Key Takeaways:
Estée Lauder Companies (ELC) reported fourth-quarter and full-year results for fiscal 2025 that landed at the top end of its guidance, capping a challenging three-year stretch of sales declines and margin erosion. While travel retail weakness weighed heavily, CEO Fabrizio Freda and CFO Akil Shrivastava emphasized on the company’s earnings call that fiscal 2026 marks the beginning of a turnaround under the company’s Beauty Reimagined strategy.
“We ended fiscal 2025 much better positioned than fiscal 2024, with healthier trade inventory, especially in travel retail Asia, for the currently forecasted demand,” Freda said on the call. Travel retail, once a cornerstone channel, accounted for just 15% of reported sales, down sharply from its pandemic peak.
Despite an 8% organic sales decline for the year, Estée Lauder expanded gross margin by 230 basis points to 74%. Operating margin contracted to 8%, despite the company's increased consumer-facing investments. Diluted earnings per share (EPS) dropped 42%.
Gains in Key Regions
In the second half of fiscal 2025, Estée Lauder regained prestige beauty share in key markets, signaling early wins from new product launches and digital channel expansion.
“We gained prestige beauty share in China, Japan, and the US, demonstrating not only our ability to return quickly to share gain, but also early wins for new consumer coverage and enticing innovation globally,” Freda said, pointing to standout performances from La Mer, Tom Ford, Estée Lauder, Le Labo, and The Ordinary.
By geography, Americas sales fell 4%, cushioned by Amazon Premium Beauty store launches and pricing gains. Europe, Middle East, and Africa (EMEA) dropped 12%, while Asia-Pacific was down 7%, pressured by softness in China, despite mid-year stabilization.
Performance by Category
Across categories, skincare remained the biggest drag, down by 12%, led by softness in Estée Lauder and La Mer within travel retail and China .
Makeup declined 6%, with MAC, Too Faced, and Bobbi Brown all trending lower, although Clinique delivered bright spots through Amazon.
Haircare contracted 10% pressured by Aveda and Bumble and Bumble, despite incremental Amazon distribution.
Fragrance was the most resilient category, flat YoY, with pricing gains offsetting volume declines, and growth from Le Labo and Kilian Paris balancing softness in legacy brands like Estée Lauder Beautiful and Clinique Happy.
In the fourth quarter, skincare fell 16%, makeup 11%, and haircare 15%, while fragrance rose 2%, highlighting the strength of luxury scent innovation.
Digital Acceleration and Retail Expansion
The company leaned heavily into e-commerce, with online sales reaching 31% of reported sales, an all-time high. The Ordinary’s debut on Amazon’s Premium Beauty Store, followed by Origins and Aveda, as well as storefronts launching in Canada, bolstered this success. Southeast Asia also contributed to growth via Shoppee and TikTok Shop.
“Online organic sales growth accelerated from low single digits in the first half to mid-single digits in the second half,” Freda highlighted.
Physical retail also remained a priority, with almost 40 new freestanding doors opened globally, driven by fragrance brands and Le Labo’s continued expansion.
Innovation in Pricing
Innovation continued to be a central pillar of the turnaround. La Mer, Clinique, and The Ordinary led new launches in skincare and suncare, while Clinique's cult-favorite Almost Lipstick franchise and MAC’s new lip glosses helped capture the attention of younger consumers.
“We are realigning our innovation portfolio to deliver gross margin-accretive products quicker and better capture faster-growing industry trends,” Freda explained, citing demand for derm-led skincare, night repair, and luxury fragrance.
Tariff Trouble
The company acknowledged that evolving trend policies and newly enacted tariffs will weigh on profitability in fiscal 2026. Shrivastava said tariff-related headwinds are predicted to impact results by around $100 million. However, mitigation strategies, including supply chain optimization and leveraging trade programs, should offset more than half of that burden.
“Our teams have acted swiftly to implement mitigation actions, including leveraging available trade programs and further optimizing our regional manufacturing footprint to bring production closer to the consumer,” he noted on the earnings call.
Fiscal 2026 Outlook
Looking ahead, ELC expects fiscal 2026 organic sales growth to be flat up to 3%, with low single-digit, top-line growth and operating margin expansion of 165 basis points at the midpoint.
Shrivastava explained that China remains a bright spot, with expected mid-single-digit growth, while travel retail is expected to return to growth after strategic resets. The company will also aim to significantly reduce discounting and strengthen performance in emerging markets, which currently make up only 10% of reported sales.
“We are focused on driving sustainable sales growth in fiscal 2026 and beyond, as well as achieving a solid double-digit adjusted operating margin over the next few years,” Shrivastava said on the earnings call.
EPS is projected between $1.90 and $2.10, representing year-over-year growth of 26% to 39%.
Strategic Transformation Underway
As part of Beauty Reimagined, Estée Lauder is also considering portfolio evolution with the help of external advisors, signaling potential brand divestitures or acquisitions. The company is investing in AI-driven marketing, outsourcing efficiencies, and new organizational structures, giving regional teams full P&L responsibility.
Freda closed with a commitment to transformation: “We are energized as we are transforming our company through Beauty Reimagined … Together with all of you, I am excited for what we will accomplish.”
