(Bloomberg) -- Estée Lauder Chief Executive Officer Fabrizio Freda plans to retire at the end of June 2025, capping a decade-and-a-half reign that transformed the company into a global cosmetics giant but ran into trouble in recent years.
Freda, 66, will continue to lead the company until a successor is named, the company said in a statement on Monday. It said it is “well advanced” in the search for a new CEO and has considered several internal and external candidates.
Separately, the company on Monday forecast annual revenue growth that dramatically missed analysts’ expectations in a sign that Freda’s turnaround pledge isn’t materializing as quickly as investors had hoped. The company has repeatedly cut forecasts during the past year, giving the impression at times that executives don’t have a solid grasp on the dynamics shaping their business.
Estée Lauder expects revenue in its current fiscal year in a range between a 1% decrease to a 2% increase. Analysts surveyed by Bloomberg were forecasting a 5.6% increase to $16.5 billion. The company also sees adjusted earnings of $2.78 to $2.98 per share for the fiscal year, below the average analyst estimate of $3.97.
The shares rose 1% in New York trading at 11:15 a.m. The company’s stock was down 35% so far this year as of Friday’s close, compared to a 16% rise in the S&P 500 Index.
A new CEO from outside the company would be a positive, says Barclays analyst Lauren Lieberman. The company is “quite insular” and executives tend to have long tenures. “Fresh eyes and eyes from the outside would be beneficial,” she said.
While Freda and his team are focusing on putting in place a turnaround plan, a new leader may want to implement their own playbook, which clouds the outlook. “It’s very hard to make assumptions about what fiscal 2026 could look like financially when someone else is running the business,” Lieberman said.
Estée Lauder’s most recent results are the latest blow to Freda’s long-time plan to turn China into an engine of growth for the company. But in the past couple of years, Estée Lauder’s sales at duty-free shops in the country have imploded and demand across Chinese cities has been weaker than executives anticipated.
The company blamed the forecast on “persistent weak sentiment among Chinese consumers.”
“While our sales and profit outlook for fiscal 2025 is disappointing, this year we will make important strides, as we implement our strategy reset,” Freda said in the earnings statement.
Executives told analysts on an earnings call that they expect sales in China to be flat to down by a high single-digit percentage in the current fiscal year versus the previous year and duty-free revenue in Asia to fall by a double-digit percentage.
Freda’s focus on growing in China has led to “outsize exposure” in the region, which “most of the time has been good, but now it’s not,”said DA Davidson analyst Linda Bolton Weiser.
The new CEO will need to focus on diversifying away from the company’s reliance on China and duty-free sales in Asia as well as being speedier to seize on beauty trends, Bolton Weiser said. The benefit of announcing Freda’s retirement now, she added, is that “you can usually attract better candidates when it’s an open process.”
Wall Street Darling
Freda, who has been in the post since 2009, was instrumental in growing Estée Lauder into a cosmetics giant that sells brands including Clinique, the Ordinary, La Mer and Jo Malone across the globe. That growth in the years before the pandemic made Estée Lauder a Wall Street darling and helped members of the founding Lauder family billionaires. Freda is one of two CEOs to lead the company outside of the Lauder family. Shares have risen 467% during his long tenure, tracking just under the performance of the S&P 500 during that time.
But the company has stumbled since the pandemic, putting pressure on Freda to restore the cosmetics giant to its former glory. Estée Lauder’s business at duty-free shops in Asia, particularly China, imploded and has been slow to recover amid sluggish travel and poor planning by the company. It hasn’t been as agile as some startup competitors either, failing to seize on social media beauty trends and ceding market share.
Those challenges had raised questions about how much longer Freda would remain at the company.
In February, Freda told Bloomberg News in an interview “I’m not going anywhere” and that he was committed to the company. Estée Lauder announced at the time that it would cut as many as 3,000 positions as part of a restructuring plan.
Freda will continue to implement that plan during the next year and will be available as an adviser the year after he steps down, the company said. The plan will “position us to both outperform prestige beauty in fiscal 2026 and accelerate profitability expansion,” Freda pledged on Monday.
Estée Lauder has also been focusing on regaining market share and boosting sales on its home turf in the US. It’s begun to sell some of its brands, including Clinique, on Amazon.com, which the company had long eschewed out of concern it could undermine consumers’ perception of its brands as higher-end. Those efforts have yet to bear fruit, however, with revenue in the region down 5% in the most recent quarter that ended on June 30. “It’s getting worse, not better in the short term,” Barclays analyst Lieberman said.
The company said Monday that the turnaround plan is still expected to generate between $1.1 billion and $1.4 billion in additional profit through the current and following fiscal years. The “greater than previously expected headwinds in mainland China and Asia travel retail” will partially offset some of those benefits, it added.
Freda’s exit is part of a changing of the guard at Estée Lauder following the financial turmoil at the company. Longtime Chief Financial Officer Tracey Travis is also stepping down on June 30 next year after more than 12 years in the role, the company said last month.
“It is important to me that our next leader inherits a business with momentum,” Freda said on the company’s earnings call.
(Updates with shares and comments from earnings call.)
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