Updated 4:17 p.m. ET May 1
The Estée Lauder Cos.’ third-quarter earnings came without a Puig deal — the two sides are still in talks — but there were still plenty of signs that the beauty giant is on the move.
Third-quarter organic sales grew by 2 percent, with a 10 percent gain in fragrance; adjusted earnings topped estimates, and the company offered an early forecast on fiscal 2027, projecting stronger growth.
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Lauder is also expanding on its profit recovery and growth plan and now expects a total of 9,000 to 10,000 layoffs, up from the 5,800 to 7,000 previously forecast.
Seventy percent of the additional cuts come from demonstration roles at unproductive department stores and freestanding channels, indicating just how much more digital beauty has become and how much Lauder is looking to avenues like Amazon and TikTok for growth.
Investors liked what they saw and traded shares of the company up about 15 percent in premarket trading, although gains moderated as the day wore on and the stock closed up 3.4 percent to $79.30, leaving the company with a market capitalization of $28.7 billion.
In an interview with WWD, Stéphane de La Faverie, president and chief executive officer, sounded positive and was clearly feeling some additional traction in a slippery consumer landscape.
“We have strong third-quarter results, which more importantly for me, allows us to just raise the guidance for the full-year outlook in net sales and in profitability,” de La Faverie said.
Lauder boosted its outlook in the second quarter as well — but not as much as some were hoping, leaving Wall Street disappointed. This increase flips the script. The company is now looking for 2026 organic sales to rise by about 3 percent, at the top end of its prior range, and for adjusted operating margins range from 10.7 to 11 percent. That’s a good step up from the February forecast calling for adjusted margins of 9.8 to 10.2 percent.
And Lauder is going a step further, offering an early peek at its 2027 forecast, which calls for the top-line increase to ramp up to 3 to 5 percent.
“We are going into the next few years where growth is going to matter,” the CEO said, projecting mid- to high-single-digit share gains around the world.
As Lauder leans in on growth, it is also cutting back some on parts of its legacy business that don’t fit into the future — including the cuts at the demonstration counters of underperforming stores.
But de La Faverie is not backing away from the human touch.
“Experience at the point of sale, we’re putting it front and center to everything we do,” he said. “Yes, online is growing…and we intend to capture the lion’s share of growth online, but experience is at the center of what we are doing in brick-and-mortar.
“By reducing the tail of the distribution that is dilutive, it allows us to invest more in the top distribution doors,” he said. “We are not in any way, shape or form moving away from experience. On the contrary, we are concentrating our investment in the top doors and what I call now experience centers to really make sure that we capture the foot traffic and we increase the retention and the conversion.”
De La Faverie painted this as part of the natural evolution of retail, where customer patterns changed after the pandemic.
“The city center that used to be the destination, today we’re seeing new cities,” he said. “Look at the U.S., we’ve seen an explosion in Florida and some other states where traffic is reduced. So you need to constantly flex your retail muscle to also adapt to where the right traffic is.”
For the quarter ended March 31, net sales increased 5 percent to $3.7 billion. Adjusted operating margins expanded to 15 percent from 11.4 percent a year earlier, driven by gross margin expansion and the company’s efforts to streamline.
Net earnings fell 44 percent to $89 million, but adjusted profits were headed in the other direction and diluted earnings per share increased to 91 cents from 65 cents. Analysts had expected adjusted earnings to be flat for the quarter.
The conflict in the Middle East shaved 2 cents off the company’s adjusted earnings.
While the fallout from the war with Iran is something that companies really have to just endure, de La Faverie is clearly feeling bullish about the things he can control.
In the Americas, for instance, he stressed the importance of accelerating customer recruitment.
“The fact that we are gaining volume share in every category is for me a sign the wheel of recruitment is back in North America,” the CEO said. “We are stabilizing it. I’m also super encouraged by the launch of MAC at Sephora.” He also pointed to The Ordinary, which continues to accelerate.
China is also continuing to show signs of life.
“It’s the fifth quarter in a row in China where we are gaining market share,” de La Faverie said. “It shows the strengths of our brand, the desirability of our brand, and the success of the activation.
“We have momentum and there’s many, many areas from the sequential improvement of retail trend around the world to the continuous strengths of our fragrance category, the sequential improvement of makeup and hair care,” he said. “The continuation of the great work that we’ve done in China, but also the stabilization of the Americas…is an indication that we’re really moving in the right direction.”
By category during the quarter:
Skin care posted sales of $1.9 billion, flat on an organic basis, with operating income of $444 million.
Makeup sales totaled $1.1 billion, also flat on an organic basis, and an operating loss of $3 million.
Fragrance was the standout growth category, with organic sales up 10 percent to $628 million. Operating income tallied $21 million.
And hair care was also flat on an organic basis at $128 million in sales. Operating losses stood at $5 million.
De La Faverie told analysts on a conference call: “We’re executing the biggest transformation in our company history at every level leadership, cultural, operational, you name it.
“We’ve demonstrated over the last three quarters and actually since the launch of Beauty Reimagines,” he said. “Now, the fifth quarter we executed with speed and agility. We are back to growth now for the first time in four years, we are expanding margin.”
That’s a lot of work on its own.
Now the question is how the company continues to evolve if it joins forces with Puig.