What Estee Lauder Companies (EL) Said on Its Q1 Earnings Call

Key Points

• Strong first-quarter performance: Estée Lauder reported 6% organic sales growth, with gross margin rising 240 basis points and operating margin increasing 480 basis points. Diluted EPS more than doubled to $0.72.
• Fragrance and international markets led growth: Fragrance sales rose 20%, while mainland China grew 9% and priority emerging markets increased 15%. Online sales also delivered high-single-digit growth globally.
• Fiscal 2027 outlook raised: The company now expects 4% to 5.5% organic sales growth, a 12.9% to 13.7% operating margin and diluted EPS of $3.20 to $3.45, though management warned of potential macroeconomic, geopolitical and travel-retail risks.

Estee Lauder Companies NYSE: EL raised its fiscal 2027 outlook after reporting first-quarter organic sales growth of 6%, stronger profitability and broad-based gains across regions. The company said its Beauty Reimagined strategy and Profit Recovery and Growth Plan, or PRGP, supported the quarter’s performance.

Reported sales increased 7% in the fiscal first quarter, while organic sales rose 6%. Three of the company’s four product categories grew, and each geographic region posted growth, according to President and Chief Executive Officer Stéphane de La Faverie.

“Growth is accelerating, profitability is strengthening significantly, and the impact of Beauty Reimagined is becoming increasingly evident across our business,” de La Faverie said.

Margins and earnings improved

Gross margin expanded 240 basis points year over year to 75.7%, while operating margin increased 480 basis points to 12.1%. Diluted earnings per share rose 125% to $0.72, compared with $0.32 in the prior-year period.

Chief Financial Officer Akhil Shrivastava attributed the margin expansion to sales leverage, strategic pricing, procurement savings, manufacturing efficiencies and cost discipline. The company increased consumer-facing investments by 8%, including advertising, promotions and spending to support innovation, while reducing non-consumer-facing expenses by 1%.

Estee Lauder said it continues to execute restructuring actions under the PRGP and expects the “vast majority” of the plan’s full run-rate benefits to be realized by the end of fiscal 2027. Management distinguished the PRGP from its One ELC operating model, which it described as a broader approach to improving speed, reducing duplication and simplifying processes across the organization.

The company also reported progress in cash productivity. Cash used for operating activities was $166 million, compared with $340 million in the previous year’s first quarter. Free cash flow was a use of $235 million, an improvement from a use of $436 million a year earlier.

Fragrance led category growth

Fragrance was the standout category, with organic sales up 20%. De La Faverie said demand was strong for products from Le Labo, TOM FORD, Jo Malone London and KILIAN PARIS. KILIAN PARIS was the company’s fastest-growing brand, aided by the launch of The Cocktails Collection in the prestige price tier.

Le Labo delivered double-digit organic sales growth, while TOM FORD’s Ombré Leather Reserve launch supported sales and created what management called a halo for the existing Ombré Leather franchise. The company also cited early momentum for Estée Lauder Glimmer in the U.S. and U.K. and said it plans to expand the fragrance to additional markets in the second half of the fiscal year.

Skincare organic sales increased 4%, supported by products from La Mer, Estée Lauder and The Ordinary. Makeup posted its second consecutive quarter of organic growth, with M·A·C and TOM FORD both up double digits. M·A·C gained prestige makeup share in the U.S. for seven consecutive months and also gained share in China, Japan and Korea during the quarter.

Hair care performance stabilized after a modest decline. The Ordinary’s Hair Density Serum generated strong growth, partly offsetting supply chain and logistics challenges at Aveda. Management said it was working to resolve Aveda’s issues and saw improving brand health and salon share trends in the U.S.

China, emerging markets and online channels contributed

Asia Pacific led regional growth, while mainland China delivered 9% organic sales growth. In China, skincare and makeup sales each rose by high single digits and fragrance increased by double digits. The company said it outperformed the prestige beauty industry and gained share for the seventh consecutive quarter, led by TOM FORD, The Ordinary, Le Labo and La Mer.

De La Faverie characterized China as a mature beauty market that the company expects to grow at a mid-single-digit pace. He said Estee Lauder had 11 brands growing in the country, including six with double-digit growth, and that approximately 30% of its global innovation now originates in China.

Priority emerging markets grew 15% organically, driven by Turkey, Mexico and India. The company completed its acquisition of the remaining interest in Forest Essentials on Oct. 5, strengthening its position in India’s prestige beauty market. Forest Essentials is not expected to have a material effect on fiscal 2027 consolidated results.

Online sales grew at a high-single-digit rate, with double-digit growth in Asia Pacific and high-single-digit gains in each of the other three regions. The company said its retail sales growth online exceeded industry growth by more than two times in the U.S. and China, its two largest markets. Brick-and-mortar sales, including travel retail, increased at a mid-single-digit organic rate.

Outlook raised, though uncertainties remain

For fiscal 2027, Estee Lauder now expects organic net sales growth of 4% to 5.5%, up from its prior forecast of 3% to 5%. With foreign-exchange translation, reported sales growth is projected at 5% to 6.5%.

• Operating margin: Expected to expand by 170 to 250 basis points, compared with the prior outlook of 150 to 230 basis points.
• Full-year operating margin range: 12.9% to 13.7%, up from 12.7% to 13.5% previously.
• Diluted EPS: Expected to be $3.20 to $3.45, compared with the prior range of $3.10 to $3.35.
• Operating cash flow: Expected to total $1.4 billion to $1.5 billion, up from $1.3 billion to $1.4 billion.

Management expects growth to be stronger in the first half than in the second half because of innovation timing and tougher comparisons in travel retail later in the year. The outlook assumes no further deterioration in geopolitical conditions, including no material effects from the Middle East conflict and stabilization of current disruptions in certain EUKEM markets.

Executives said they remain focused on aligning shipments with retail sales, particularly in travel retail, where retail trends have improved in Hainan, Korea and Western markets. However, they acknowledged that macroeconomic and geopolitical conditions could continue to affect results.

About Estee Lauder Companies (NYSE:EL)

The Estée Lauder Companies Inc NYSE: EL is a global prestige beauty company that develops, markets and sells skincare, makeup, fragrance and hair-care products. Its portfolio includes brands such as Estée Lauder, Clinique, M·A·C, La Mer, Jo Malone London, Aveda, Bobbi Brown Cosmetics, Tom Ford Beauty, Le Labo and The Ordinary.

Founded in 1946 by Estée and Joseph Lauder, the company began with four skincare products and has expanded into a multinational beauty business. Its products are sold through department and specialty stores, beauty retailers, brand-operated stores, e-commerce platforms, salons, spas and other distribution channels.

The Estée Lauder Companies serves consumers in markets across the Americas, Europe, the Middle East and Africa, and Asia-Pacific.

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