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Estée Lauder to step up advertising spend ‘despite’ 10% sales drop

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Beauty company Estée Lauder has committed to increasing its advertising budget as a percentage of sales in its next fiscal year, despite seeing a 10% drop in net sales in its fiscal year.

The company, which owns brands like Clinique, M.A.C. and Bobbi Brown, as well as name-brand Estée Lauder, saw sales drop to $15.91bn (£12.49bn) for the 12 months ended 30 June 2023. It attributed this largely to a slow recovery in Asia travel retail and struggling consumer sentiment in China.

While chief financial officer Tracey Travis told investors on a call today (18 August) that Estée Lauder was “not satisfied” with its 2023 results, the company said it expects to increase marketing spend in its next fiscal year.

The company claimed “growth in nearly every market” other than in Asia travel retail and the Hainan region in China. Its travel business in Europe and the Americas “soared”, it claimed. The business saw an increase in net sales in developed markets, and highlighted the UK as one area helping to drive this growth.

These growing markets were bolstered by the company’s investments in advertising and promotional activities, the company claimed. It prioritised investing behind markets where it could see the potential for growth, Travis said.

“Despite the pressures to sales, we sustained our investments to support markets where recovery was evident, including in areas such as advertising, promotion, innovation and selling, which collectively increased by 280 basis points as a percentage of sales,” she stated.

While it had a difficult year in its fiscal 2023, Estée Lauder has committed to continued investment in marketing “to support recovery, share gains and long-term profitable growth”.

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Beauty giant Estée Lauder hails ‘powerful’ innovation amid record profitability

Another area where it is prioritising investment is in innovation. CEO Fabrizio Freda said the company’s innovation across its portfolio served as an important “catalyst for growth”. Over 20% of sales in fiscal 2023 had come from innovation, he stated.

A focus on innovation helped makeup brand M.A.C become the business’s best performing brand during the fiscal year. It will aim to extend this “winning streak in innovation” into 2024, Freda said. The brand achieved double-digit sales growth in the year, which was also fuelled by changes the company made to its loyalty program.

The company’s profits declined 16% in the year to $11.35bn (£8.91bn). It has forecast a return to organic sales growth in its next fiscal year and “progressive margin recovery”.

CFO Travis told investors that she didn’t believe there was a forecasting tool that could have foreseen the challenges the company experienced in its 2023 financial year, which included a data breach as well as strains on demand. She did say, however, that the company is investing behind technology to be better prepared for what remains a “dynamic” macroeconomic environment.

It is using technology to optimise inventory planning and how it launches innovation, she said, something which will increase Estée Lauder’s “agility” going forward.

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