Michael Burry's Scion Asset Management (the same company that predicted the mortgage crisis of 2007-2008 and successfully played against the U.S. mortgage-backed securities market), judging by the official disclosure in May this year, sold shares of all companies in its portfolio, except for one - cosmetics giant Estée Lauder. And the investor not only kept, but doubled his stake compared to December 2024 and now owns 200,000 shares of the company. What made Burry believe in a business whose net income fell sixfold in three years?

Two years of losses

From 2000 to 2022, Estée Lauder's revenue increased more than threefold. 

In fiscal year 2022 (ended June 30, 2022), Estée Lauder also performed strongly, with revenue of $17.74 billion and net income of $2.39 billion, but in 2023, revenue dropped to $15.91 billion and net income plummeted 58% to just over $1 billion;

Finally, the bottom line for fiscal 2024: profits dropped to $390 million on revenue of $15.61 billion.

Estée Lauder's former CEO Fabrizio Freda attributed this peak in profits to lower demand for premium cosmetics in China and falling airport and duty free sales, as well as the impact of the cost of the Tom Ford acquisition and "regional turmoil in Israel and the Middle East." 

Freda eventually stepped down as head of the company, a position he had held since 2009. On January 1, 2025, Estée Lauder got a new CEO - Stéphane de La Faverie. He now also holds the post of the company's president. A month after his appointment, the cosmetics giant announced that it plans to cut from 5,800 to 7,000 employees - that's 11% of the staff. The restructuring will entail $1.2 billion to $1.6 billion in termination and other costs, but the company expects to realize additional cost savings that it plans to reinvest to boost sales, wrote Bloomberg.

Stéphane de La Faverie also said it will focus on increasing its market share in the luxury cosmetics market by accelerating the launch of new products to customers and improving their marketing. "We are launching Beauty Reimagined, a transformation strategy that will restore sustainable growth and deliver double-digit [growth] operational efficiencies," he was quoted as saying by the company's press office.

Betting on strategy

Estée Lauder shares are down nearly 50% in 2024 and have added just over 20% since the start of this year. It's not uncommon for Burry to go long (i.e., up) in severely undervalued stocks, reminds investment portal The Motley Fool. This was the case, for example, with GameStop - Bjurri invested in it shortly before the company's stock price skyrocketed and it became a symbol of excitement among retail investors;

Investments in Estée Lauder can be called speculative. The bet is made that any steps away from the past policy of business development will have a quick effect.

The cosmetics giant's strategy up to and including 2024 has been built on achieving global growth by expanding its physical presence (stores and travel retail), broad product portfolio (mass and luxury brands), aggressive marketing expansion in Asia Pacific and focusing on growth through launching new brands or new brand products. 

The company was heavily reliant on the Chinese market and a high proportion of sales through airport boutiques. And in North America, it had a different problem: a focus on sales through department stores, many of which are facing declining customer traffic or closing altogether, the Financial Times wrote. 

The authors of this strategy can be considered to be the previous management team led by Fabrizio Freda, as well as the top managers responsible for regional sales. It delivered growth in the face of cheap funding in the post-quid proxy period and strong luxury demand in Asia. But once buyers in China cooled toward luxury (the country accounts for about 25% of global luxury sales) and inflation began to rise in the U.S. and EU, the model stopped working and Estée Lauder began to lose sales margins.

Beauty Reimagined's current strategy is focused on redefining its product portfolio in favor of premium products - they provide the highest margins, and the company aims to increase this figure to 70%. Another bet is on building up online sales channels - through e-commerce and AI-enabled automated marketing. In 2022, Estée Lauder could only lament the fact that Amazone was driving down the prices of any products in its group; in 2025, the company aims to grow on this and other platforms;

Beauty Reimagined is a crisis strategy where cost control and profitability of each product line are more important than overall sales growth. Stéphane de La Faverie is expected to build a new growth model for Estée Lauder in the next phase.

Investments in the team 

Part of investing in Estée Lauder is also investing in a team whose expertise deserves to be recognized;

On the one hand, there is a "veteran" at the helm of the company. Stéphane de La Faverie joined The Estée Lauder Companies in 2011, having previously worked at L'Oréal, where he was responsible for global product development;

In 11 years, he rose from brand manager at Estée Lauder to the position of executive president of the entire group of companies. Under him were all luxury and niche portfolio brands (Jo Malone London, Drunk Elephant, Le Labo, etc.). He insisted on the active development of sales in Asia and full control over the realization of products in all sales channels (without transferring to partners or third parties);

He is believed to have worked out the details of Beauty Reimagined's new strategy since 2021. Inside the company, he is said to be credited with being a key driver of growth in the luxury perfume segment in recent years;

Bloomberg, citing analysts DA Davidson, wrote that for Estée Lauder the appointment of an insider was the right decision, as it could allow the new CEO to implement changes faster than an outside person could. However, not everyone agrees with this thesis - some investors probably hoped for the appointment of an external candidate who could bring a fresh perspective and make more radical changes in the company, the agency quoted TD Cowen analyst Oliver Chen.

In any case, Stéphane de La Favery has already managed to attract an innovator with successful cases in his personal practice to the team. Since August 1, Aude Gandon has been responsible for marketing and digital transformation in his team. Prior to joining Estée Lauder, she was global chief marketing officer for Nestlé, overseeing digital strategy across 188 countries. She also led all work with content studios and partnerships with Google, Meta and Amazon. 

She is considered to carry expertise that is scarce inside Estée Lauder. What will her job be in practice? To make sure that the moment a user searches for the company's products online or on a marketplace, she already knows what she has searched for before and what she has bought.

This article was AI-translated and verified by a human editor

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