Estée Lauder's stock is the S&P 500's worst performer today, as investors were betting on much higher profits

By Bill Peters

Estée Lauder beat earnings expectations and raised its profit outlook, but not by enough to meet high investor expectations

Estée Lauder reported fiscal second-quarter results on Thursday.

Estée Lauder may have raised its full-year profit outlook on Thursday, but investors weren't buying it, sending shares 19.2% lower as the cosmetics giant contends with tariffs and bigger investments in its turnaround plans, as well as high investor expectations.

The drop made the stock the S&P 500's worst performer at the close of trading. The fall also marked the biggest one-day percentage decrease for the stock since Oct. 31, 2024, when it fell 20.9%.

In the company's (EL) earnings release, CEO Stéphane de La Faverie said he was upbeat on the turnaround efforts so far, which have involved slashing costs, conducting layoffs and taking steps to become more nimble. He called it "the biggest operational, leadership, and cultural transformation in our history."

De La Faverie, who took over as chief executive last year, said he expected the company to expand operating margins for the first time in four years in fiscal 2026, which runs through June.

Still, he warned in the earnings release of "previously-expected headwinds and now-greater consumer-facing investments" in the second half of Estée Lauder's fiscal year. And the company said it continues to expect that tariffs will cost it roughly $100 million in profits, with that hit landing largely in the months ahead.

"We remain cautious of potential near-term headwinds, including those from macroeconomic, geopolitical and retailer-specific uncertainties," de La Faverie said during the call. "Though we are encouraged by our momentum and year-to-date performance."

Prior to Thursday's selloff, the turnaround efforts appeared to be working, as the stock had closed Wednesday at a 20-month high, following a 139% rally off a 14-year low hit in April 2025.

Estée Lauder said it now expects full-year adjusted earnings of $2.03 to $2.23. That was up from earlier expectations of $1.87 to $2.07. And while second-quarter results on Thursday topped estimates, some on Wall Street may have been looking for a bigger beat.

Analysts at Oppenheimer said that ahead of the results, bigger profits were needed in order to lift the stock, given high investor expectations.

Raymond James analyst Olivia Tong also said there was a "high bar" for Estée Lauder's results to clear. Still, in a research note on Thursday she contended that the company was meeting those expectations, and that it was likely still being cautious with its outlook.

"More importantly in our view, organic sales growth accelerated in three of four regions and three of four product categories, while the U.S. is stabilizing and China is accelerating, operating margins are back to double-digits," she said.

Estée Lauder is trying to become a faster company focused more deeply on new products as social media accelerates trend cycles. During the company's earnings call on Thursday, de La Faverie touted its expansion on Amazon's premium beauty stores and on TikTok.

He said that its "consumer-facing" investments included opening new retail locations for its luxury fragrance brands while closing some of its MAC and Origins locations.

-Bill Peters

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

02-05-26 1650ET