Estee Lauder (NYSE:EL) Suffers Second Quarter Setbacks, Plans Aggressive Recovery

It was a bad quarter for Estee Lauder (NYSE:EL). About the only good thing, you could say for it was that revenue turned out to be what was expected, but there's not much else in the way of good news for the cosmetics titan. In fact, it's got quite a bit planned going forward to try and bring the company back to prominence, but it's looking to step over a lot of former employees to get there.

The Numbers Prove a Disaster

The biggest hit to the company's operations was the loss of $0.53 per share this quarter, which is nearly triple what Wall Street analysts expected at $0.19. Given that, a year ago, it was pulling in $0.64 per share, that's a long way down for the company.

About the only positive thing that could be said for the company was that it did indeed manage to hold the line on revenues; the company brought in $2.43 billion for the quarter, which was about 1.3% underestimates, making it about as close to a match as makes little difference. Even here there's a dark cloud behind that thin strip of silver lining: this time last year, the company brought in $3.59 billion in revenue, which shows the kind of hit that Estee Lauder took.

Putting Lipstick on...

The quarter has been disastrous for Estee Lauder, and for pretty much the reasons you'd expect. The coronavirus pandemic shut down a lot of Estee Lauder's store operations, and makeup is often one of those things that require physical shopping, on at least some level. Especially if you're looking to try something new; otherwise you'll have to go through the product return gauntlet, and that doesn't always work near so well as you'd like. 

Throw in the fact that there's probably a lot less call for makeup when businesses are shut down and going out is only sort of an option—if it is one at all, given the sheer number and scope of coronavirus-related closures—and it's easy to see how the demand for makeup might fall off.

Estee Lauder does point out, though, that the haircare and skincare sides of the business did prove “more resilient” than the rest of the field. Skincare actually gained 13% in the period even as all other categories declined to some level. This makes sense; most customers would likely have their favorites in haircare and skincare settled, so reorders via online measures would be possible and readily accommodated.

Despite the hefty losses, the company isn't forgetting its investors here; it's declared a dividend of $0.48 per share, payable on September 15 to everyone who held Estee Lauder stock as of August 31.

Changing the Makeup of the Whole Company

Estee Lauder does not plan to go quietly into the night. Having seen what online operations can do to save a company, reports suggest that it's looking to build on those operations to hopefully help keep the company going.

The building, however, will take resources, and the resources will come at the cost of jobs and some currently-open stores. The company plans to fire between 1,500 and 2,000 workers worldwide, which is around 3% of current staff. Also, a range of stores and storefronts will be closed, so it's mainly support staff and counter sales who will be taking the brunt of these layoffs. Estee Lauder is poised to close between 10% and 15% of its total store frontage, though admittedly, some of these closures will be moot as they were closures within department stores that are themselves set to close.

Estee Lauder is also fighting back with its marketing. In a bizarre twist, just last week, Estee Lauder rolled out a new marketing campaign designed to target the “gamer girl” market, essentially, females of all ages who enjoy video games. More specifically, Estee Lauder rolled out four online video games available through ANRcade designed to not only give the ladies an entertaining time, but also promote its line of products. Given that 51% of mobile gamers are women, based on one study, the notion of reaching women through mobile gaming isn't so ludicrous as you might think.

\The move to online will likely be helpful, especially if lockdowns and the like make a resurgence going into fall, which is a possibility, albeit remote. Regardless of your stance on using video games to promote products, it's abundantly clear that Estee Lauder is going to resist its decline and attempt to deliver value. New marketing and new dividends make that much quite clear.