Estee Lauder Companies (NYSE:EL) executives highlighted what they described as a strong fiscal 2026 second quarter, pointing to improving retail trends, expanded profitability, and an increased full-year outlook as the company marked one year under its “Beauty Reimagined” transformation plan.
Quarter performance: organic sales up 4%, EPS up 43%
President and CEO Stéphane de La Faverie said the company delivered 4% organic sales growth in the second quarter, alongside operating margin expansion and a 43% increase in EPS, which he attributed in part to expense discipline and savings from the company’s Profit Recovery and Growth Plan (PRGP).
On profitability, Shrivastava reported:
- Gross margin of 76.5%, up 40 basis points year-over-year, driven by PRGP benefits and improved sales leverage, partially offset by tariffs, mix, and inflation.
- Operating margin of 14.4%, up 290 basis points from 11.5% last year, aided by PRGP net benefits, disciplined investment allocation, and a 3% reduction in non-consumer-facing expenses while consumer-facing investment increased 7%.
- Diluted EPS of $0.89, up from $0.62 a year earlier.
Beauty Reimagined: channel expansion, faster innovation, and “One ELC”
De La Faverie said the company expanded consumer coverage “across online and brick-and-mortar in every region,” increased consumer-facing investment each quarter, and implemented “One ELC,” a new operating model intended to align brands, regions, and functions with fewer layers and clearer ownership.
On channel strategy, management emphasized continued moves into higher-growth platforms. De La Faverie said the company has expanded to 12 brands across 10 markets in Amazon Premium Beauty Stores, announced brand reach on TikTok Shop in the U.S. and Southeast Asia (with a first launch in the U.K. and Germany), and cited performance on platforms including Temu, Douyin, JD, Notino, and Tmall Global. He said online delivered high single-digit organic sales growth in the first half, and management expects online’s share of reported sales to exceed the 31% reached in fiscal 2025.
Innovation was another major focus. De La Faverie said the company is on track for innovation to represent at least 25% of sales in fiscal 2026, and said efforts to increase the share of innovation launched in under a year are tracking to 19% for the year, above the company’s initial 16% expectation.
Regional and category commentary: China strength, travel retail complexity, and U.S. channel shifts
Management described improving global retail trends in the first half of fiscal 2026, with global retail sales moving from down 4% in the first quarter to flat in the second quarter as travel retail declines moderated. Excluding travel retail, de La Faverie said retail sales grew 4% in the first half.
In mainland China, de La Faverie said the company delivered double-digit growth and outperformed prestige beauty, with gains led by La Mer and TOM FORD. He said the company became the number one prestige brand on Tmall and Douyin during 11.11 for Estée Lauder, with La Mer number one in luxury on Tmall and Jo Malone number one in prestige fragrances on Tmall. He also said discount levels in China are “coming down” while growth continues, which management tied to improving profitability.
Travel retail drew extended discussion during Q&A. De La Faverie said Hainan has shown momentum, citing high single-digit retail sales growth in the quarter and “high double digit” growth for the company in January, aided by more “eventing” to improve conversion. At the same time, he described disruption in the broader North Asia travel retail ecosystem tied to concession transitions in Beijing and Shanghai airports and the shutdown of a “universal app” online business during the transition away from Sunrise to a mix including China Duty Free, Avolta, and Wangfujing. Shrivastava added that the company is seeing outperformance in parts of travel retail in the West and in Hainan.
In the U.S., de La Faverie said the company gained volume share in total prestige beauty for the quarter and calendar 2025 and grew value share in skincare, led by The Ordinary, and in haircare. He also noted Estée Lauder gained share in makeup in calendar 2025. In discussing channel mix, he said department stores now represent “30% or less” of North America business, while penetration is increasing in online players such as Amazon and TikTok Shop, and specialty multi. He highlighted the upcoming MAC launch in U.S. Sephora as a milestone after years of not being present across all specialty multi.
In Europe, de La Faverie described a “tale of multiple cities,” citing subdued consumer sentiment in markets including France and Germany while pointing to stronger performance in Spain and Italy, where the company is gaining fragrance share. He said the U.K. returned to growth in the second quarter but still requires work, with playbooks from the U.S. being applied, including Amazon expansion and distribution rationalization.
PRGP savings, restructuring progress, and cash flow improvement
Shrivastava reiterated that PRGP savings contributed to margin improvement and funded increased consumer-facing investment. He also said the company made progress on restructuring elements of PRGP, including the launch of enterprise business services and selection of Accenture to help transform select shared services globally and accelerate AI deployment. He cautioned that the migration may bring some near-term cost pressure as operations run in parallel, with benefits expected to build over time.
Through December 31, the company recorded $904 million of cumulative restructuring charges, primarily employee-related, according to the CFO.
On cash flow, Shrivastava said net cash from operating activities for the first six months was $785 million, up from $387 million last year, driven primarily by higher earnings. The company invested $204 million in capex in the first six months, with capex down 25% year-over-year due to project phasing.
Outlook raised: sales up 1%–3%, EPS $2.05–$2.25
Management raised fiscal 2026 guidance. The company now expects organic net sales growth of 1% to 3% for the full year. At the midpoint, Shrivastava said the company assumes growth in all regions except the Americas, where sales are expected to be flat. For the second half, the company expects low single-digit organic growth, with higher growth in the fourth quarter than the third.
On profitability, the company now expects operating margin of 9.8% to 10.2%, up from 9.4% to 9.9%. Shrivastava said the second half is expected to show operating margin expansion overall, but the third quarter is expected to see about 50 basis points of contraction due to increased consumer-facing investment tied to the company’s largest innovation schedule and tariff headwinds.
Diluted EPS is now expected to range from $2.05 to $2.25, up from $1.90 to $2.10 previously, reflecting expected year-over-year growth of 36% to 49% and assuming a weighted average share count of approximately 365 million shares.
Executives repeatedly emphasized that, despite macroeconomic and geopolitical uncertainty and near-term travel retail disruptions tied to retailer transitions in Asia, they are aiming for the top end of the updated ranges. The company also said it is refreshing its longer-range plan and expects to provide more mid- to long-term visibility later in the fiscal year.
About Estee Lauder Companies (NYSE:EL)
Estée Lauder Companies Inc (NYSE: EL) is a global leader in prestige beauty that develops, manufactures and markets a broad portfolio of skincare, makeup, fragrance and hair care products. Founded in 1946 by Estée Lauder, the company has grown from a small family business into a multinational consumer-products enterprise headquartered in New York City. Its activities span product research and development, brand and product marketing, manufacturing and global distribution across multiple retail channels.
The company’s portfolio includes a mix of legacy and prestige brands that target different consumer segments and price points, with well-known names such as Estée Lauder, Clinique, MAC, La Mer and Jo Malone among others.
