ESTEE LAUDER COMPANIES INC EL

The company made strong initial progress across all five action plan priorities of "Beauty Reimagined" in the second half of fiscal '25. This included accelerating best-in-class consumer coverage, creating transformative innovation, boosting consumer-facing investment, fueling sustainable growth through bold efficiencies, and reimagining the way they work. The organizational structure has been significantly transformed, with a new leadership team in place and the consolidation of seven regions into four, with P&L responsibility moving to regions as of July 1. Management expressed satisfaction with the speed of execution and cultural adoption, noting that compensation is being aligned to reward the execution of Beauty Reimagined.

A key focus has been expanding consumer coverage, particularly online. The Ordinary, Origins, and Aveda launched on Amazon Premium Beauty in the U.S., with Estée Lauder and Aveda expanding to Canada. The Ordinary also launched on Amazon U.K. and Clinique on Amazon Mexico in July/August. Expansion on Shopee and TikTok Shop in Southeast Asia, and Tmall/Douyin in China, contributed to online organic sales accelerating to mid-single-digit growth in H2 FY25. Online sales reached a record 31% of reported sales for FY25, up 3 percentage points from FY24. The company also expanded into pharmacy channels in Europe and Latin America with Clinique.

The company introduced a robust slate of innovation in H2 FY25 and has a strong pipeline for FY26, targeting innovation to represent over 25% of sales. The goal is to triple the percentage of innovation launched in less than a year from 10% to 30%, with 16% expected in FY26. Innovation is realigned to deliver gross margin accretive products quicker, capturing trends in skin care (night, longevity, derms), makeup, luxury fragrance, and hair care. Examples include La Mer's Balancing Treatment Lotion, Clinique's Supercharged SPF DDML, The Ordinary's UV Filters SPF 45 serum, and new launches in M·A·C, Bobbi Brown, TOM FORD, Jo Malone London, and the relaunch of Aramis.

In Q4 FY25, organic net sales declined across all product categories except fragrance, and across every geographic region, primarily due to global travel retail. However, the company gained prestige beauty share in China, Japan, and the U.S. in H2 FY25. China is showing encouraging signs of stabilization with mid-single-digit retail sales growth and share gains in H2 FY25. North America is improving sequentially, with market share gains in July. Europe, particularly France and Germany, is experiencing a slowdown in consumer sentiment. Emerging markets, representing 10% of reported sales, are targeted for double-digit growth in FY26.

The Profit Recovery and Growth Plan (PRGP) significantly exceeded expectations in FY25, driving 230 basis points of gross margin expansion despite sales deleverage. In FY26, PRGP is expected to deliver meaningful cost savings, primarily from non-consumer-facing expenses, to fund incremental consumer-facing investments. The company has recorded $610 million in cumulative restructuring charges as of June 30 and has reduced over 3,000 employee positions, with further initiatives planned for outsourcing and procurement optimization in outer years. The focus is on leveraging PRGP to improve margins and profitability while fueling brand growth.

The company has engaged external advisors to review its portfolio, aiming to align with the "Beauty Reimagined" vision and focus on high-return opportunities. Updates will be shared in due course^⏳. Regarding tariffs, the company expects a $100 million headwind to profitability in FY26, net of mitigation strategies. These strategies include leveraging trade programs and optimizing the regional manufacturing footprint to bring production closer to consumers, offsetting more than half of the expected impact. Additional strategies like PRGP initiatives and potential pricing actions are being evaluated.