The Estée Lauder Companies — Fiscal 2027 Q1 Earnings Summary

Financial Performance:

• Net sales increased 7% year-over-year to $3.715 billion; organic net sales (Non-GAAP) increased 6% to $3.696 billion.
• Gross profit increased 10% to $2.813 billion; gross margin expanded 230 basis points to 75.7% from 73.4% in the prior year.
• Adjusted gross margin (Non-GAAP) expanded 240 basis points to 75.7% from 73.3%.
• Operating income increased over 100% to $408 million from $169 million; operating margin expanded 610 basis points to 11.0% from 4.9%.
• Adjusted operating income (Non-GAAP) increased 76% to $449 million from $255 million; adjusted operating margin expanded 480 basis points to 12.1% from 7.3%.
• Diluted net earnings per share increased over 100% to $0.64 from $0.13; adjusted diluted net earnings per share (Non-GAAP) increased to $0.72 from $0.32.
• Net cash flows used for operating activities improved to $166 million used from $340 million used in the prior year.
• Free cash flow improved to negative $235 million from negative $436 million in the prior year.
• Cash and cash equivalents increased to $3.20 billion from $2.22 billion in the prior year.
• Effective tax rate decreased to 32.5% from 56.9%; adjusted effective tax rate decreased to 31.9% from 40.5%.

Guidance and Future Outlook:

• Raised fiscal 2027 full-year organic net sales growth outlook to 4.0%–5.5%, ranging from the mid-point to above the previous high-end of 3%–5%.
• Raised fiscal 2027 full-year adjusted operating margin outlook to 12.9%–13.7%, up from the previous 12.7%–13.5%.
• Raised fiscal 2027 full-year adjusted diluted net earnings per share outlook to $3.20–$3.45, up from the previous $3.10–$3.35.
• Assumed an adjusted effective tax rate of approximately 33%–34% for fiscal 2027.
• Forecast net cash flows provided by operating activities to be between $1.4 billion and $1.5 billion for fiscal 2027.
• Forecast capital expenditures to be approximately 4% of projected sales for fiscal 2027.
• Anticipates greater sales growth in the first half of fiscal 2027 compared to the second half due to new product launches, travel retail improvements, and a lower prior-year base.
• Expects continued growth in Fragrance and Skin Care, and a return to growth in Makeup for the full year.
• Assumes no material impact from the conflict in the Middle East on fiscal 2027 results, though the situation will be monitored closely.
• Assumes no deterioration in the geopolitical landscape, tariffs, or consumer sentiment.

Business Segments and Product Lines:

• Skin Care: Net sales increased 4% (organic), driven by La Mer and The Ordinary; operating income increased 40%.
• Makeup: Net sales increased 1% (organic), driven by M·A·C, partially offset by Estée Lauder; operating results improved to income from a loss in the prior year.
• Fragrance: Net sales increased 20% (organic), driven by double-digit growth in Luxury Brands (Le Labo, TOM FORD, Jo Malone London, KILIAN PARIS) and Estée Lauder; operating income increased 93%.
• Hair Care: Net sales were flat (organic), driven by growth from The Ordinary offset by a decline from Aveda due to supply chain challenges; operating results improved to income from a loss.
• Product Launches: Introduced La Mer The Concentrate Serum, The Ordinary Lacto-PDRN 4% + B9 Eye Cream, M·A·C Lustreglass Sheer-Shine Lipstick, Clinique Smart Clinical Repair Collagen + PDRN Cream, Estée Lauder Glimmer, KILIAN PARIS The Cocktails Collection, and Jo Malone London Sea Salt & Bergamot.
• Distribution: Expanded online coverage on Amazon to 13 brands across 17 markets and on TikTok Shop to 15 brands across 11 markets; launched Jo Malone London at Boots and Space NK in the UK.
• Technology: Partnered with AI marketing platform Profound for enterprise-wide global AI insights; deployed Shopify for M·A·C and Clinique on US and UK brand.com.
• Infrastructure: Opened Hainan Fulfillment Center in July 2026; invested in advanced water infrastructure at Oevel manufacturing campus in Belgium.
• Acquisitions: Completed acquisition of remaining equity interest in Mountain Valley Springs India Private Limited (owner of Forest Essentials) in October 2026.

Market and Competitive Landscape:

• Achieved prestige beauty share gains in key markets including Mainland China, Japan, Korea, the U.S., and Western Europe.
• Mainland China value share gains driven by Makeup, Skin Care, and Fragrance, led by TOM FORD, The Ordinary, Le Labo, and La Mer.
• Japan value share gains led by Makeup and Fragrance, driven by double-digit retail sales growth from Le Labo, M·A·C, and TOM FORD.
• Korea double-digit retail sales growth with share gains in Makeup led by M·A·C and TOM FORD.
• U.S. volume share gains driven by The Ordinary and M·A·C; value share gains in Fragrance and Hair Care.
• Western Europe value share gains in Skin Care and Fragrance.
• Asia/Pacific growth driven by travel retail business, including Beijing and Shanghai airports and Hainan travel retail.
• Priority Emerging Markets (Turkey, Mexico, India) showed collective growth led by successful innovation and expanded consumer reach.

Risks and Challenges:

• Ongoing geopolitical and macroeconomic uncertainty, including the conflict in the Middle East.
• Foreign currency fluctuations affecting results of operations and asset values.
• Competitive activity in skin care, makeup, fragrance, and hair care businesses.
• Retail industry consolidation, destocking, and tighter working capital management by retailers.
• Supply chain challenges, shipment delays, and commodity pricing volatility.
• Shifts in consumer preferences regarding value perception and shopping channels.
• Potential impacts from changes in trade policies, regulations, and tax laws.
• Risks associated with new product innovation success and timing.

Management Commentary and Tone:

• CEO Stéphane de La Faverie stated growth is accelerating and profitability is strengthening significantly, with the "Beauty Reimagined" transformation becoming increasingly evident.
• Management expressed confidence in building diverse drivers for sustained profitable growth and moving beyond restoring growth.
• The tone reflected conviction in future opportunities, citing the energy of teams, brand strength, and transformation progress.
• Management noted that the strong start and conviction in the future created the basis for raising the full-year outlook.

Other Key Points:

• Announced a quarterly dividend of $0.35 per share on Class A and Class B Common Stock, payable December 15, 2026, to stockholders of record November 30, 2026.
• Forest Essentials fiscal 2027 results are not expected to have a material impact on consolidated net sales or diluted net earnings per common share.
• Published the annual Social Impact & Sustainability report highlighting progress toward 2030 goals, including 100% renewable energy across operations.
• Committed $15 million over five years to the Breast Cancer Research Foundation for research on breast cancer in younger women.
• Signed a second green Virtual Power Purchase Agreement for onshore wind in Spain in August 2026.
• Scheduled Capital Markets Experience webcast in Shanghai, China, on November 4, 2026.
• Operating expenses decreased in restructuring and other charges to $40 million from $89 million in the prior year.