Key Takeaways:
Not long ago, Estée Lauder was Wall Street’s beauty darling. After shedding $100 billion in market value in under four years, recently appointed CEO Stéphane de la Faverie is trying to convince investors it can return to its former glory, or at least to more stable ground.
The French executive, who in January took over the family-controlled New York beauty giant behind names like Clinique, MAC Cosmetics, Tom Ford, and Jo Malone, is leading a sweeping restructuring plan that includes the review of its portfolio of over 20 brands as it grapples with a weak travel-retail business, a loss-making US market, and a Chinese and American consumer increasingly focused on value. The goal: to restore sustainable growth and position Estée Lauder as “the best consumer-centric prestige beauty company.”
“This is the biggest organizational transformation that we have done in our history,” de la Faverie said late in August on his on his Beauty Reimagined strategy as the company expands its profit and growth recovery plan to significantly change its operating model.
De la Faverie assumed the top job after succeeding Fabrizio Freda—who remains a consultant following a 16-year run as CEO—at the end of a turbulent succession saga that ultimately favored him as an internal candidate. He brings more than 15 years of experience at Estée Lauder, including two and a half years as Executive Group President overseeing its prestige portfolio and six years running the flagship brand. Earlier in his career, he spent nearly a decade at French rival L’Oréal, managing labels such as Lancôme and Armani Beauty.
Since his appointment was announced nearly a year ago, much has shifted on paper.
The Lauder family stepped back from day-to-day management for the first time since the company’s founding in the mid-1940s, focusing instead on their roles as board members and major shareholders. Former marketing chief Jane Lauder left last October after losing her bid for the CEO role, while her cousin, Chairman William Lauder, gave up his operational duties in March. The board has since named Richard Zannino Lead Independent Director and capped the reshuffle by hiring René Lammers from PepsiCo to head the company’s critical research and development division.
As part of Estée Lauder’s reset, de la Faverie is increasing consumer-facing investments, closing unproductive stores, and opening doors for some of its most successful brands, such as niche fragrance brand Le Labo, acquired for just $60 million in 2014 and now one of its best performers, alongside the DECIEM family of brands, including The Ordinary and NIOD, in 2024.
He is also reducing its exposure to a volatile travel-retail business and pushing toward innovation at “the right price point” at a time when he has said “there’s a lot of pressure on the consumer around the world—in China, the US, Europe, and emerging markets.”
With all these shifts to its strategy, which includes plans to cut 5,800 to 7,000 jobs in total, with around 3,000 employees having already been laid off, de la Faverie believes the company is now a new organization from a leadership standpoint. “The culture is evolving and changing.”
Industry experts have long criticized the company for what has been seen as a slow response to fast-changing trends and for not pushing enough new products into markets and sales channels with a distinctive narrative. As local beauty brands gain momentum in China, and both indie players and conglomerates like e.l.f. Beauty and L’Oréal gain share in the US, Estée Lauder has at times come across as risk-averse and behind the curve.
Oliver Chen, Managing Director at TD Cowen, wants to see tangible progress from the restructuring plan—especially in margin recovery, marketing, distribution, and product.
“I need to see what that innovation looks like, what those products are,” Chen said on Estée Lauder’s innovation plans, expected to account for 25% of its total business this year. “It will be important for me to understand if it's innovation that would support their goals.”
The company has recently accelerated the pace of product launches across its portfolio, with a new concealer from Estée Lauder being the top-selling prestige makeup launch in the US from January through June, according to market research firm Circana.
In fiscal 2025, Estée Lauder’s research and development costs totaled $316 million with around 1,100 employees as of June 30, according to its latest annual report to shareholders. This compares with $360 million in fiscal 2024, with around 1,430 employees a year earlier.
The Cost of Short-Term Gains
Estée Lauder’s past reliance on daigou resellers and travel retail in China fueled strong gains after the COVID-19 lockdowns. But those same channels have since become some of its toughest challenges, weighing on profit and revenue.
The scope of many of today’s problems might have been avoided had the company reinvested when shares peaked at nearly $370, giving it a market value of about $133 billion at the end of 2021. The stock now trades around $90, with a market cap of roughly $30 billion, though it has climbed about 20% since the beginning of the year, adding $5 billion to $6 billion in equity value.
“Perhaps in the past they were getting too much money,” Chen said, recalling the post-COVID beauty spending boom in China.“If you get overpaid, put some money away and invest in [corporate] infrastructure. Great companies need to reinvest proactively.”
Overall, he believes Estée Lauder needs to build an M&A track record to fend off rising competitors such as Jones Road, the color cosmetics line beauty entrepreneur Bobbi Brown launched in 2020. Sales at her Bobbi Brown namesake brand, still owned by the conglomerate since late longtime CEO Leonard Lauder drove the acquisition in 1995, fell to about $250 million in 2024, according to Barclays and Euromonitor, from a previous range of $500 million to $1 billion.
“Estée Lauder remains a bit of a show-me story,” Chen added.
Raymond James analyst Olivia Tong said management is taking the right steps through its restructuring as Estée Lauder expands e-commerce to a record high 31% of sales and reviews its portfolio—a process she believes could strengthen the long-term outlook but also add near-term sales pressure.
“We expect it will aim at improving growth and profitability at its iconic but somewhat dated brands (Clinique, Estée Lauder), driving more growth out of its newer, more approachably priced needlemovers (The Ordinary), while also testing the upper limits of its ultraluxury arm (La Mer, Tom Ford),” she said.
Tong pointed to areas of progress in the latest quarter, citing that travel retail appears to have bottomed, China is regaining share with growth expected in fiscal 2026, and innovation is poised to contribute more meaningfully. But challenges remain, she cautioned: US sales are still weak, Europe is deteriorating, operating margins are at their lowest since the global financial crisis, and tariffs are cutting a net 70 basis points even after offsetting a $100 million hit to profitability.
She is “still waiting for dramatically different” results and expects further share upside will depend on improved visibility into the company’s recovery path.
Returning to Global Growth
De la Faverie has set an ambitious goal of returning all four regions to positive territory by next June, including mid-single-digit growth in China and modest growth in its global travel retail business, as he seeks to position fiscal 2026 as Estée Lauder’s turnaround year.
The latest reported numbers highlight that Estée Lauder’s core markets and categories are still under strain.
In the June quarter, when sales fell 12%, the steepest pressure came from Asia’s travel-retail business. Cautious Chinese consumers and a shift by retailers in Mainland China and Korea toward more profitable duty-free models curbed replenishment orders, the company said.
For the full year, sales declined 8%, though results came in line with analysts’ expectations, supported by market share gains in the US, China, and Japan. Asia Pacific and Mainland China, which together generated nearly 45% of revenue, or $6.35 billion, led declines, falling 21% and 6%, respectively, from a year earlier. The Americas followed, contributing $4.41 billion, or 31% of sales, down 4%. Europe, the UK, Ireland, and emerging markets made up the remaining $3.57 billion, edging up 1%.
From a category standpoint, annual sales dropped across the board: skincare declined 12%, haircare 10%, and makeup 6%. Fragrance was the only category to hold flat—lagging rivals L’Oréal, Coty, and Puig, where it has been a key growth driver. Still, Estée Lauder is betting on fragrance, with a new innovation lab set to open in Paris this fall.
Over the fiscal year, investors were also struck by the declining value of some of Estée Lauder’s brands. The company booked a $1.29 billion impairment charge, led by Tom Ford—acquired for $2.8 billion including debt in late 2022—followed by Korean skincare brand Dr. Jart+, which has pulled out of travel retail, and makeup label Too Faced.
Winning over the Middle Class in China as Local Beauty Brands Take Market Share
Estée Lauder’s turnaround will depend on cleaning up the deep discounting that dominates China’s online platforms and livestreams, warned Jacques Roizen, Managing Director at Shanghai-based consulting firm DLG (Digital Luxury Group).
“If La Mer and Estée Lauder are on sale 80% of the time on Douyin and Tmall, and during the biggest shopping moments of the year, no one is going to buy them at full price, and that’s going to affect the value and equity perception of the brands,” Roizen said. “That’s an unsustainable business model.”
Peers following a similar model, like L’Oréal, have also seen the prestige of some of their brands decline, while Chanel and Hermès have avoided that fate by rarely, if ever, going on sale, Roizen said. “It’s time to clean up China.”
So far, Estée Lauder has said it has significantly reduced discounts, with a more aggressive approach to come in fiscal 2026, as restrictions tighten on daigous in key travel retail hubs like the island of Hainan.
“We remain focused on improving our performance and narrowing the gap between retail and net sales growth globally,” Finance Chief Akhil Shrivastava said during the company’s latest earnings call. “In fiscal 2026, we aim to achieve this through tighter monitoring of inventory in trade and a significant reduction in discounts."
The rapid rise of Chinese beauty brands in China, especially among younger consumers, is a source of concern for established global conglomerates like Estée Lauder and L'Oréal, reshaping the world’s most competitive market.
Last month, de la Faverie publicly acknowledged for the first time since becoming CEO the changing reality of the Chinese market. “There’s been a lot of focus on the disruption of the market,” he said while speaking at a Barclays conference. “In the post-COVID era, we’ve seen a rapid acceleration of local brands.”
Despite the rise of local players, de la Faverie stressed that Western brands still hold the majority share of China’s beauty market.
“Depending on the data, anywhere between 30% to 40% of the market is in the hands of local brands, which still leaves 50% to 60% with international brands,” de la Faverie said. He added that international players have been growing faster than their local rivals over the past six months, and that the company’s ability to capture a growing middle class in China is high, given that the company has been present in the country since 1995.
Picking up where ex-CEO Freda left off, de la Faverie stressed the long-term opportunity in China by citing the expanding middle class.
“There's still an excess of 100 million to 200 million consumers who are going to graduate to the middle class between now and 2030,” de la Faverie said. “We have the credibility, know how the market works; 99%-plus of my team in China is Chinese and knows the ecosystem that is becoming increasingly complex. I think we have the right tool to win in the market.”
Ben Cavender, Managing Director of China Market Research Group, said that going from 95% of the beauty market to 60% in only five years is “terrifying,” and that Estée Lauder shouldn't count on a growing middle class when younger local brands are forging stronger connections with Chinese consumers.
“Purchasing power is growing, but the number of brands considered by consumers is increasing, and the international brands don’t have the same brand power they had years ago,” cautioned Cavender, who has been established in China for the past two decades. The question is whether Estée Lauder can win over China’s growing middle class in an increasingly competitive market, he added.
The Long-Awaited Return to Growth in the US
China may be the bigger headache, but the US isn’t offering much comfort either—even if the company has made progress in its home market in recent months.
Like China, the US has seen rapid growth in the online channel. In the Asian market, online channels accounted for more than 41% of total beauty sales last year, with over half of skincare purchases happening online, according to GlobalData. In contrast, the US e-commerce market expanded from about 3% of the market in 2014 to roughly 22% in 2023, while department stores slipped to just 10% as of 2024.
Estée Lauder has cut its reliance on department stores to less than a third of revenue, down from around 60% previously, yet still views them as essential partners. In its home market, the company is working with department stores to concentrate on top-performing locations, de la Faverie said. “There’s a lot of traffic and a lot of demand in these stores.”
The company’s recent US market share gains—the first in many years, according to de la Faverie—have given the company optimism that things are balancing out. The improvement coincided with Estée Lauder’s move to add 11 of its brands to Amazon’s Premium Beauty store, along with three in Canada, while also rolling out The Ordinary in the UK and Clinique in Mexico.
The company first launched a dedicated store for its namesake brand on Amazon last October and recently described the platform as a “megaphone” for its broader business—one that not only boosts visibility but also lifts sales at other retailers such as Ulta Beauty, noting that most beauty searches in the region now start there.
Analysts are looking for a long-awaited return to growth in North America, but the company isn’t yet ready to disclose when that might happen.
“I’m not prepared to give a sort of exact timeline,” Amber English, Estée Lauder Companies President, Digial and Online, The Americas, said when asked at a Barclays conference whether investors could expect growth within the next two years. “But we are encouraged by the total market growth we’re seeing at the retail level.”
English joined the company in 2021 from Amazon.com and oversees North America’s digital and online division alongside Americas’ President Tara Simon.
Estée Lauder’s expanding distribution partnerships come at a time when beauty companies are finding it increasingly difficult to capture consumer attention, as US beauty habits and spending patterns continue to shift, according to Barclays analyst Patrick Folan.
With the exception of fragrance, more American consumers report cutting back on beauty across categories in 2025 compared with 2023, Folan said.
While Folan still sees the beauty sector’s growth profile as strong, the path to success has become less predictable. “We think brand marketing can still capture consumers’ minds and wallets, but companies need an original story to tell while offering a differentiated product with the right value proposition,” he said.
The Path to Regaining Investor Confidence
Estée Lauder’s standing with investors during its restructuring will hinge on how candid it is about its toughest markets—China and the US—and on how much profit it is willing to sacrifice to safeguard the cachet of its prestige brands for the long term.
Becoming a true prestige-led conglomerate through its restructuring process will require hard, forward-looking choices from de la Faverie, his executive team, and the board.
“The beauty market is growing, but the health of legacy companies is more questionable,” said Neil Saunders, Managing Editor and retail analyst at GlobalData. “Estée Lauder has the scale, experience, and financial firepower to do better, but it needs a shake-up—and a far more modern way of thinking.”
