Company Reports

Estée Lauder has long operated as a leader in the prestige beauty enclave (which accounts for about 40% of total beauty care purchases, according to Euromonitor) across the skincare, makeup, fragrance, and hair care aisles. However, its standing has recently been tainted by lackluster innovation and a distribution footprint with outsize exposure to channels in secular decline. Even with these challenges, management hasn't been sitting still; it has orchestrated a plan to drive efficiencies across the organization (reducing its workforce, leveraging its scale, and enhancing its supply chain) to bolster its innovation prowess and marketing support. We view these initiatives as a prudent way to maintain its strong global market share position.

After three years of organic sales declines (averaging 3% annual drops between fiscal 2023 and 2025), Estée Lauder appears to be turning a corner, with organic sales up 3% in fiscal 2026. This growth came alongside improving profits, with adjusted gross margin up 150 basis points to 75.5%.

Estée Lauder has long operated as a leader in the prestige beauty enclave (which accounts for about 40% of total beauty care purchases, according to Euromonitor) across the skin care, makeup, fragrance, and hair care aisles. However, its standing has recently been tainted by lackluster innovation and a distribution footprint with outsize exposure to channels in secular decline. Even with these challenges, management hasn't been sitting still; it has orchestrated a plan to drive efficiencies across the organization (reducing its workforce, leveraging its scale, and enhancing its supply chain) to bolster its innovation prowess and marketing support. We view these initiatives as a prudent way to maintain its strong global market share position.

In the fourth quarter, Estee Lauder posted 5% organic sales growth, though this was against a weak year-ago quarter, when sales tumbled 12%. The fruits of its cost-saving plan were evident in the 330-basis-point jump in the adjusted operating margin to 7.3%. Shares shot up 16% on Aug. 19.

Estée Lauder confirmed that it has terminated merger talks with Puig. Instead, it plans to stay the course: investing in its brands, rightsizing its distribution footprint, and extracting inefficiencies. The shares popped by a low-double-digit percentage on the May 21 announcement.

Estee Lauder reported 2% organic sales growth, but it was lapping a 10% drop a year ago. Efforts to extract inefficiencies drove the adjusted operating margin up to 15%, 360 basis points above last year. Shares shot up 5% on the print.

Within the premium beauty products space, Estée Lauder owns category-leading brands in skin care, cosmetics, and fragrances that underpin its brand intangible assets. This has resulted in its preferred vendor status across brick-and-mortar and digital channels. These attributes, coupled with scale-based cost advantages, should enable the firm to deliver excess returns for more than 20 years. As such, we assign Estée Lauder a wide moat.

On March 23, Estee Lauder confirmed that it is in talks with Puig about a potential merger but did not offer details. Shares of Estee Lauder fell 8% during trading hours after The Wall Street Journal and Financial Times reported on the potential deal.

As a leading provider of premium beauty products, Estée Lauder owns category-leading brands in skin care, cosmetics, and fragrances that underpin its brand intangibles, and it retains preferred vendor status across brick-and-mortar and digital channels. These attributes, coupled with scale-based cost advantages, should augur a long-term competitive edge that enables the firm to deliver excess returns for more than 20 years. As such, we assign Estée Lauder a wide moat.

Estee Lauder's second-quarter sales rose 6%, led by skin care (up 7%). Adjusted operating profits grew 32% as margins widened 290 basis points to 14.4% on a favorable sales mix and expense leverage.

As a leading provider of premium beauty products, Estée Lauder owns category-leading brands in skin care, cosmetics, and fragrances that underpin its brand intangibles, and it retains preferred vendor status across brick-and-mortar and digital channels. These attributes, coupled with scale-based cost advantages, should augur a long-term competitive edge that enables the firm to deliver excess returns for more than 20 years. As such, we assign Estée Lauder a wide moat.

Estee Lauder's first-quarter sales rose 4% led by China (up 9%). Adjusted operating profits grew 77% as margins widened 300 basis points to 7.3% on favorable sales mix and cost savings.

As a leading provider of premium beauty products, Estée Lauder owns category-leading brands in skin care, cosmetics, and fragrances that underpin its brand intangibles, in addition to retaining a preferred vendor status across brick-and-mortar and digital channels. These attributes, coupled with scale-based cost advantages, should augur a long-term competitive edge that enables the firm to deliver excess returns for more than 20 years. As such, we award Estée a wide moat rating.

Estée Lauder's fiscal fourth-quarter sales fell 12%, largely due to travel retail weakness, and adjusted earnings per share dropped 85%. For fiscal 2026, management expects sales to grow 2%-5% and adjusted EPS to rise 32% at the midpoint.

As a leading provider of premium beauty products, Estée Lauder owns category-leading brands in skin care, cosmetics, and fragrances that underpin its brand intangibles, in addition to retaining a preferred vendor status across brick-and-mortar and digital channels. These attributes, coupled with scale-based cost advantages, should augur a long-term competitive edge that enables the firm to deliver excess returns for more than 20 years. As such, we award Estée a wide moat rating.

Estee posted a 10% sales drop in the third quarter as travel retail sales fell 28%. Gross margins widened 310 basis points to 75%, but adjusted EPS fell 33% to $0.65.

Beauty names came under pressure following the Donald Trump administration’s tariff announcements on April 2, mainly reflecting investor concerns over higher costs for products from Europe. US-based Estee Lauder and Coty sold off 15% and 7%, respectively, while price movements were milder for Europe-based peers L’Oreal (negative 2%) and Puig (negative 5%).

We are lowering our fair value estimate on wide-moat Estee Lauder’s shares to $120 from $162 to incorporate a more cautious outlook as we expect prolonged woes in China (25% of total sales in fiscal 2024), higher investments, and an expanded restructuring will delay top-line and operating margin recovery. We are also adjusting our Morningstar Uncertainty Rating to High from Medium as macro headwinds in China and limited visibility on the restructuring will likely cause volatile operating results. Even so, shares remain undervalued, and we would recommend the stock for patient investors with a three- to five-year time horizon.

As a leading provider of premium beauty products, Estee Lauder owns category-leading brands in skin care, cosmetics, and fragrances underpinning its brand intangibles, in addition to retaining a preferred vendor status across brick-and-mortar and digital channels. These attributes, coupled with scale-based cost advantages, should augur a long-term competitive edge that enables the firm to deliver excess returns for more than 20 years. As such, we award Estee a wide moat rating.

We are putting Estee Lauder under review and plan to cut our fair value estimate by roughly 20%. Shares of the wide-moat beauty product maker fell 16% on Feb. 4 after the firm issued sobering third-quarter guidance calling for adjusted earnings per share to plunge between 69% to 79% on an 8%-10% organic sales decline. Given management comments on persistent demand headwinds in China and Asia travel retail, an expanded restructuring that will likely delay cost-saving benefits to fiscal 2027, and significant investment needs in innovation and consumer engagement, we think our projections for the coming years are no longer achievable.