Key Takeaways:
About a month ago, Estée Lauder seemed to be back on track. Then the market turned against the owner of Clinique, MAC Cosmetics and its namesake brand.
It started with an interview on Bloomberg TV in late February, in which Chief Executive Stéphane de La Faverie spoke confidently about the company’s “Beauty Reimagined” plan, as shares reclaimed the $100 mark.
The French executive, who took the top job last year to succeed former longtime CEO Fabrizio Freda, appeared upbeat on camera, talking about Estée Lauder’s “momentum,” citing strength in skincare brands La Mer and The Ordinary and a nearly 50% stock rebound as it built “the right foundation for acceleration.”
When Bloomberg anchor Francine Lacqua turned to mergers and acquisitions, he emphasized a selective approach, reviewing the portfolio as consumer taste evolves through targeted investments such as a minority stake in Mexican fragrance brand Xinú, while focusing on “simplifying operations” and “rebuilding profitability.” Ten days later, the company made public the acquisition of the remaining stake in Indian premium skincare brand Forest Essentials for an undisclosed sum, forecasting low double-digit net sales growth, though without providing a timeline.
As de La Faverie talked about simplifying the business, few expected that Estée Lauder was quietly pursuing its biggest deal to date: an acquisition of Spanish rival Puig, the beauty and fashion conglomerate behind Rabanne, Carolina Herrera, and Charlotte Tilbury, in an agreement that would merge their respective family-controlled businesses.
From the Bloomberg TV interview to the confirmation of the talks with Puig, the American beauty conglomerate shed roughly 40% of its market value, about $15 billion, with shares trading below $70 and raising fresh doubt about its restructuring. Investors are increasingly unsettled as they lose faith in the company’s ability to return to growth through its restructuring plan and in its own conviction in finding a way out of its long-term structural problems.
While a deal could help the combined company better compete with L’Oréal—which has stepped up its push into premium beauty, including through a recent Kering Beauté deal that Puig ultimately lost—Estée Lauder’s $9.4 billion gross debt load against $3.1 billion in cash is drawing increased scrutiny.
Puig carries about €1.35 billion ($1.55 billion) in total debt and roughly €1 billion ($1.12 billion) in cash, while L’Oréal carries about €2.1 billion ($2.41 billion) in net debt thanks to its cash position of €5.5 billion ($6.3 billion).
When both Estée Lauder and Puig acknowledged the merger discussions, the market initially rewarded Puig, with shares rising about 14%, though they still trade around €17 ($19.63), below the €24.50 ($26.27) listing price. Estée Lauder, meanwhile, saw its stock fall roughly 17% to $71.48 between March 23 and March 24 following the news, with trading volumes surging to nearly 30 million shares from about 5.6 million the previous trading day.
Analysts and industry experts see the strategic rationale behind a potential merger between the beauty companies, which would allow Estée Lauder to expand in the complementary fragrance category and benefit from Puig’s “mastige-to-prestige positioning”, according to TD Cowen’s Retail Analyst Oliver Chen.
Chen said a potential Estée Lauder-Puig business combination “could materially increase relevance, scale, and category balance” as competition intensifies amid the growing influence of TikTok and Amazon. Any deal would likely be structured as an all-stock transaction given Estée Lauder’s leverage, he predicts, putting control and ownership of the combined company—whether in the hands of the Puig or Lauder family—at the center of the equation.
The Lauder family controls about 82% of Estée Lauder, founded in New York in 1946, through super-voting Class B shares with 10 votes each, compared with one vote per share for its Class A stock, according to its latest proxy filing with the US Securities and Exchange Commission. At Puig, established in Barcelona in 1914, the family holds about 72% of the equity and nearly 93% of voting power through Class A shares with five votes each, against one vote per share for its Class B stock.
Taking a more measured view, insiders such as Baird’s Managing Director of Global Consumer Investment Wendy Nicholson told BeautyMatter that a deal could help Estée Lauder play catch-up with L'Oréal coming off of an “incredibly busy period on M&A in 2025.” The news nevertheless came as a surprise to Nicholson, given the company’s focus on its turnaround.
“I just felt like Estée Lauder had a pretty long to-do list that they were attacking, and I didn’t think that buying or merging with another big company was on that list,” she said. “I thought they were stabilizing the ship, shedding some underperforming brands and, frankly, stabilizing their culture.”
Others strike a more cautious tone. B. Riley Securities’ Anna Glaessgen said the deal would add complexity and execution risk for Estée Lauder as it takes on the heavy lift of its “Beauty Reimagined” plan, which she stressed hinges on building a “flatter, leaner organization.” Investors, she noted, have reason to be wary given the scale and timing of a potential deal, as well as the company’s recent M&A track record: Estée Lauder wrote down its $2.8 billion Tom Ford acquisition, its largest to date, by $773 million within two years of closing.
When Will Estée Lauder Be Out of the Woods?
Beyond the Puig talks, investors have been circling a central question in recent months: “Is Estée Lauder out of the woods yet?”—with the answer resting on whether its push into India, underscored by the Forest Essentials deal, can offset its continued reliance on a cooling Chinese consumer and Asia-Pacific travel retail.
There is no clear consensus. Estée Lauder has lost roughly $100 billion in market value over the past four years, hit by a crackdown on personal shoppers in Asia-Pacific travel retail, a decade of market-share losses in the US, and a succession crisis after a 15-year mandate of Freda, which investors say the company took too long to resolve.
Glaessgen sees early signs of improvement since de La Faverie took the top job last January, highlighting increased investment in innovation and a shift toward faster-growing distribution channels in the US, such as bringing 12 brands onto Amazon Premium Beauty and launching on TikTok Shop. Those moves have helped the company gain volume share in the US prestige beauty market.
However, that progress has yet to translate into dollar share gains, with Estée Lauder’s US distribution remaining heavily skewed toward slower channels such as department stores, which still account for roughly 30% of domestic sales, she added.
Estée Lauder’s reliance on the Chinese consumer and the travel-retail channel continues to cloud the outlook, fueling concerns about the sustainability of its growth. Recent disruptions tied to duty-free operator Sunrise Duty Free Shanghai, including the suspension of its main duty-paid shopping app in mainland China and airport-operator changes in Beijing and Shanghai, have weighed on performance more than expected. While those changes also forced rival L’Oréal into a period of destocking, they underscore Estée Lauder’s far greater exposure to the channel. Asia travel retail accounts for roughly 10% to 12% of its sales, compared with around 3% for L’Oréal.
Weakness in China and the US Remains at the Core
For years, strong momentum in China, where sales peaked in the early years of the pandemic, masked weaknesses in Estée Lauder’s domestic performance. That is becoming harder to sustain.
“With Chinese demand now weakening, the company faces greater pressure to improve results in the US and other core markets,” Glaessgen said.
Even so, Estée Lauder’s portfolio remains a key tailwind, Morningstar Equity Analyst Dan Su said in an interview before the Puig talks became public.
The company is well-positioned to benefit from a decade-long shift toward higher-end beauty products, Su added, pointing to an industry trend that has also pushed rival L’Oréal to double down on premium brands. In recent years, the French group has pursued its biggest deals to date, including the $2.5 billion acquisition of Australian skincare brand Aesop in 2023 and a €4 billion ($4.7 billion) agreement with Kering last October to buy niche fragrance house Creed. The Kering deal also includes an option for L’Oréal to take control of Gucci Beauty, the development of beauty lines for Bottega Veneta and Balenciaga, and a longevity partnership aimed at creating wellness experiences for high-net-worth consumers in hospitality settings.
These M&A moves reflect broader changes in consumer behavior, Su said, noting that higher-income shoppers are increasingly spending more on premium labels as themes such as longevity, health, and wellness gain prominence.
“This is happening not only in developed markets, but also in developing markets where incomes are rising,” Su continued. “That supports our view that we’re going to see more growth in beauty products going forward, given what they can deliver and the social currency associated with premium brands.”
Analysts are also paying close attention to Estée Lauder’s margin recovery, with Goldman Sachs’ Bonnie Herzog seeing upside in the company’s latest conservative guidance “as de La Faverie’s strategy begins to take hold.” The company is expected to post earnings for its fiscal third quarter ended March 31 on May 1.
Herzog, who has not published a new note on Estée Lauder since the Puig news and maintains a buy rating, expects the company to benefit from the full run rate of savings from its turnaround by fiscal 2027 and beyond, supporting margin recovery while funding reinvestment in consumer-facing areas. The program is expected to generate $800 million to $1 billion in annual gross benefits, underpinning both margin expansion and longer-term sales growth.
That said, the scale of the overhaul and the complexity of a potential deal with Puig are amplifying existing concerns about its corporate culture, as Estée Lauder moves to cut up to 7,000 jobs. It has already approved $1.2 billion in cost reductions, including the elimination of about 6,000 roles.
“There’s still a perception that Estée Lauder is a bit of a tired company, and people want to work somewhere modern and fresh,” said Neil Saunders, Managing Director and Retail Analyst at GlobalData.
Whether a combination with Puig could change that perception remains an open question.
