Estée Lauder makeover will be more than skin deep
The author is a Reuters Breakingviews columnist. The opinions expressed are her own.
By Sharon Lam
TORONTO, Aug 20 (Reuters Breakingviews) -Estée Lauder's EL.N makeover will require some careful application. The $33 billion cosmetics giant is looking for a new chief executive after Fabrizio Freda announced he plans to retire after 16 years in charge. The 66-year-old's successor will have to tackle softening demand in China and restore profit margins. The bigger challenge, though, will be handling the controlling Lauder family.
During Freda’s tenure, the company’s revenue increased from around $7 billion to over $15 billion. But it has faced a series of recent setbacks. Revenue fell 2% in the fiscal year to the end of June, largely due to weakness in China, and is expected to remain broadly flat in the coming twelve months. The company has suffered an inventory glut and has laid off staff.
Although the New York-based company has made acquisitions including perfume maker Le Labo, which saw net sales grow by "strong double digits" in the most recent year, investors aren't convinced. Shares in the owner of the Jo Malone and La Mer brands have fallen over 40% in the past year, underperforming rivals like L'Oréal OREP.PA. Under Freda's tenure, Estée Lauder shares delivered a total shareholder return of 566%, lagging the 714% on offer to investors tracking the S&P 500 Index .SPX. The stock is now valued at 26 times expected earnings; L’Oreal and Japanese rival Shiseido 4911.T trade on multiples of 29 and 27 times, respectively.
Estée Lauder’s next boss will have to smooth out operational issues in China, refresh its legacy brands, and appeal to younger consumers, while also finding ways to trim costs. The company’s operating profit margin in the most recent fiscal year shrivelled to just 6%, less than a third of what L’Oreal delivered in 2023.
Any changes, though, will require the approval of the Lauder family, which has voting control of the company and occupies four board seats, including Executive Chairman William Lauder. The board and family are divided on whether to bring an outsider on board or look internally, the Wall Street Journal reported in June, citing people familiar with the matter. Jane Lauder, the company’s marketing and data executive is one internal candidate but has mixed support, the WSJ said. Navigating the Lauder family dynamics may be the next CEO’s toughest challenge.
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CONTEXT NEWS
Estée Lauder said on Aug. 19 that CEO Fabrizio Freda plans to retire at the end of fiscal year ending in June 2025. Freda will work with his successor and be available in fiscal 2026 as an advisor, the cosmetics company said.
Separately, Estée Lauder on Aug. 19 reported net sales of $15.6 billion for its fiscal year ended June 30, a decrease of 2% from the prior year.
On July 11 the company said that Tracey T. Travis, executive vice president and chief financial officer, would retire effective June 30, 2025. Akhil Shrivastava was appointed as her successor.
Estée Lauder shares closed at $92.85 on Aug. 19, down 2.2%.
Estée Lauder has underperformed L'Oréal Estée Lauder has underperformed L'Oréal https://reut.rs/3WU8D1p
Editing by Peter Thal Larsen and Pranav Kiran
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