In its earnings call, ELC reported that operating margins also declined to 14.5% from 13.4% in the prior-year period, which the company attributed to goodwill impairments and restructuring costs.
However, ELC executives emphasized the company’s commitment to reinvigorating growth through strategic investments in consumer engagement and cost efficiencies.
Strategic market performance
ELC reported some market share gains in prestige beauty across several key regions. In the US, Clinique led Skin Care and Bumble & Bumble performed well in Hair Care.
In China, ELC saw success in Makeup, while La Mer led Skin Care and Le Labo excelled in Fragrance. The company also secured the top position in Fragrance sales in Japan for calendar 2024.
ELC brands performed strongly during major retail events, particularly in the 11.11 Global Shopping Festival and TikTok’s Black Friday and Cyber Monday campaigns. The Ordinary also expanded its reach through key digital platforms, launching in the UK TikTok Shop and Amazon’s US Premium Beauty Store.
Category Highlights
Skin Care: In the Skin Care category, ELC reported a 12% decline in net sales, which were primarily attributed to challenges in the APAC region. The company noted, however, that disciplined expense management helped mitigate some impact.
Makeup: In the Makeup category, net sales saw a slight 1% decrease, which was mainly attributed to declines from ELC’s TOM FORD brand, as well as lower sales by M·A·C and Smashbox. However, Clinique’s recent launch on Amazon US Premium Beauty Store drove high-single-digit growth to partially offset these losses.
Fragrance: ELC reported that the Fragrance category saw a 2% increase in net sales led by standout performer Le Labo’s strong double-digit growth across all geographic regions. The company attributed this growth to a combination of the brand’s hero products, including the Classic Collection, and innovation, such as Osmanthus 19, the City Exclusive scent for Kyoto, and targeted expanded consumer reach.
ELC also noted that growth in this category was “partially offset by the decline from Estée Lauder, due in part to reduced shipments of holiday sets.”
Hair Care: The Hair Care category reported a significant decline of 8% in net sales, which ELC mainly attributed to issues with Aveda’s timing of shipments. The company did note that in this category, however, operating loss was flat, and cost efficiencies helped maintain stability.
CEO’s perspective
In ELC’s press release, President and CEO Stéphane de La Faverie acknowledged the impact of difficult market conditions, particularly in Asia’s travel retail. “While we are not satisfied with our third quarter outlook, it primarily reflects weak retail sales trends in our Asia travel retail business, which deteriorated in our second quarter driven by Korea,” he said.
However, he noted signs of improvement in Hainan and emphasized the company’s commitment to reigniting growth through increased consumer-facing investments.
“In order to reignite our retail sales growth, we are strategically increasing consumer-facing investments around the world in the third quarter. We expect the benefits of the PRGP to both fund these investments and modestly offset the meaningful operating deleverage from the sales decline,” de La Faverie stated.
Future outlook
ELC also announced the expansion of its PRGP, including a restructuring program expected to be substantially executed in fiscal 2025 and 2026, with full benefits realized by fiscal 2027.
As the company’s press release outlined, the expanded plan aims to transform the company’s operating model, fund a return to sales growth, and restore a solid double-digit adjusted operating margin while managing external volatility, such as potential global tariff increases.
Additionally, ELC has launched “Beauty Reimagined,” an initiative aimed at restoring sustainable sales growth and achieving a solid double-digit adjusted operating margin.
“We are significantly transforming our operating model to be leaner, faster, and more agile, while taking decisive actions to expand consumer coverage, step-change innovation, and increase consumer-facing investments,” said de La Faverie.
According to its press release, ELC’s “Beauty Reimagined” initiative prioritizes consumer engagement, transformative innovation, enhanced marketing investments, and operational efficiencies to drive long-term success in the prestige beauty industry.
These measures are designed to fuel sustainable growth and position ELC for an accelerated return to a strong operating margin in the coming years.
