected to be dilutive to reported net sales by 1 point.
      • Full Year Operating Margin: Expected to be between 9% and 9.5%, a contraction from 11.4% last year .

    Q2 2024 Earnings Call

    • Issued Period: Q2 2024
    • Guided Period: Q3 2024 and FY 2024
    • Guidance:
      • Organic Net Sales:
        • For the third quarter, organic net sales are expected to increase by 3% to 5%.
        • For the full year, reported and organic net sales are expected to range between a decline of 1% and an increase of 1%.
      • Adjusted EPS:
        • For the third quarter, adjusted EPS is expected to be between $0.36 and $0.46, representing a decrease of 3% to 24%.
        • For the full year, diluted EPS is expected to range between $2.08 and $2.23 before restructuring and other charges.
      • Operating Margin: The full-year operating margin is expected to be between 9% and 9.5%, a contraction from 11.4% last year.
      • Effective Tax Rate: The full-year effective tax rate is expected to be approximately 35%, compared to 26.5% last year.
      • Currency Translation: Currency translation is anticipated to negatively impact reported sales for the third quarter and diluted EPS for both the third quarter and the full year.
      • Profit Recovery Plan: The Profit Recovery Plan is expected to deliver incremental operating profit of $1.1 billion to $1.4 billion by the end of fiscal year 2026, with more than half realized in fiscal 2025 .

    Competitors mentioned in the company's latest 10K filing.

    • L’Oréal S.A.; Unilever; Procter & Gamble; LVMH Moët Hennessey Louis Vuitton; Chanel S.A.; Beiersdorf; Shiseido Company, Ltd.; Natura & Co.; Coty Inc. - These are large, well-known, multinational manufacturers and marketers of skin care, makeup, fragrance, and hair care products, most of which market and sell their products under multiple brand names .
    • Independent brands, some backed by private-equity investors - These brands also compete in the beauty market .
    • Retailers with their own beauty brands - Some retailers that are customers of Estée Lauder also market and sell competing brands .

    Recent developments and announcements about EL.

    Corporate Leadership

      Board Change

      ·
      Jan 10, 2025, 1:26 PM

      Key Update: On January 10, 2025, Ronald S. Lauder retired from the Board of Directors of The Estée Lauder Companies Inc. after serving since 2016. He was succeeded by Eric Zinterhofer, who has been elected as a Class II director. Mr. Zinterhofer is a Founding Partner of Searchlight Capital Partners and has extensive experience in private equity and corporate boards.

      Leadership Change

      ·
      Jan 10, 2025, 1:25 PM

      Ronald S. Lauder is retiring from the Board of Directors of The Estée Lauder Companies Inc., effective January 10, 2025. His decision to retire is not due to any disagreements with the company. He will continue as Chairman of Clinique Laboratories LLC. Eric Zinterhofer has been elected as a Class II director to replace Mr. Lauder. Mr. Zinterhofer is a Founding Partner of Searchlight Capital Partners and has extensive experience in private equity.

      Board Change

      ·
      Dec 4, 2024, 10:10 PM

      Richard D. Parsons has retired from the Board of Directors of The Estée Lauder Companies Inc. due to health reasons, effective immediately as of December 3, 2024. He was a Class II director and a member of the Nominating and ESG Committee and the Compensation Committee .

      Leadership Change

      ·
      Dec 4, 2024, 10:10 PM

      Richard D. Parsons is leaving the Board of Directors of The Estée Lauder Companies Inc. due to health reasons, effective immediately. He has been a Board member since 1999 and was part of the Nominating and ESG Committee and the Compensation Committee .

      Board Change

      ·
      Nov 1, 2024, 12:00 AM

      Stéphane de La Faverie has been appointed as President and Chief Executive Officer of The Estée Lauder Companies Inc., effective January 1, 2025. He will also join the Board of Directors on the same date. Fabrizio Freda will resign from the Board at the end of the day on December 31, 2024. Additionally, William P. Lauder will step down from his role as Executive Chairman following the Annual Meeting of Stockholders on November 8, 2024, but will continue to serve on the Board as Chair .

      CEO Change

      ·
      Nov 1, 2024, 12:00 AM

      Fabrizio Freda, the current President and CEO of The Estée Lauder Companies Inc., will be stepping down from his role and resigning from the company's board at the end of December 31, 2024. Stéphane de La Faverie has been appointed to succeed him as President and CEO, effective January 1, 2025 .