The Estée Lauder Companies — Fiscal 2026 Earnings Summary

Financial Performance

• As reported net sales increased 5% year-over-year to $15.049 billion for the full year and 6% to $3.627 billion for the fourth quarter.
• Organic net sales (Non-GAAP) increased 3% for the full year to $14.811 billion and 5% for the fourth quarter to $3.590 billion.
• Gross margin expanded 150 basis points to 75.5% for the full year (from 74.0%) and 75.5% for the fourth quarter (from 72.0%), driven by the Profit Recovery and Growth Plan (PRGP) and sales leverage, partially offset by inflation and tariffs.
• As reported operating income turned positive at $780 million (5.2% margin) for the full year, compared to a loss of $(785) million (5.5% margin) in the prior year; fourth quarter operating income was a loss of $(39) million.
• Adjusted operating income (Non-GAAP) increased 47% to $1.687 billion for the full year, with an adjusted operating margin of 11.2% (up from 8.0%); fourth quarter adjusted operating income was $267 million (up 95% year-over-year).
• Diluted net earnings per share (EPS) were $0.50 for the full year, compared to a loss of $(3.15) per share in the prior year; fourth quarter diluted net loss was $(0.32) per share.
• Adjusted diluted EPS (Non-GAAP) increased 66% to $2.51 for the full year (from $1.51) and 333% to $0.39 for the fourth quarter (from $0.09).
• Net cash flows provided by operating activities increased 39% to $1.77 billion for the full year; free cash flow was $1.32 billion, up from $0.67 billion.
• Capital expenditures decreased to $457 million for the full year from $602 million, with over 75% allocated to consumer-facing investments.
• Cash and cash equivalents increased to $3.50 billion from $2.92 billion.
• The company paid $508 million in dividends and $300 million in deferred consideration for the TOM FORD acquisition.

Guidance and Future Outlook

• Affirmed fiscal 2027 organic net sales growth outlook of 3% to 5%.
• Raised fiscal 2027 adjusted operating margin outlook to 12.7% to 13.5% (previously 12.5% to 13.0%).
• Forecasted fiscal 2027 adjusted diluted EPS of $3.10 to $3.35 (constant currency $3.06 to $3.31), representing 22% to 32% growth.
• Projected an adjusted effective tax rate of approximately 33% to 34% for fiscal 2027.
• Anticipated net cash flows from operating activities of $1.3 billion to $1.4 billion for fiscal 2027.
• Expected capital expenditures to be approximately 4% of projected sales in fiscal 2027.
• Expects greater sales growth in the first half of fiscal 2027 due to new product launches and travel retail trends.
• Does not expect the conflict in the Middle East to have a material impact on fiscal 2027 results.

Business Segments and Product Lines

• Skin Care: Net sales increased 4% (organic) to $7.338 billion, driven by La Mer, The Ordinary, and Estée Lauder; adjusted operating income increased 52%.
• Makeup: Net sales were virtually flat (organic), with growth from M·A·C and TOM FORD offset by declines at Bobbi Brown and Too Faced; adjusted operating results decreased to a loss position.
• Fragrance: Net sales increased 10% (organic) to $2.779 billion, led by double-digit growth in Luxury Brands including Le Labo, TOM FORD, and KILIAN PARIS; adjusted operating income increased 27%.
• Hair Care: Net sales decreased 1% (organic), driven by Aveda declines offset by The Ordinary growth; adjusted operating results improved to income from a loss.
• Billion-Dollar Brands: Increased to six brands with the addition of Jo Malone London and TOM FORD.
• Innovation: 23% of fiscal 2026 sales came from new product launches.
• Distribution: Expanded consumer coverage on Amazon to 13 brands across 11 markets and on TikTok Shop to 12 brands across nine markets; opened 33 net new freestanding stores globally.

Market and Competitive Landscape

• Achieved prestige beauty value share gains in Mainland China, Japan, Korea, the U.S., and Western Europe.
• Ranked #1 in Prestige Beauty, Luxury, and Prestige Fragrance across key platforms during China's 11.11 and 6.18 shopping moments.
• Travel retail business in Asia/Pacific grew mid-single digits, driven by improvements in Korea, Hong Kong, and Hainan, partially offset by pressure in mainland China travel retail.
• The Americas region saw a return to growth, driven by North America and key campaigns.
• EUKEM region growth was impacted by the conflict in the Middle East in the prior year but is expected to see stronger growth in the second half of fiscal 2027.

Risks and Challenges

• Fiscal 2026 results were impacted by $1,286 million in goodwill and other intangible asset impairments and $159 million in charges related to Talcum litigation settlement agreements.
• A $84 million loss contingency was recorded for a pending securities class action settlement.
• Inflation and incremental tariffs (net of refunds) impacted gross margin, with $102 million in tariff costs recorded in cost of sales.
• Disruptions from the conflict in the Middle East had a dilutive impact on fiscal 2026 earnings per share.
• Aveda faced challenges in the salon channel and exited underperforming doors.
• Too Faced and Bobbi Brown experienced retail softness and strategic shifts.

Management Commentary and Tone

• CEO Stéphane de La Faverie expressed pride in delivering results ahead of expectations, citing a reignited growth trajectory with organic sales rising 3% for the full year and accelerating to 5% in the fourth quarter.
• Management stated the company is "delivering on all aspects of Beauty Reimagined" and that the One ELC operating model is enabling speed and discipline.
• The tone was confident regarding the ability to accelerate organic sales growth in fiscal 2027 and achieve stronger adjusted operating margins.
• The PRGP restructuring program concluded approvals as of June 30, 2026, with total net reduction of 10,000 positions and total gross benefits of $1.2 billion expected.

Other Key Points

• Dividend: Announced a quarterly dividend of $0.35 per share, payable September 15, 2026.
• Restructuring: Total cumulative charges under the PRGP restructuring component reached $1.4 billion, with final charges expected slightly above the high-end of the $1.5 billion to $1.7 billion range.
• Acquisitions/Investments: Agreed to acquire the remaining interest in Forest Essentials; announced minority stakes in XINÚ and 111Skin.
• Tariff Refunds: Recorded a $38 million benefit in cost of sales from IEEPA tariff refunds received in the fourth quarter.
• Sustainability: Recognized by CDP with an A- for Climate and B for Forests; achieved GreenCircle Sustainable Energy Practices certification for all manufacturing sites.
• Social Impact: Committed to $50 million by 2030 for women's health, education, leadership, and entrepreneurship.