In this month's column, guest author Ragini Bhalla, Head of Brand at Creditsafe, provides an inside look at the company's wins, challenges, and path to sustained growth.
Estée Lauder is a beauty powerhouse. It owns some of the most iconic and luxurious brands, including La Mer, Aveda, MAC Cosmetics, Jo Malone London, and Origins. But the global beauty brand started from humble beginnings - from generating $50,000 in sales in its first year to now being a multi-billion-dollar beauty brand recognized and admired worldwide.
Like most other businesses worldwide, Estée Lauder's recent years haven't been easy. The last few years have been marred by declining sales, macroeconomic struggles in China and other Asian markets, and management shakeups.
But what makes Estée Lauder so unique is its resilience and strategic recalibration when sales and operations face challenges. Estée Lauder's recent financial performance reveals a company managing setbacks and strengths, giving the cosmetics industry valuable insight into balancing operational agility with long-term planning.
A strong indicator of a company's financial discipline is how it handles supplier payments. Creditsafe data shows that Estée Lauder has maintained a healthy Days Beyond Terms (DBT), or the number of days that a company typically pays its suppliers past the agreed upon payment terms (i.e. late).
For much of 2024, the brand's DBT hovered near the industry average, ranging between 9 and 14 days past due -- a DBT metric that reflects responsible financial practices.
Even when its DBT spiked to 26 days in July, the company swiftly corrected course the next month in August, bringing its DBT back down to 9 days. This suggests the spike may have been a temporary cash flow issue, perhaps tied to seasonal factors or one-off system changes.
What's impressive is that Estée Lauder consistently clears a high proportion of its invoices within the "current" category. For example, in June and September 2024, more than 90% of their payments to suppliers were made on time.
Even when invoices slip past payment terms, they rarely age beyond 60 days, indicating a well-managed system with only periodic cleanup and settlement needed.
This disciplined approach reduces financial risk and maintains strong supplier relationships, a crucial factor in a global business that relies heavily on manufacturing and logistics partners. And its financial management is one of the biggest things Estée Lauder is doing right.
Despite these strengths, Estée Lauder hasn't escaped the impact of shifting economic conditions. The company's fiscal 2025 second-quarter results showed a 6% decline in net sales, falling to $4.0 billion from $4.28 billion the previous year.
Regionally, the Asia Pacific market saw the sharpest drop, with an 11% decrease in sales due to weak consumer sentiment in key markets like China and Korea. Similarly, the European, Middle East, and African (EMEA) regions experienced a 6% decline, which was affected by reduced retail travel activity.
The Americas, however, performed relatively better, with only a 2% sales decline. This indicates that while Estée Lauder faces global challenges, its North American business is showing some resilience. Effectively managing these regional variations will be crucial as the company seeks to restore growth.
Estée Lauder's product portfolio is another area where performance has been uneven. Skin care, a historically strong category for the company, saw a 12% sales decline, driven largely by struggles in the Asian market.
Hair care sales also fell by 8%, impacted by lower demand in salon channels.
On a brighter note, fragrance sales rose by 2%, bolstered by the success of luxury brands like Le Labo. Makeup sales showed resilience, with Clinique posting strong growth, even as the overall category declined by 1%.
These results suggest that targeted investments in high-performing brands and categories could help mitigate broader declines.
In response to these challenges, Estée Lauder has embarked on an ambitious transformation plan called "Beauty Reimagined," which it announced in its latest earnings report (Q2 FY2025). The strategy aims to restore double-digit operating margins by focusing on consumer-facing investments, new product innovations, and expanded distribution.
A key element of this transformation is the expansion of Estée Lauder's Profit Recovery and Growth Plan (PRGP), which includes significant restructuring. As seen in a recent ABC News story, the company is planning to cut between 5,800 and 7,000 jobs by fiscal year 2026.
These cuts are part of a broader initiative to make the organization leaner and more agile. Estée Lauder expects to unlock up to $1 billion in annual benefits to reinvest in growth areas by streamlining processes, optimizing supply chain efficiencies, and outsourcing select services.
However, this transformation won't happen overnight. The company's operating loss of $580 million this quarter, largely due to $861 million in asset impairments, shows the complexity of balancing immediate financial challenges with long-term strategic shifts.
Looking ahead, Estée Lauder is bracing for continued difficulties, particularly in global travel retail, where double-digit declines are anticipated next quarter. Yet, there are opportunities for recovery through increased marketing investments and expanded reach in emerging markets.
The company's focus on innovation and operational efficiency could set the stage for future growth once macroeconomic conditions improve.
At the same time, Estée Lauder's disciplined approach to payables management quietly strengthens its financial position by reducing risk and maintaining strong supplier partnerships. This balance of short-term agility, like swiftly addressing a midyear DBT spike, and long-term strategy through initiatives such as the "Beauty Reimagined" plan, offers valuable lessons for other cosmetics brands.
The company's story is still unfolding, but its commitment to financial discipline and strategic innovation positions it to weather challenges and take steps to emerge stronger in the competitive beauty industry.