Est�e Lauder To Cut Workforce by 6%

Stung by a 6% decline in fiscal second quarter sales, Estée Lauder will cut 2000 jobs (6% of its workforce) over the next two years as part of a four-year restructuring program.

“The factors that impacted our second quarter results were challenging on multiple levels, and not different from what many other companies have experienced, especially those companies dependent on consumer spending," explained Wiliam P. Lauder, chief executive officere. "The current difficult environment, which is global in scale, is not expected to improve in the near term. This underscores how vital it is for us to execute on our long-term strategy, even as we address the short-term challenges. We are a profitable company with strong financial underpinnings. In this environment, we are more committed than ever to contain costs and protect our profits, while continuing to invest judiciously to achieve our long-term growth objectives.”

Net sales for the company’s fiscal second quarter ended December 31, 2008 were $2.04 billion, compared to the $2.31 billion reported in the prior-year quarter. Excluding the impact of foreign currency translation, net sales declined 6%. The company reported net earnings for the quarter ended December 31, 2008 of $158.0 million compared with $224.4 million last year. Diluted net earnings per common share for the quarter were $.80 compared with $1.14 reported in the prior-year quarter.

Fabrizio Freda , president and chief operating officer, said, “The company is well diversified and is anchored by three pillars: we are multi-brand, multi-national and multi-channel. Across the company we are working in new ways that will help drive our future results. By harnessing the talents and creativity of our extraordinary employees to imagine, integrate and innovate, we will unite our global enterprise into a more cohesive whole to further drive stockholder value.”

Mr. Lauder and Mr. Freda highlighted elements of the company’s new, four-year strategic plan and set performance goals for fiscal year 2010 through fiscal year 2013 that include:

• Grow share by increasing sales at least one percentage point higher than global prestige beauty every year. The first building block of growth is market assumptions, which for fiscal 2010 are particularly unpredictable given the current economic conditions.
• Generate more than 60% of sales outside the United States, making the company more balanced and diversified. The Asia/Pacific region is expected to lead growth, followed by Europe, the Middle East & Africa.
• Achieve operating margin of 12% to 13% by fiscal 2013, showing step-change improvement annually, starting from a lower fiscal 2009 base.
• Reduce days of inventory 15% to 20% by fiscal 2013. This would free up cash and significantly reduce obsolescence.
• Focus resources on the biggest opportunities, including core brands, geographies and consumer segments.
• Address underperforming brands by changing their business models to improve profitability within 18 to 24 months.
• Realign and optimize the structure of the company’s geographic regions to better leverage scale, improve productivity and reduce complexity. Through an integrated business approach this action should accelerate sales growth and share gains, and increase efficiency.
• Cut costs by $450 million to $550 million, including improvements in cost of goods, organizational resizing and regional realignments, benefits from the Strategic Modernization Initiative, reduction and management of SKUs, logistic optimization, indirect procurement savings and selective outsourcing opportunities.
• Reduce headcount over the next two years by approximately 2,000 employees, or 6% of the workforce, institute an immediate company-wide freeze on merit raises and a continuation of the current hiring freeze. Reductions would occur through a combination of normal attrition, reorganizations and job eliminations. This should strongly realign productivity.
• Take potential restructuring and other one-time charges of between $350 million and $450 million over the next few years.
• Reinvest approximately $50 million to fuel growth and gain global share. Reinvestment areas include strengthening competency in consumer insights; accelerating presence in fast growing markets and channels; intensifying research and development and brand creation capabilities, particularly internationally; and additional funding for the company’s equity-based rewards program.

Mr. Freda concluded, “In this recessionary environment we are enhancing our focus on containing costs to stay competitive for the long term. Reducing our workforce is a difficult but necessary decision and we will manage the transition in a respectful and sensitive manner. William and I are confident that our actions to work more efficiently and cooperatively, combined with strong leadership at every level, will enable us to execute the strategy. The evolution of the current market environment will have an impact on the timing and implementation of our strategy. This carefully designed strategy will steer all major business decisions and should drive consistent, profitable growth for many years to come.”