Q2 2026 The Estée Lauder Co Inc Earnings Call

February 5, 2026

Speaker #1: Good day, everyone, and

Rainey Mancini: Good day, everyone, and welcome to the Estée Lauder Companies' Fiscal 2026 Q2 conference call. Today's webcast is being recorded. For opening remarks and introductions, I would like to turn the call over to the Senior Vice President of Investor Relations, Ms. Rainey Mancini.

Operator: Good day, everyone, and welcome to the Estée Lauder Companies' Fiscal 2026 Q2 conference call. Today's webcast is being recorded. For opening remarks and introductions, I would like to turn the call over to the Senior Vice President of Investor Relations, Ms. Rainey Mancini.

Speaker #1: welcome to the ESTE LAUDER COMPANY's fiscal 2026 second quarter conference call. Today's webcast is being recorded. For opening remarks and introductions, I would like to turn the call over to the Senior Vice President of Investor Relations, Ms. Rainey Mancini.

Speaker #2: Hello. On today's webcast are Stephane Faverie, President and Chief Executive Officer, and Akhil Shrivastava, Executive Vice President and Chief Financial Officer. Since many of our remarks today contain forward-looking statements, let me refer you to our press release and our reports filed with the SEC, where you'll find factors that could cause actual results to differ materially from those forward-looking statements.

Rainey Mancini: Hello. On today's webcast are Stéphane de La Faverie, President and Chief Executive Officer, and Akhil Shrivastava, Executive Vice President and Chief Financial Officer. Since many of our remarks today contain forward-looking statements, let me refer you to our press release and our reports filed with the SEC, where you'll find factors that could cause actual results to differ materially from those forward-looking statements. To facilitate the discussion of our underlying business, the commentary on our financial results and expectations is before restructuring and other charges and adjustments disclosed in our press release. Unless otherwise stated, all organic net sales growth also excludes the non-comparable impacts of acquisitions, divestitures, brand closures, and the impact of foreign currency translation. You can find reconciliations between GAAP and non-GAAP measures in our press release and on the investor section of our website.

Q2 2026 The Estée Lauder Co Inc Earnings Call

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Q2 2026 The Estée Lauder Co Inc Earnings Call

Thursday, February 5th, 2026 at 1:30 PM

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Stéphane de La Faverie: Thank you, Rainey, and hello to everyone today. We reported strong second quarter results, marked the one-year anniversary of Beauty Reimagined, and raised our fiscal 2026 outlook... Our second quarter performance further exemplify the momentum we have created across our 5 action plan priorities. Having delivered 4% organic sales growth, our growth and operating margin expanded, and EPS grew 43%, showcasing once again our ability to manage expenses. For the first year, we made promises; we kept promises as we expanded our consumer coverage across online and brick-and-mortar in every region, overhauled our innovation engine with new leadership, faster to market launches, and a renewed consumer-first mindset. We increased Consumer-Facing Investment every quarter to accelerate recruitment, enabled by significant saving from the PRGP, and created one ELC, one new operating model, aligning brands, regions, and function as one team with one culture and one operating ecosystem.

Stéphane de La Faverie: We gained share for the quarter and calendar year 2025, led by La Mer and Tom Ford, showcasing the strong desirability of our brands compared to international and local peers. In Hainan, our retail sales grew high single digit in the quarter, led by Estée Lauder and La Mer. In Japan, we outperformed prestige beauty in the quarter, driven by M·A·C and Le Labo. For calendar 2025, we gained share in France to strengthen our number one category rank. In the US, for the quarter and calendar 2025, we gained volume share in total prestige beauty. We also grew value share for the quarter and calendar 2025 in skincare, led by The Ordinary and haircare. In addition, Estée Lauder gained share in makeup for calendar 2025. These retail results and share trend reflect the exceptional execution of Beauty Reimagined over the last year.

Stéphane de La Faverie: For our first action plan priority, we moved rapidly to expand our portfolio presence in consumer preferred, high growth channels, market, media, and price tiers. We expanded our presence on Amazon premium beauty stores, now with 12 brands across 10 markets. We also announced our brand reach on TikTok Shop in the US and Southeast Asia, and launched our first brand in the UK and Germany. This work, coupled with strong performance on Temu, Douyin, JD, Notino, and Trendyol, drove high single-digit online organic sales growth in the first half, leading us to believe we outperformed prestige beauty in the channel. For fiscal 2026, online is on track to exceed the 31% of reported sales reach in fiscal 2025, as we increasingly tap into the full potential of this high growth channel.

Stéphane de La Faverie: We increased our presence in travel retail across the West, including with Duty Free Americas, as well as new and upgraded doors for our luxury fragrances in European and Middle Eastern airports, contributing to double-digit retail sales growth for fragrances across several major retailers in the first half of fiscal 2026. This strategic expansion is providing a double win, driving growth and diversifying our travel retail business. As we expanded our pharmacy reach in Europe and entered the channel in Latin America, while strengthening our ties in specialty multi with M·A·C up-and-coming launch in the US Sephora. For our second action plan priority, create transformative innovation, we focused on three areas of breakthrough, on-trend, and commercial. In China, innovation resonated especially strongly. Estée Lauder's three breakthrough launches in the longevity skincare science space contributed to its double-digit organic sales growth in skincare in the market.

Stéphane de La Faverie: Our China innovation lab created Re-Nutriv Oil in 15 months, quick for skincare and demonstrating how we are accelerating our speed to market. And Tom Ford, strong double-digit organic sales growth in China, was driven by highly sought after on-trend launches in lip and face, as well as France. Globally, The Ordinary's innovation and expanded consumer reach drove strong double-digit retail sales growth in the first half, demonstrating that our new model allows us to support growth for our own indie brands to drive greater scale.... For makeup, Estée Lauder's Double Wear concealer has been a game-changer in the US, achieving the top-ranked new product in prestige makeup based on units for calendar year 2025. Within haircare, Aveda's new Miraculous Oil catapulted to be the brand's top-selling product through the first half.

Stéphane de La Faverie: For fiscal 2026, we are on track for innovation to represent at least 25% of sales. As we work toward increase the percentage of innovation launched in less than a year from 10% to 30%, we are tracking to 19% for fiscal 2026, above the 16% we initially expected. Turning to our third action plan priority, we boosted consumer-facing investment focused on high ROI opportunities. We invested in our freestanding stores, opening new door for our luxury brands to showcase their unit experiential retail, while selectively closing doors for M·A·C and Origins to drive a more productive fleet. Impressively, Le Labo's strong double-digit organic sales growth in the first half of fiscal 2026 reflects its expanded reach, as well as double digit like-for-like door.

Stéphane de La Faverie: Finally, for our fifth action plan priority, our step to reimagine the way we work evolves today as we unveil One ELC, our new operating model, aligning brands, regions, and functions as one team with one culture and one operating ecosystem. We have simplified our structure in support of one team with fewer layers and silos, along with clearer ownership, to make it easier to get things done and done well. Guided by our newly announced beauty commitment to our team, we are leaning into one culture of bold thinking, accountability, agility, unity, and focus. Lastly, we have advanced our work to create a robust operating ecosystem for more connected and scalable enterprise. In the second quarter, we've established our new enterprise business services, selecting Accenture to transform how we deliver select shared services globally as we accelerate the deployment of AI throughout the organization.

Stéphane de La Faverie: This exciting partnership adds to the ecosystem we are building with leading technology providers, including Microsoft, Google, and Shopify, to fuel our ambition to be the best consumer-centric prestige beauty company. With the momentum of Beauty Reimagined and our first half result, we are raising our fiscal 2026 outlook today by narrowing the organic sales growth range towards the high end, increasing operating margin expansion from 165 to 200 basis points at the midpoint, reflecting previously expected headwind, like tides, and now greater consumer-facing investment, and raising EPS growth from 33% to 43% at the midpoint. This outlook reflects the confidence in our turnaround, as well as the significant work that we still have ahead to drive better performance in the US, as well as in the UK, despite its return to growth in Q2.

Stéphane de La Faverie: While the macroeconomic environment is challenging in the Western Europe market, we see opportunities to improve our results. For China, we are encouraged by the strong desirability of our brands and innovation, but cognizant of still subdued consumer sentiments. In our priority emerging market, after a significant acceleration to double-digit organic sales growth in Q2, we are confident that our new organizational design is enabling us to better tap into growth opportunities. For the second half of fiscal 2026, we have a rich slate of innovation. Already out in skincare, Clinique launched its new dermatologist-developed skincare line, and La Mer introduced an eye cream to pair with its successful rejuvenating night cream. For makeup, Estée Lauder's Double Wear is launching next-generation matte foundation with more wear, more shade, more benefits.

Stéphane de La Faverie: The brand is already the leader in foundation and looking to strengthen its leadership around the world. Clinique is fueling the nostalgia trend with the Chubby Stick launch. ... For fragrance, newness from Kilian Paris, Le Labo, and Tom Ford builds on the category's terrific first half as our best performing category with 10% organic sales growth. In haircare, Bumble and bumble introduced a styling product at an exciting time as it enters SalonCentric in the US. In closing, for fiscal 2026, we expect return to organic sales growth and expand our operating margin for the first time in four years, setting the stage to restore sustainable sales growth and a solid double-digit adjusted operating margin in the next few years. I am immensely grateful for the opportunity to lead this great company, especially as we celebrate the 80th of our founding.

Akhil Shrivastava: Thank you, Stéphane. Hello, everyone, and thank you for joining us today. Enabled by Beauty Reimagined, our focus continues to be on long-term consumer-centric value creation through sales growth, margin improvement, and strong cash generation. We are delivering solid progress across all three priorities, driven by the team's unwavering determination to build on a strong foundation, advance key initiatives, and increase organizational speed and agility. While there is more work ahead, we remain focused on disciplined execution and are well positioned to drive sustainable long-term value. Before sharing our updated full year outlook, I'll start with a recap of our second quarter performance. For more details on our second quarter results, please refer to a press release issued this morning. Starting with organic net sales, we grew 4% year-over-year.

Akhil Shrivastava: This was led by 6% growth in both skincare and fragrance, which was supported by increased consumer-facing investments behind go-to-market activities and innovation. Targeted expanded consumer reach also drove growth as we continued to execute against our Beauty Reimagined action plan to accelerate best-in-class consumer coverage. These category results fueled double-digit growth in both Mainland China and collectively in our priority emerging markets. In North America, sales were flat, with sequential improvement from Q1. Growth online from our continued expansion was offset by a decline in brick-and-mortar. Turning now to margins. Gross margin for the quarter was 76.5%, an expansion of 40 basis points compared to last year. Our expansion was again driven by strong net benefits from our PRGP, including operational efficiencies and, within excess and obsolescence, ongoing reductions through our zero waste initiatives.

Akhil Shrivastava: Our improved sales leverage also contributed to expansion in the quarter. These results helped offset headwinds from incremental tariffs, change in a mix of business, and inflation. Turning to operating margin, we expanded 290 basis points, delivering 14.4% compared to 11.5% last year. Our disciplined investment allocation and PRGP net benefits drove a 3% reduction in non-consumer-facing expenses, even with the normalization of employee incentive costs, helping us to maintain cost efficiency and operating leverage. This funded a 7% increase in consumer-facing investments, driving growth and continuing to strengthen brand equity. Our effective tax rate for the quarter was 39.8%, down from 42.6% last year. This was primarily due to lower tax expense related to previously issued stock-based compensation.

Akhil Shrivastava: Our rate in the quarter also reflects the estimated unfavorable impact of recently enacted US tax legislation, along with a higher effective tax rate on foreign operations due to new valuation allowances on certain deferred tax assets, primarily in Latin America. Sales growth and cost leverage drove diluted EPS growth of 43% versus last year. EPS increased to $0.89 from $0.62 last year. Looking at our overall PRGP, we continue to execute with focus and discipline, advancing initiatives to better position the company to improve its cost structure, fuel growth, and deliver sustainable long-term value. This quarter, we made significant progress in advancing our restructuring component of our PRGP, entering into a strategic agreement for enterprise business services in connection with the historic transformation of a global operating ecosystem.

Akhil Shrivastava: As Stéphane mentioned, this global initiative includes consolidating certain service providers, expanding outsourced services, and standardizing end-to-end processes using advanced technology. This enables us to unlock greater productivity and efficiency across the organization. Expected charges for these initiatives include professional service fees, employee costs, and contract terminations. We expect these initiatives to deliver net benefits that ramp up over time as the transition progresses and service levels normalize. As we execute the migration, we do expect some near-term cost pressure as we operate in parallel, with benefits building thereafter. As operational scale and efficiencies are realized, they are expected to drive OpEx improvement and keep us on track to achieve our overall PRGP savings and margin progression. In terms of restructuring costs, through December 31, we recorded $904 million of total cumulative charges, primarily in employee-related costs. Turning now to cash flows, our key priority.

Akhil Shrivastava: For the six months, we generated $785 million in net cash flows from operating activities. This is a significant improvement compared to the $387 million generated last year, primarily reflecting higher earnings, excluding non-cash items. Also contributing to the improvement was a favorable change in operating assets and liabilities, despite the meaningful increase in restructuring payments. We invested $204 million in CapEx, continuing to prioritize consumer-facing investments to fuel growth while optimizing all other CapEx investments. For the six months, CapEx was down 25% versus last year, reflecting the phasing of projects. These results underscore a strategic focus on improving free cash flow. Turning now to our expectations for the remainder of the year. We are raising our fiscal 2026 outlook.

Akhil Shrivastava: We remain cautious of potential near-term headwinds, including those from macroeconomic, geopolitical, and retailer-specific uncertainties, though we are encouraged by our momentum and year-to-date performance. Starting with organic net sales, we are narrowing our range and now expect full-year sales to increase in the range of 1 to 3% compared to last year. At the midpoint of our outlook range, we assume growth across all regions, except for the Americas, where sales are expected to be flat. In the second half, we expect organic net sales to increase low single digits, with higher growth anticipated in the fourth quarter relative to the third. This reflects an incremental transitory headwind in the second half of the year in Asia travel retail from the change of duty-free retailers servicing the Beijing and Shanghai airports, including the related online businesses. Turning now to our outlook on margin and EPS.

Akhil Shrivastava: This assumes a weighted average share count of approximately 365 million shares and reflects year-on-year growth of 36% to 49%. Please refer to our press release issued this morning for other assumptions included in our fiscal 2026 full-year outlook, including those regarding evolving trade policies and enacted tariffs. In closing, as we mark our one-year anniversary of our Beauty Reimagined strategic vision, we are energized by our performance and progress towards restoring sustainable growth, a solid double-digit operating margin, and strong cash generation. We remain focused on disciplined execution and long-term value creation. To our teams around the world, thank you for your dedication, passion, and unwavering commitment to be the best consumer-centric beauty company, together as one ELC. That concludes the prepared remarks. I'll now turn it over to the operator to begin the Q&A session.

Stéphane de La Faverie: This is actually a big milestone for us after many, many years of not playing in, like, all specialty multi-universe. So yes, we are seeing great momentum, and we are moving, Bonnie, in the right direction when it comes to North America. That being said, there's still a rebalancing of all the channels that we are in the process of doing, as highlighted by Beauty Reimagined. We've moved fast with Amazon. We are repositioning the department stores, we know, and we are exiting distribution as the distribution erodes, and we are moving fast into the specialty multi. So I believe there is great momentum, and I see a lot of more momentum going forward for our brand overall. Now, the Americas is also a combination of North America and also Latin America.

Stéphane de La Faverie: While Latin America has been very strong at the beginning of the calendar 2025, we've seen a slowdown of consumer consumption in the market. And I think one of the main challenges that we see is the enacted tariffs are starting to hurt consumer confidence in Latin America. But overall, I want to say, I feel very strong. We have momentum in the market, volume share is back, and we are moving our brands. So I do believe we will see additional momentum going forward into the market. And to the second part of your question about the cadence, and we've indicated it in the prepared remark and in the press release, we see a stronger Q4 than we see in Q3 overall for the company, because of some of the adjustments that we are seeing, especially in the East with travel retail.

Stéphane de La Faverie: You know, one of the things that we are experiencing in travel retail and is still some level of disruption, especially when it comes to Beijing, Shanghai airports, but also the online business with Sunrise. As you know, certainly, Sunrise has stopped operation. All the operation have been transferred with a mix of China Duty Free, Avolta and Wangfujing. So there's a little bit of a transition that we felt in Q2 that goes into Q3, but I really believe that there's going to be strong normalization based on the great relationship that we have had. And I want to just remind that Q2 was delivered a very strong Q2 that beat our expectation, despite actually challenging in travel retail, thanks to very strong performance in China and acceleration also in some markets in the east, in the west.

[Analyst] (Citi): Hi, good morning, everyone. Morning. Stéphane, I was hoping you could expand a bit on the travel retail business, if you can give us a state of the union of the total travel retail business, and especially in Hainan, we've seen clearly an improvement in conversion rates, in spending, in duty-free stores. So what gives? What's the outlook, as you think, going forward for that part of the business? And maybe can you comment a bit on the other parts of the travel retail business in North Asia, especially South Korea and Japan? And especially as we think about the back half of the year, where when you think about on a two-year basis, your comping more normalized shipment levels, so what is... How are you thinking that could play out in the back half of the year? Thank you.

Filippo Falorni: Hi, good morning, everyone. Morning. Stéphane, I was hoping you could expand a bit on the travel retail business, if you can give us a state of the union of the total travel retail business, and especially in Hainan, we've seen clearly an improvement in conversion rates, in spending, in duty-free stores. So what gives? What's the outlook, as you think, going forward for that part of the business? And maybe can you comment a bit on the other parts of the travel retail business in North Asia, especially South Korea and Japan? And especially as we think about the back half of the year, where when you think about on a two-year basis, your comping more normalized shipment levels, so what is... How are you thinking that could play out in the back half of the year? Thank you.

Stéphane de La Faverie: Now, if you look at Mainland China and travel retail, we outperform in Mainland China in Q2, and in the total travel retail, to your expectation, maybe we delivered less. My point is, it's an entire ecosystem that we need to look at, of where we are capturing the sales. The going forward is very strong. I want to be very clear, it is actually this change is a good thing, especially at the time where we are managing our inventory very carefully. We are shipping only to the demand, and we see this change being the right thing. We have very strong partnership with CDF, with Wangfujing, with Avolta, locally and globally, and we are in the process of putting the right GBP to make sure that we can accelerate in the course, the remaining course of this fiscal year, but frankly, beyond.

Stéphane de La Faverie: The second part of your question, obviously like, you know, Japan and the rest. You know, Japan, actually, I'm really happy because we are demonstrating in this moment in time that even in a disrupted market, because you know, obviously, there's some geopolitical tension between various markets in the region, we've seen a dramatic reduction of traffic, even though we've been able to just gain market share. And this is the number one thing that we are focused. No matter if there is growth or no growth, we want to be in a market share position, in a market share growth, and that's what we are demonstrating. Now, early into this calendar year, we're seeing a shift from Japan to Korea and other markets in the region, and we are ready to welcome the consumers with all our brands really fully deployed.

Stéphane de La Faverie: I said it again, we are about to enter, we are weeks away to enter Sephora US with MAC, which is going to be a big game changer for the brand, and we are working on more opportunities. Innovation is being ramping up. One other thing I've mentioned in my opening remark is the fast acceleration of the innovation coming in less than a year. Remember, I've committed to triple that. We're already exceeding our expectation this year. We were thinking about 16% of our innovation was going to come in less than a year, it's going to be 19%. The majority of this innovation is coming from makeup. Obviously, we can go much faster in makeup than we can do in the other categories. So we are going fast. We are deploying our makeup brand in the right distribution. We are rationalizing distribution.

Stéphane de La Faverie: And that's what I mentioned, like, you know, earlier, when we had the question on travel retail, about also creating Retailtainment. So our team, both in Travel Retail China and in Mainland China, are laser focused in creating eventing VVIP reach to the consumer. So we depend less on the high promotionality of the two major shopping festivals, being 6.18 and 11.11. And there's plenty of others. There's, like, International Valentine's Day, there's Chinese Valentine's Day, there's Women's Day. I could go on and on on the number of events. We're also driving our freestanding store fleet. We're accelerating the number of freestanding stores in the market, and this is certainly the part of the distribution we've accelerated the most that allows us to just bring experience to the consumer, so we don't rely so much on the high traffic promotional moment.

Stéphane de La Faverie: So I feel, look, we're in a good position. I mean, just to quote few result, we've gained in Q2, 22 basis points in skincare, 87 in makeup, 100 in fragrances, 85 in hair care. These are not small gains by any means. And frankly, that was not only driven by 11.11, but also the post-11.11, going into December in the preparation of Chinese New Year. So rest assured that we are laser focused on balancing the year, so we can continue to raise the consumer-facing spend in the markets, as well as really increasing the number of experience and connection we're creating with the consumers. But the momentum is good. I've been also very clear that China FY calendar 2025, we were lapsing two years of negative trend. The good news is that we've accelerated, and we've accelerated above the market.

Akhil Shrivastava: So when these channels are in growth mode year-over-year, that mix causes that. The other factor has been inventory, where we have made significant progress. So our inventory, frankly, everywhere in the world, are lower or in line with where we need it to be, including in North America. Now, North America is, of course, a shifting retail landscape, so we have to constantly manage it. But what we are seeing is a clear improvement and difference between retail growth and net growth. And I also wanted to follow up on Bonnie's comment earlier, which is that: Look, North America, Q1 was down. Q2 is a positive, and we said full year would be flattish, which means the rest of the years after Q1 should be positive for North America. So we and that's what we are working towards.

Stéphane de La Faverie: We've seen a lot of challenges in France, in Germany, to name, like, you know, a few markets, but at the same time, actually really strong performance in markets like Spain or Italy, where we are gaining share in fragrances. And, you know, this region of the world is highly penetrated in the category of perfume, so it's very good for us to be able to demonstrate that we are able to just gain market share in this category. So we have a lot of work to do. I'm actually pleased with the beginning of momentum that we are getting into the UK, and many of the playbook that we've used in the US, we are applying to the UK. We've moved some of our brands into the Amazon platform in the UK. We are rationalizing distribution. We are accelerating the work we are doing with specialty multi.

Stéphane de La Faverie: We've had really great support and great performance at Sephora UK. Obviously, like, you know, Boots, our historical partner, to name a few. So great, great momentum. And frankly, where I am the most excited, based on the new organization we've put in place, are the emerging markets. Our priority emerging market, they developed double-digit growth into the quarter, which is a sequential improvement, and it's driven by Turkey, by Middle East, by Thailand, and even mid-single-digit in India. That is such a very strategic market for us. So I think it's a tell, of, Chris, of so many different cities, and stories, sorry, like, you know, about, like, you know, this very complex region. But again, it's moving in the right direction. More work to do, but the team is laser focused on activating with excellence all the launches.

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