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Estée Lauder announces plan to reduce costs

The contraction of the U.S. consumer market is directly affectingEstée Lauder’s sales. For the quarter ended Dec. 31, the company’s net sales fell 12% to US$ 2.04 billion, compared to the US$ 2.31 billion reported in the prior-year quarter. “Excluding the impact of foreign currency translation, net sales declined 6%,” announced the company in a release. The company reported net earnings for the quarter ended December 31, 2008 of US$ 158.0 million compared with US$ 224.4 million last year.

The theory saying thatlipstick sales would be inversely correlated to the economy, known as the lipstick index theory, does not seem applicable this time. U.S. consumers did not only cut sweaters and handbags expenses, they have finally begun to sacrifice their beauty regimens to the recession as well.

The current difficult environment, which is global in scale, is not expected to improve in the near term,” said William P. Lauder, Chief Executive Officer.

According the company, current retail trends in the Americas and Europe, the Middle East and Africa may continue for the remainder of the fiscal year. Estée Lauder’s outlook in Asia/Pacific is cautious, reflecting the softening of certain retail environments in this region. “If there is a significant further weakening of business in the Asia/Pacific region, it will negatively impact future results,” the company said.

To address this challenging environment, William P. Lauder and Fabrizio Freda, President and Chief Operating Officer highlighted elements of the Estée Lauder’s new four-year strategic plan to resize the company and reduce costs, as well as thoughtfully redesign the company’s organizational structure.

The plan features a headcount reduction of about 2,000 jobs over the next two years in an effort to save up to US$ 550 million over four years. The company also said it plans to impose an immediate company-wide freeze in merit pay increases, and it will continue a hiring freeze except for necessary positions. The strategic plan also aims to boost non-U.S. sales to more than 60% of overall revenue, with the Asia-Pacific area expected to lead growth.

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