Estée Lauder makeover will be more than skin deep
21/08/2024 13:00
(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%.
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(Editing by Peter Thal Larsen and Pranav Kiran)
((For previous columns by the author, Reuters customers can
click on LAM/
sharon.lam@thomsonreuters.com))