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    EL
    Earnings call· Sep 2025(Q1 FY26)

    ESTEE LAUDER COMPANIES INC EL

    Oct 30, 2025 Source

    Executive summary

    The Estée Lauder Companies Q1 FY26 — Strong Return to Growth and Margin Expansion

    The Estée Lauder Companies delivered a strong Q1 FY26, marking a return to growth driven by strategic initiatives under "Beauty Reimagined" and the Profit Recovery and Growth Plan. The company saw significant margin expansion and accelerated online sales, with notable outperformance in Mainland China. Management reaffirmed its full-year outlook, balancing early fiscal year momentum with ongoing macro volatility and tougher second-half comparisons.

    Highlights

    5

    • Organic sales growth of 3%, a significant sequential acceleration from 13% decline in Q4 FY25.

    • Mainland China retail sales increased double-digit, outperforming prestige beauty industry up high single-digit.

    • Operating margin expanded 300 basis points to 7.3% compared to 4.3% last year.

    • Diluted EPS more than doubled to $0.32, up from $0.14 last year.

    • Global online organic sales growth accelerated to double-digit from mid-single-digit in Q4 FY25.

    Concerns

    4

    • Sales from makeup and hair care categories declined, partially driving a low single-digit decrease in the Americas.

    • Effective tax rate for the quarter was 40.5%, up from 38.8% last year.

    • Persistent challenges in Asia travel retail continue to pressure retail sales, expected to have greater impact in H2 FY26 due to tougher comparisons.

    • Tariff-related headwinds are expected to impact profitability by approximately $100 million for the full year FY26.

    Guidance & targets

    6
    CategoryTargetConfidence
    Full-year FY26 Organic Net Sales Growth
    flat to 3% growth
    high materiality
    High
    Full-year FY26 Operating Margin
    9.4% to 9.9%
    high materiality
    High
    Full-year FY26 Capital Expenditure
    roughly 4% of projected sales
    medium materiality
    High
    Full-year FY26 Tariff Impact on Profitability
    approximately $100 million
    high materiality
    High
    Full-year FY26 Effective Tax Rate
    36%
    medium materiality
    High
    Long-term Operating Margin
    solid double digit
    high materiality
    High

    Segment performance

    11
    SegmentRevenueYoYQoQMargin
    Fragrance
    Best-performing category, expected to be prestige beauty's fastest-growing category for FY26, driven by luxury and travel retail.
    		—13%——
    Skin Care
    Contributed to organic sales growth, with new innovations in high-growth subcategories.
    		—low single-digit growth——
    Makeup
    Contributed to the low single-digit decrease in the Americas.
    		—declined——
    Hair Care
    Contributed to the low single-digit decrease in the Americas, though Aveda led share gains in U.S. hair care.
    		—declined——
    Asia Pacific
    Driven by Mainland China and global travel retail business.
    		—high single-digit growth——
    Mainland China
    Significantly outperformed prestige beauty, gaining share in every category and both brick-and-mortar and online.
    Prestige beauty industry growth: high single digitBrands with double-digit growth: 7Le Labo growth: nearly triple digitsPrestige beauty share gain: 5 of last 6 quarters
    		—double digit——
    Americas
    Partially driven by declines in makeup and hair care, but U.S. prestige beauty retail sales accelerated sequentially.
    		—low single-digit decrease——
    Priority Emerging Markets
    Led by strong double-digit growth in Mexico, Turkey, and India.
    Mexico growth: double-digitTurkey growth: double-digitIndia growth: double-digit
    		—high single-digit growth——
    Travel Retail
    Grew on a favorable comparable to last year's low base, with strong fragrance retail sales growth in Europe and Americas. Asia travel retail remains volatile with persistent challenges in the East.
    Fragrance retail sales growth (Europe): double-digitFragrance retail sales growth (Americas): strong
    		—grew on a favorable comparable——
    U.S. Prestige Beauty
    Retail sales growth accelerated sequentially, with share gains in skin care (The Ordinary) and hair care (Aveda). Strong unit share gain demonstrates new consumer acquisition.
    Skin care growth: 8%Skin care category growth: 6%Prestige beauty share: maintained calendar year-to-dateEstée Lauder brand overall share gain: third consecutive quarterUnit share gain: strong
    		—accelerated sequentially——
    Western Europe Prestige Beauty
    Slow growth overall, but ELC gained share in France and Spain. U.K. saw strong sequential improvement in retail sales trends.
    Share gain: France and SpainU.K. industry sales growth: reaccelerated to nearly 10%
    		—slow growth, in some cases negative——

    Operational metrics

    15
    Gross margin
    73.3%expanded 60 basis points
    Q1 FY26

    Expanded due to PRGP benefits and sales growth, offsetting inflation and FX.

    Operating margin
    7.3%expanded 300 basis points
    Q1 FY26

    Expanded significantly due to PRGP initiatives, leveraging cost efficiencies to fund consumer-facing investments.

    Non-consumer-facing expenses
    3% reduction
    Q1 FY26

    Reduced through PRGP, even with normalization of employee incentive costs.

    Consumer-facing investments
    4% increase
    Q1 FY26

    Increased to build brand desirability, funded by non-consumer-facing expense reductions.

    Effective tax rate
    40.5%up from 38.8%
    Q1 FY26

    Elevated due to geographical mix and stock-based compensation impact, with expected improvement in H2.

    Diluted EPS
    $0.32up from $0.14
    Q1 FY26

    More than doubled due to sales growth and strong cost efficiency.

    Net cash flows from operating activities
    used $340 millionsignificant improvement as compared to $670 million use
    Q1 FY26

    Significant improvement year-over-year, reflecting higher earnings despite increased restructuring payments.

    Capital expenditure
    $96 milliondown 32%
    Q1 FY26

    Prioritizing consumer-facing investments while optimizing other CapEx, reflecting project phasing.

    PRGP cumulative charges
    $697 million
    through September 30

    Total cumulative charges primarily for employee-related costs as part of the Profit Recovery and Growth Plan.

    Global online organic sales growth
    double digitaccelerated from mid-single digit
    Q1 FY26

    Accelerated significantly, outperforming prestige beauty in this strategic channel.

    Pricing
    sub-2%lower than overall in the prior year
    Q1 FY26

    Lower than prior year as inflation subsided, contributing to unit growth.

    Unit growth
    returned to unit growth
    Q1 FY26

    A positive development, indicating new consumer acquisition and effective pricing strategies.

    Freestanding stores opened
    14 net new
    Q1 FY26

    Part of strategy to boost consumer-facing investment and expand coverage.

    Air traffic
    up 14%
    September

    Indicates a recovery in travel to key travel retail destinations.

    Deferred consideration payment
    $150 million
    Q1 FY26

    Payment made for the fiscal 2023 acquisition of the TOM FORD brand.

    Industry KPIs

    10
    MetricValueDetails
    Channel mixdouble digit%
    Portfolio rotation—
    Category concentration—
    Underlying sales growth3%%
    Brand marketing investment4% increase%
    Market volume growth benchmarkhigh single digit%
    Market value share by geographygained share
    Productivity cost savings program3% reduction%
    Developed vs emerging market splithigh single-digit growth%
    Underlying operating margin bridge7.3%%

    Product announcements

    2
    ProductTypeDetails
    M·A·C Sephora launchexpansion
    Fragrance Ateliermilestone

    Deals & partnerships

    3
    Shopifymodernize and scale direct-to-consumer business

    New partnership to create a best-in-class omnichannel consumer experience globally in a phased approach.

    SephoraM·A·C brand distribution expansion

    M·A·C entering U.S. Sephora spanning select stores as well as online and Sephora at Kohl's.

    Duty Free Americasnew distribution for fragrance

    All-new distribution with Duty Free Americas contributed to strong retail sales growth in Americas travel retail for fragrance.

    Risks & headwinds

    5
    Macroeconomic volatilityongoing

    dynamic with a variety of headwinds and tailwinds

    Mitigation: remain vigilant and focused on achieving ambition for Beauty Reimagined

    Trade policies and tariffsfull year FY26

    impact profitability by approximately $100 million

    Mitigation: evaluating additional strategies including PRGP initiatives and potential pricing actions

    Subdued consumer sentiment in Mainland Chinaongoing

    has yet to fully recover from historical lows

    Mitigation: company outperforming market, seeing peak of consumer confidence starting to rebound

    Persistent challenges in Asia travel retailH2 FY26

    pressure retail sales, expected to have a greater impact in the second half

    Mitigation: driving retail activation, managing inventory rightsized to demand, doubling down in TR West and Americas

    Slow growth in Western European prestige beautyongoing

    in some cases, negative growth

    Mitigation: company gaining share in France and Spain, strong sequential improvement in U.K. retail sales trends

    What to watch in Q2 FY26

    5

    Full-year organic net sales growth

    FY26
    Current3% (Q1 FY26)
    TargetWithin "flat to 3% growth" range

    Why it matters

    Verifies if strong Q1 momentum can offset H2 challenges and macro volatility🌐 to meet full-year guidance.

    While we don't expect a linear path given macro volatility🌐 and prior year comparisons, our first quarter results give us confidence as we remain focused on delivering our full year outlook. In terms of organic net sales, we still expect flat to 3% growth for the full year.

    Q&A highlights

    6

    Can you discuss volume trends versus price mix and the importance of driving volume as part of your growth algorithm?

    Management confirmed a return to unit growth in Q1 FY26, driven by strategic pricing adjustments, new innovation at appropriate price points, and strong performance in fragrance with smaller sizing. They emphasized bringing new consumers to the brand, particularly at the entry-level prestige segment, and noted that pricing is currently sub-2%.

    “We returned to unit growth this quarter which is a great positive.”

    asked by Lauren Lieberman · answered by Akhil Shrivastava

    2 min read5 chapters

    Detailed Narrative

    01

    Beauty Reimagined Strategy Driving Growth

    The company's "Beauty Reimagined" strategy, focusing on accelerating best-in-class consumer coverage, creating transformative innovation, and boosting consumer-facing investment, is amplifying results. This includes expanding presence on platforms like Amazon and TikTok Shop, and a new partnership with Shopify to modernize direct-to-consumer business globally. These actions are driving new consumer acquisition and unit share gains, particularly in the U.S. and fragrance categories.

    02

    China Outperformance and Market Dynamics

    In Mainland China, retail sales grew double-digit, significantly outpacing the prestige beauty industry's high single-digit growth. The company gained share across categories and channels, with 7 brands achieving double-digit growth, including Le Labo with nearly triple-digit growth. While consumer sentiment is showing signs of rebound, it remains subdued compared to historical peaks, contributing to management's cautious full-year outlook despite strong Q1 performance.

    03

    Global Channel Expansion and Innovation

    Estée Lauder is rapidly expanding its consumer reach through new channels, including Amazon storefronts in Mexico and the U.K., and TikTok Shop launches for Clinique, M·A·C, Dr. Jart, and The Ordinary. Innovation in fragrance, skin care, and makeup, coupled with strategic pricing, is driving unit share gains and new consumer acquisition. The new Fragrance Atelier in Paris aims to blend technology and expertise for faster innovation.

    04

    Profit Recovery and Growth Plan (PRGP) Impact

    The PRGP is delivering strong net benefits, contributing to gross margin expansion and a 3% reduction in non-consumer-facing expenses in Q1 FY26. These savings are fueling a 4% increase in consumer-facing investments, demonstrating discipline in cost management while prioritizing brand building. Cumulative charges for the restructuring component of PRGP reached $697 million through September 30.

    05

    Travel Retail Recovery and Volatility

    While travel retail in the West shows good momentum, Asia travel retail remains volatile. Inventory levels are rightsized, and the company is driving retail activation, leading to market share gains during Golden Week in Hainan, where air traffic was up 14%. However, conversion rates are still slightly down, and persistent challenges in the East are expected to have a greater impact in the second half of the fiscal year due to tougher comparisons.

    AI-generated summary of the company’s earnings call. Not investment advice.