The Estée Lauder Companies on Wednesday predicted a possible return to growth in its next fiscal year, a tentative vote of confidence in a turnaround plan meant to address a long list of problems facing the US beauty giant.
However, the forecast, for flat to 3 percent sales growth in the fiscal year ending in June 2026, came alongside another dour set of financial results. Estée Lauder Companies reported a 12 percent drop in fourth-quarter net sales compared with the same period in 2024, and an 8 percent decline for the full year. It also reported a full-year loss of $785 million, and warned of lower-than-expected profits going forward as the Trump administration’s tariffs are seen hitting margins by $100 million in the coming year.
Shares fell by 4.6 percent on Wednesday.
Estée Lauder Companies, which owns well-known brands like La Mer, The Ordinary and Bobbi Brown has been battling lower sales and profits since 2022, when the once-buoyant Chinese market, a key tentpole of its business, entered a steep decline. The company has also struggled to come up with an answer to stiff competition in the US and Europe, where a wave of new makeup and skincare brands have chipped away at the market share of Lauder lines like Origins and Clinique, particularly with younger customers.
Chief executive Stéphane de La Faverie quickly outlined plans to grow sales and profits after taking the reins in January, including higher investment in brand marketing, as well as decreasing overhead costs.
The sales outlook offered on Wednesday, the company’s first since October, indicates that plan is on track. Buzzy new launches from the likes of MAC Cosmetics and Clinique are proving popular, de La Faverie said on a call with analysts. The company is also stepping up distribution of its brands in European pharmacies, a key channel for skincare sales on the continent. Brands including Clinique and Aveda are now on Amazon in the US, and beginning to expand to markets like Canada and Mexico too.
At the same time, executives cautioned there is more work to be done. De La Faverie confirmed that the company has retained an external advisory firm to conduct a review of its brand portfolio to focus on opportunities in the “medium to long term.” Tariffs and sluggish uneven growth are weighing on consumer sentiment in the US, China and beyond. Of the company’s four main business units, only fragrance grew in the fourth quarter, by 2 percent; skincare sales dropped by 17 percent, hair care by 15 percent and makeup by 12 percent.
“Progress may take longer in some markets, and is unlikely to be linear,” chief financial officer Akhil Shrivastava said on the call. “But we remain focused on improving our performance.”
The Challenges Facing Estée Lauder Companies
Reviving once-hot brands is not a problem exclusive to Estée Lauder Companies — the conglomerates Shiseido, which has seen Drunk Elephant sales plunge, as well as Coty, which owns Covergirl and Philosophy, are in the same boat.
Unlike some of its rivals, Estée Lauder Companies has outsized its reliance on faded department stores like Macy’s and Saks Fifth Avenue, which still make up around one-third of sales, as well as the daigou grey market in China, which has not recovered from the pandemic’s disruption to overseas travel.
Building momentum on TikTok and at specialty retailers like Sephora would be a step in the right direction, said Oliver Chen, a managing director at investment bank TD Cowen. The company could also do more with the fusion between aesthetics and beauty, which is a fast-growing category benefitting brands that offer buzzy ingredients like peptides and growth factors, he said.
“[Estée Lauder Companies] is losing the mom and not getting the daughter,” Chen said.
Net sales in the US were negative in the fourth quarter, but emerging markets are gaining speed, and the company had a strong showing in China around key shopping events like the 618 festival, Shrivastava said on the earnings call.
China may present more opportunities for Estée Lauder Companies, where premium names like La Mer and its namesake brand still compete in the less-saturated prestige category, even as lower-priced domestic lines have made inroads, said Erwan Rambourg, a managing director at HSBC.
However, a years-long “addiction” to the grey market, where middlemen buy products abroad and sell them through unofficial channels to Chinese customers, has weighed on its potential, he said.
“Why would [a customer] bother paying full price ever again?” he said, adding that investors want to see discipline in which channels its brands are sold in, as well as pricing control.
Pricing Power
Beyond China, Estée Lauder Companies is making progress with a new pricing strategy, Chen said. That includes lowering prices on some existing products, and setting the cost of newly launched products below other items from the same brand. At the same time, the company has reduced discounts.
“We are playing with a different tier of prestige,” said de La Faverie on the call, highlighting its span from The Ordinary ($14 for a moisturiser) to La Mer ($230 for a moisturiser). “We have a lot of pricing power between our brands, but we are looking at where the growth is, and tailoring our innovation to that. Is it happening between $10 to $15, or maybe $20 to $25 and beyond?”
So far, the company has announced plans to cut up to 7,000 jobs worldwide, many of them middle management, and reducing other overhead expenses to the tune of more than $1 billion.
Rambourg said that the quarter’s gross margin coming in above expectations means that a lot of cost-cutting has been successful at a production level. However, while sales are still sliding, he said some investors read this as the company nearing the bottom.
Ultimately, its efforts to resuscitate itself are a marathon, not a sprint.
“What counts is brand equity building for the next 20 years, not making the next quarter,” said Rambourg.
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