Estée Lauder Posts Solid Q2 Beat, Raises Guidance as Turnaround Gains Traction
The Estée Lauder Companies Inc. (NYSE:EL) reported fiscal second-quarter results that surpassed analyst expectations on profitability, driven by its ongoing restructuring efforts and strong performance in key markets like Mainland China. However, a top-line revenue miss and a cautious outlook for the coming quarters appear to be weighing on investor sentiment in early trading.
Quarterly Performance vs. Estimates
For the quarter ended December 31, 2025, the prestige beauty giant reported net sales of $4.23 billion, representing a 6% increase year-over-year. On an organic basis, which excludes the impact of foreign currency translation and other adjustments, sales grew 4%.
- Revenue: The reported figure of $4.23 billion came in below the analyst consensus estimate of approximately $4.34 billion.
- Earnings Per Share (Adjusted, Non-GAAP): The company delivered adjusted EPS of $0.89, a 43% jump from the prior year. This comfortably exceeded the Wall Street estimate of $0.857.
The earnings beat was fueled by significant margin expansion. Adjusted operating margin widened by 290 basis points to 14.4%, reflecting the early benefits of the company's Profit Recovery and Growth Plan (PRGP). This strategic initiative aims to streamline operations and reduce costs to fund growth investments.
Market Reaction and Forward Outlook
Despite the earnings beat, shares of Estée Lauder were indicated significantly lower in pre-market trading. This negative reaction is likely attributable to the revenue shortfall and the company's tempered expectations for the second half of the fiscal year.
Management raised its full-year outlook, expressing confidence in the ongoing turnaround. However, the guidance implies some near-term challenges:
- The company now forecasts full-year adjusted EPS in the range of $2.05 to $2.25, up from its previous view. The midpoint of this new range ($2.15) is above the current analyst consensus estimate of $2.12 for fiscal 2026.
- For the full year, organic net sales are expected to grow between 1% and 3%. This tightened range suggests management anticipates persistent headwinds, including a noted transitory impact from changes in duty-free retailers in Beijing and Shanghai and ongoing softness in parts of the travel retail sector.
- The company also highlighted an expected $100 million profit impact from enacted tariffs, with most of that headwind occurring in the second half.
Key Takeaways from the Earnings Report
The quarter underscored both the progress and the remaining challenges in CEO Stéphane de La Faverie's "Beauty Reimagined" transformation strategy.
Operational Highlights:
- Skin Care Lead Growth: The Skin Care category, the company's largest, saw organic sales rise 6%, driven by strength from La Mer, Estée Lauder, and The Ordinary.
- Mainland China Strength: The region delivered a second consecutive quarter of double-digit retail sales growth, with the company gaining market share across all product categories.
- Restructuring Progress: The PRGP is advancing, with over 6,000 position reductions approved to date. The company has recognized $904 million in cumulative restructuring charges and remains on track to achieve targeted annual savings of $0.8 to $1.0 billion.
Segment Performance:
- Skin Care: Organic sales +6%; Operating income +48%.
- Makeup: Organic sales -1%; Returned to operating income from a prior-year loss that included impairment charges.
- Fragrance: Organic sales +6%; Returned to operating income from a prior-year loss that included impairment charges.
- Hair Care: Organic sales +5%; Returned to operating income from a prior-year loss.
Conclusion
Estée Lauder's second-quarter results paint a picture of a company successfully executing a painful but necessary operational turnaround, as evidenced by a substantial earnings beat and raised profit guidance. The market's initial negative reaction, however, focuses on the slower-than-expected revenue growth and the company's own acknowledgment of ongoing headwinds. Investors are balancing the clear progress on profitability against concerns about the pace of the top-line recovery in a complex global macroeconomic environment.
For a detailed look at Estée Lauder's historical earnings and future analyst estimates, visit the earnings estimates page for EL.
Disclaimer: This article is for informational purposes only and does not constitute investment advice, nor does it recommend the purchase or sale of any security. Investors should conduct their own research and consult with a qualified financial advisor before making any investment decisions.
