Blue Whale News, August 21st (Reporter Wang Hanyi) On August 20th, Est é e Lauder Group (EL. N) disclosed its fourth quarter and full fiscal year 2024 performance.
According to the financial report, Est é e Lauder's net sales for the fiscal year 2024 were $15.609 billion (approximately RMB 56.475 billion), a year-on-year decrease of 2%; Net profit of 310 million US dollars (approximately 2.2 billion yuan) decreased by 61% year-on-year, marking Est é e Lauder's second consecutive fiscal year of declining performance.
In terms of categories, the sales of perfume increased slightly by 1%, while the skin care, scalp care and cosmetics businesses declined. Regionally speaking, sales in the Americas market increased slightly by 1%, while EMEA and Asia/Pacific markets declined.
Along with the release of the financial report, there is also the news that the current president and CEO Fabrizio Freda will retire at the end of the 2025 fiscal year, which has sparked industry attention and discussion on the future direction of Est é e Lauder Group.
After multiple announcements were made, Est é e Lauder's stock price fell more than 8% in the US stock market, closing at $90.97 per share on August 21, a decrease of 2.02%. The company's market value is approximately $32.6 billion.
The Chinese market is weak, and the skincare and makeup businesses are declining
In the earnings conference, the senior management of Est é e Lauder Group described the previous fiscal year's performance as "disappointing", indicating the severity of the dismal results.
In terms of product categories, the skincare business, as Est é e Lauder's largest source of revenue, had a net sales revenue of $7.908 billion (approximately RMB 56.47 billion) in the 2024 fiscal year, a year-on-year decrease of 3%. Among them, Est é e Lauder, Clinique, and Dr Jart+'s net sales have all decreased. Estee Lauder said that this was mainly affected by the weakness of the tourism retail market in Chinese Mainland and Asia.
However, the net sales of Sealand Mystery achieved a high single digit growth, and the net sales of The Ordinaries showed a double-digit growth. The financial report said that this was due to the sales and new product innovation of major products such as repair lotion and eye essence, as well as the continued success of its star products and the innovation of new products such as soothing barrier essence.
From the perspective of the cosmetics business, the net sales for the 2024 fiscal year were 4.47 billion US dollars (approximately 31.92 billion yuan), a year-on-year decrease of 1%. Clinique has performed exceptionally well, achieving double-digit growth in net sales and growth in all regions. This is mainly due to the continued popularity of the brand's lips, eye black and other products.
From the perspective of business departments, among the four major business departments of Estee Lauder Group, only the perfume department achieved a slight increase of 1%, and the skin care, cosmetics, and hair care businesses showed a downward trend. Net sales of skincare business decreased by 4%, makeup business decreased by 1%, and scalp care business decreased by 4%.
Cut from financial report
In terms of regions, Estee Lauder Group's sales in the American market only increased in fiscal year 2024, while the net sales in the Asia Pacific market decreased by 6%, mainly due to the impact of Chinese Mainland. High end beauty products continue to be weak in Chinese Mainland, tourism retail channels continue to be under pressure, and shipments are declining, especially in Hainan.
Est é e Lauder Group executives expect that the tourism retail channel will continue to shrink in the 2025 fiscal year. In addition, the strong US dollar has also put pressure on global beauty companies such as Est é e Lauder, and exchange rate fluctuations have an impact on performance. The sluggish high-end beauty market has become a common challenge for foreign giants in the Chinese market.
Senior management expert in the cosmetics industry, Bai Yunhu, stated in an interview with Blue Whale News that from the overall situation of the domestic beauty consumer market, the "recovery" is still "lower than expected", so individual enterprises are more or less affected.
On the other hand, in the domestic market, the competitive strategies of "high traffic investment" and "low price sales" have also "prompted" some international brands to be involved in "price competition".
The rise of domestic brands in the mid to low end market has taken over consumption, leading to a decline in international brand performance. Even though Est é e Lauder Group has raised prices to a certain extent, it cannot make up for the profit gap caused by low prices, "said Bai Yunhu.
Fabrizio Freda, President and CEO of Est é e Lauder Group, stated that despite the uncertain prospects of the Chinese market, the company will continue to make strategic adjustments to achieve regional growth balance.
High end fragrance categories are in high demand in China
It is worth noting that perfume business is the only category of Estee Lauder Group that has achieved growth, and its net sales in the whole fiscal year reached 2.487 billion US dollars (about 17.759 billion yuan), up 1% year on year.
Among them, Le Labo and Zuma Long contributed outstanding performance, with Le Labo's net sales recording strong double-digit growth and nearly doubling in the Asia Pacific region.
Estee Lauder said that the group's high-end perfume line, including the high-end and salon fragrance product portfolio of Jo Malone London, Tom Ford, Le Labo, Kilian Paris, Frederic perfume and Aerin Beauty, will achieve medium single digit organic growth in the 2024 fiscal year as a whole, and is expected to continue to grow in the 2025 fiscal year.
In other words, perfume business may become the growth engine that Estee Lauder relies on in the future.
At present, the global perfume and fragrance market is in a golden period of rapid growth. According to Euromonitor's statistics, the global market value is between $57 billion and $61 billion, and is expected to grow to $79.296 billion by 2027. The Chinese market is particularly prominent in this trend, and it is expected that the market size will approach 600 billion yuan in the next three years.
From 2021 to 2025, the annual compound growth rate of the Chinese market is expected to be 21.78%, which is significantly higher than the global average of 7%. According to this prediction, by 2026, the size of China's fragrance market is expected to exceed 5 billion US dollars, approximately 32.3 billion yuan.
In the Chinese market, Est é e Lauder's $2.8 billion acquisition of Tom Ford and Le Labo achieved double-digit growth in net sales, with local brands also rising in addition to international high-end fragrance brands. For example, Guan Xia To Summer and Wen Xian Documents have gained market recognition and investment from L'Oreal Group for their unique Eastern fragrance and high quality.
Why are fashion giants starting to extend olive branches to Chinese fragrance brands in their early stages?
Xu Jiawei, founding partner of Ruifeng Capital, said in an interview with Blue Whale News: "When choosing a target for CVC (Corporate Venture Capital), it must first be related to the global strategy of these international brands themselves. The Chinese market will definitely be a very large consumer market in the future, and fragrances will also be a track with good long-term growth rates. Secondly, both of these brands have good brand power and belong to the mid to high end brands, which is also close to the positioning of international brands
Other preferences are related to the preferences of these CVCs themselves. For example, fragrance has always been a key layout area for Est é e Lauder, and the acquisition of brands such as Le Labo and its popularity in China have probably enhanced Est é e Lauder's understanding and confidence in Chinese consumers, "Xu Jiawei added.
Why are high-end fragrance categories popular in China?
Bai Yunhu analyzed the fundamental reason, stating that on the one hand, consumer users are driven by "emotional marketing"; On the other hand, to a certain extent, it is also due to the capital market finding another growth potential track after the skincare and makeup track, which has "fueled" it.
Meanwhile, according to a survey conducted by Blue Whale News reporters visiting several fragrance stores, the number of physical stores selling fragrance products and the variety of styles have significantly increased compared to the previous two years, indicating that the demand in the Chinese market is gradually rising.
For example, in Beijing Changying Tianjie Shopping Center, you can see the stores whose products are targeted at bath, body care and home fragrance. Not only are there pools with rich foam as open display devices, but also exquisite faucets and marble hand washing tables that can be used for on-site product trials. At the Beijing Chaoyang Joy City Aromatherapy Collection Store, you can see various foreign niche fragrance brands.
A fragrance collection store in Chaoyang Joy City, Beijing. Photo by Blue Whale News reporter Wang Hanyi
During a chat with a Blue Whale News reporter, a staff member selling aromatherapy at a lifestyle store of a certain brand mentioned that consumers have more diverse consumption needs, and many young consumers have shown a strong interest in innovative fragrance forms, such as fireless aromatherapy and fragrance body care series.
The store displays a series of fireless aromatherapy products. Photo by Blue Whale News reporter Wang Hanyi
In addition, according to the observation of Blue Whale News reporters, not only women are shopping in stores, but male consumers are also increasing their use of fragrance products. Mr. Zhao, a consumer, told Blue Whale News reporters that their pursuit of high-end fragrance categories is not only reflected in personalized choices, but also in their desire for emotional healing. In terms of product selection preferences, neutral fragrances and natural spices such as roses, gardenia, jasmine, and sandalwood are highly favored.
Although the current penetration rate of the Chinese fragrance market is only 5% to 10%, far lower than the 45% to 50% in the European and American markets, this gap also indicates huge market potential and development space.
Fashion industry's' working emperor 'announces retirement
In the past year, the Chinese market has brought challenges to many foreign giants, especially in the high-end field, which has put pressure on almost all international big brands. How to activate the high-end market has become a common challenge in the industry.
Est é e Lauder, which focuses on high-end beauty, particularly feels this pressure and is seeking change to address and alleviate this situation.
After releasing its financial report, Est é e Lauder Group announced that Fabrizio Freda, the "leader" of Est é e Lauder Group for 16 years, plans to retire at the end of the 2025 fiscal year.
Before appointing a successor to the company, Fu Yide will continue to lead and oversee the company's strategic, financial, and investment priorities, including the Profit Recovery and Growth Plan (PPGP). Once the successor is confirmed, Fu Yide will work with him to ensure a smooth transition and will serve as a consultant for the company in the 2026 fiscal year.
Public information shows that Fu Yide joined Est é e Lauder Group in 2008 as President and Chief Operating Officer (COO), after years of executive experience at Procter&Gamble. In 2009, he was promoted to CEO by William Lauder and subsequently promoted cost reduction and overseas market expansion strategies, successfully acquiring brands such as GLAMGLOW, Becca, Too Faced, etc., helping Est é e Lauder rank among the top in the global beauty industry.
Under the leadership of Fu Yide, Estee Lauder Group, taking advantage of the rapid development of e-commerce in China, has successively entered the Chinese market with its 16 brands, including Estee Lauder, Clinique, Mystery of Sea Blue, and Yuemu Zhiyuan, realizing the full category layout of skin care, cosmetics, perfume and hair care.
With outstanding performance, the Lauder family has highly praised Fu Yide's contributions, providing not only generous compensation but also equity rewards. In the 2021 fiscal year, his annual salary reached as high as $65.997 million, earning him the title of the "king of working" in the beauty industry by the media.
In terms of the CEO role, whether salary and other factors are reasonable should be related to performance. For Est é e Lauder, CEO retirement and other changes are routine organizational adjustments or changes that may have some impact in the short term, but in the long run, mature companies have a complete set of mechanisms to ensure a smooth transition for the successor CEO
Regarding retirement plans, Fu Yide said, "It is my honor to lead Est é e Lauder Group for 16 years. I am deeply proud of the group's great achievements and the establishment of the most talented, dedicated, and passionate team in the industry. I will continue to spare no effort in implementing our strategic adjustments and the 'Profit Recovery and Growth Plan' to address current challenges
What kind of CEO does Est é e Lauder need in the future?
Fu Yide also provided specific criteria for the next candidate for the CEO of the group: "It must be a strong leader who understands the key factors of the company very well, one of which is to 'become a brand shaper' and be able to explore growth drivers for the company
It is worth mentioning that in order to restore growth, Est é e Lauder Group has formulated a reform plan called the "Profit Recovery and Growth Plan" (PRGP), which has been frequently mentioned in Fu Yide's speeches, financial reports, and earnings conferences.
Est é e Lauder Group stated that PRGP aims to increase gross profit margin, reduce the company's cost base, while reinvesting in activities targeting key consumers to accelerate growth and increase flexibility and market responsiveness, thereby accelerating sales growth and profit margin recovery.
In fact, similar to the strategies of other international groups, the essence of PRGP is also to reduce costs and increase efficiency.
Since the beginning of this year, Est é e Lauder Group has implemented a series of personnel adjustments and layoffs. For example, in early February, the group announced plans to lay off 3% to 5% of its workforce in order to achieve its profit recovery goals for the fiscal years 2025 and 2026. At the same time, the internal organizational structure of the group is undergoing significant changes.
According to FBeauty Future Records, Est é e Lauder has undergone at least 8 key personnel changes this year, including key positions such as group executives, brand and regional leaders.
According to the reform plan, Est é e Lauder Group will focus on five strategic goals in the future: firstly, to activate the skincare category and attract new consumers through precision marketing and product innovation; Second, use the growth potential of high-end perfume; Thirdly, accelerate channel utilization and brand marketing, especially in the fields of social e-commerce and live streaming; The fourth is to launch innovative measures and explore new growth opportunities; The fifth is to strengthen precision marketing, optimize customer investment effectiveness, and quickly respond to market trends.
How to pull the Chinese market back onto a path of sustained growth will be a crucial strategy, "said Bai Yunhu. In terms of the" domestic trend ", Est é e Lauder should be able to leverage its successful" acquisition and merger plan "to help mid to high end brands from China achieve" brand value empowerment ".
In the fiscal year 2025, Est é e Lauder Group expects the global high-end beauty market to grow at a rate of 2% to 3%, lower than the median single digit growth of the past two years. It is expected that the global high-end beauty industry will stabilize again in the 2026 fiscal year, returning to mid single digit growth levels, and the prerequisite for recovery is that the Chinese high-end beauty market will stabilize and resume growth.
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