In February 2025, the company embarked on 'Beauty Reimagined,' a strategic vision focused on accelerating consumer coverage, transformative innovation, boosting consumer-facing investments, fueling sustainable growth through bold efficiencies, and reimagining work processes. This initiative aims to rebuild profit margins in fiscal years 2025 and 2026.

The Profit Recovery and Growth Plan (PRGP) was expanded in February 2025, now targeting a net reduction of approximately 5,800 to 7,000 positions globally (9-11% of the June 30, 2023 workforce). This program is expected to incur $1,200 million to $1,600 million in charges but yield annual gross benefits of $800 million to $1,000 million, aiming for a double-digit operating margin in the next few years.

Effective fiscal 2026, the company will report under a new regional structure: The Americas, EUKEM (Europe, UK, Ireland, and Emerging Markets), Asia/Pacific (including global travel retail), and Mainland China (as a separate region). This reorganization is designed to enhance accountability and streamline operations in alignment with recent leadership changes.

Management initiated and expanded the Profit Recovery and Growth Plan (PRGP) to rebuild profit margins, targeting $800 million to $1,000 million in annual gross benefits. This includes a significant workforce reduction of 9-11% (5,800-7,000 positions) and focuses on value chain optimization, enabling function re-invention, and a future of brand-led model to drive productivity and agility.

Despite an 8% decrease in reported net sales in fiscal 2025, driven by a 10% volume decrease, strategic pricing actions contributed a 2% increase, partially offsetting the decline. This indicates management's active efforts to leverage pricing power amidst a challenging retail environment and subdued consumer sentiment.

The company experienced leadership transitions in fiscal 2025, including new appointments for President and CEO, Chief People Officer, Chief Value Chain Officer, Chief Brand Officer, and Chief Financial Officer. These changes, alongside the 'Beauty Reimagined' strategic vision and PRGP, reflect management's efforts to adapt organizational design and drive future performance.

The company recorded substantial impairment charges totaling $1,286 million in fiscal 2025, including $773 million for TOM FORD trademark and $75 million for Too Faced trademark, and $292 million for Dr.Jart+ customer list. These impairments were triggered by lower-than-expected growth in key geographic regions and channels, and increases in the weighted average cost of capital for these brands, highlighting execution risks for acquired assets.

The company incurred a $159 million charge in fiscal 2025 for talcum litigation settlement agreements to resolve current and potential future claims. With 84 individual cases pending as of June 30, 2025, and the inherent uncertainties of litigation, this ongoing legal challenge presents material financial and reputational risks.

The company acknowledges that its increasing use of AI solutions across product development, consumer engagement, and internal tools presents inherent risks, including harmful content, inaccuracies, bias, intellectual property infringement, and increased cybersecurity/data privacy risks. The rapidly developing regulatory landscape for AI could also entail significant compliance costs or limit capabilities.

The beauty business is highly competitive, with factors like brand recognition, product quality, distribution, and pricing impacting consumer choices. The company faces competition from large multinational manufacturers (e.g., L'Oreal, Unilever, LVMH) and independent 'Indie Brands,' some backed by private equity, making market share gains challenging.

The company leverages its diversified portfolio of over 20 luxury and prestige brands across multiple distribution channels, including brick-and-mortar and various e-commerce platforms, in approximately 150 countries. This omnichannel approach, combined with 'High-Touch' consumer engagement and local relevance, is key to competing effectively and building loyalty.

Success depends on the ability to anticipate and respond to rapid changes in consumer preferences, driven by digital and social media. The company emphasizes continuous product innovation, effective advertising, merchandising, in-store and online experiences, and new product introductions to differentiate its brands and maintain relevance.

The expanded PRGP focuses on three key areas: competitive procurement (consolidating spending, re-evaluating supplier relationships), improved supply chain efficiencies (zero-waste approach, demand forecasting, innovation planning to minimize excess inventory and product destruction), and outsourcing select services. These initiatives aim to lower the cost base and reduce overhead expenses.

As part of the PRGP, the company is implementing initiatives like 'Value Chain Optimization,' 'Enabling Function Re-Invention,' and 'Future of Brand-led Model' to reduce spans and layers, right-size organizational capabilities, and achieve a net reduction of 5,800 to 7,000 positions globally. This is intended to create a leaner, faster, and more agile structure.

The company operates a global manufacturing network (Americas, Europe, Asia/Pacific) and a flexible global distribution network. It continuously evaluates these operations to improve innovation, increase efficiencies, minimize environmental impact, ensure supply sufficiency, and reduce costs, while aligning manufacturing with regional sales demand for greater agility.

The company is leveraging artificial intelligence (AI) across its marketing value chain to enhance personalization at scale, increase speed to market, and reduce costs. Examples include using AI to identify insights for consumer-centric campaigns, develop and test concepts, and produce creative content, indicating a forward-looking approach to technology adoption.

Research and development costs totaled $316 million in fiscal 2025, reflecting continuous investment in developing new products, product-line extensions, and packaging concepts. The R&D group focuses on breakthrough, on-trend, and commercial innovation, collaborating with marketing and external partners to deliver high-quality, environmentally responsible products.

Information technology is a key enabler across all business aspects, and the company continues strategic investments to align with long-term strategy, maintain cybersecurity infrastructure, and optimize ROI. The modernization and simplification of its technology ecosystem, including leveraging cloud benefits, remains a key focus, enhancing digital transformation efforts.

The company suspended its publicly announced share repurchase program in December 2022 and may resume repurchases in the future. This suspension, despite an authorized program of up to 256.0 million shares, suggests a shift in capital allocation priorities, potentially towards strategic investments or debt reduction amidst current financial challenges.

Net cash provided by operating activities decreased significantly to $1,272 million in fiscal 2025 from $2,360 million in fiscal 2024. This decline, primarily driven by lower net earnings and unfavorable changes in operating assets and liabilities, reduces the internal capital available for investments, dividends, and other strategic initiatives.

The Board declared a quarterly dividend of $0.35 per share on Class A and Class B Common Stock on August 19, 2025, payable September 16, 2025. While the company expects to continue cash dividends, the amount is not assured. The total cash dividends declared per common share decreased to $1.71 in fiscal 2025 from $2.64 in fiscal 2024, reflecting a more conservative approach.

The company continues to integrate social impact and sustainability into its strategy and business operations, focusing on areas like climate and energy, packaging, sourcing, green chemistry, inclusion, and employee health and safety. These initiatives are designed to drive innovation, growth, efficiency, foster employee engagement, and build consumer trust.

The Nominating and ESG Committee of the Board of Directors has direct oversight responsibility for the company’s environmental, social, and governance (ESG) activities and practices. This governance structure ensures that ESG efforts, led by senior management, are aligned with strategic initiatives and regularly reviewed.

Environmental efforts include waste reduction, minimizing industrial waste to landfills, investments in renewable energy sources, and packaging incorporating recyclable and recycled content. The focus on regional supply sourcing also aims to improve supply chain efficiencies, reduce lead-times, and decrease emissions, demonstrating a commitment to sustainability.

The company experienced volatility and uncertainty in fiscal 2025, with subdued consumer sentiment in mainland China, weak travel retail, and challenges in the U.S. and Western Europe. Macroeconomic factors like inflation, interest rates, currency volatility, and geopolitical tensions continue to adversely impact net sales and profitability across all geographic regions.

New U.S. tax legislation ('One Big Beautiful Bill Act') and global minimum tax rules ('Pillar Two') are being evaluated for their potential impact on fiscal 2026 and beyond. Additionally, geopolitical tensions, trade policies, tariffs, and sanctions, particularly in key markets, continue to present risks to the company's global operations and financial performance.

The company acknowledges rapid changes in consumer preferences and shopping behaviors, driven by digital and social media. The strategy involves expanding digital and social media presence, leveraging global and local influencers, and tailoring marketing to local tastes, indicating a proactive response to evolving market dynamics, though competitive pressures remain high.