TLDR
- Estee Lauder shares crashed 23% Thursday despite adjusted earnings of 87 cents beating the 83-cent estimate
- Non-adjusted profit of 44 cents per share missed the 78-cent forecast due to restructuring program costs
- Company warns $100 million in tariff expenses will pressure fiscal 2026 profits and third-quarter margins
- China sales jumped 13% while revenue grew 6% to $4.23 billion, meeting analyst expectations
- Full-year guidance raised to 1-3% organic sales growth and $2.05-$2.25 adjusted earnings per share
Estee Lauder stock got hammered Thursday despite posting better-than-expected quarterly results. The cosmetics giant fell victim to tariff concerns and restructuring costs that sent shares tumbling 23% to $95.56.
The Estée Lauder Companies Inc., EL
The company reported adjusted earnings of 87 cents per share for its fiscal second quarter ended December 31. That topped Wall Street’s 83-cent estimate.
Revenue rose 6% to $4.23 billion, matching analyst forecasts perfectly.
So why the brutal selloff? Investors focused on what happened below the surface.
Estee Lauder’s non-adjusted earnings came in at just 44 cents per share. That missed estimates of 78 cents by a country mile. Restructuring charges from a program launched last February ate up roughly half the quarter’s profit.
Tariff Costs Create $100 Million Headache
The real concern for investors centered on tariffs. Management warned that tariff-related expenses will cut $100 million from fiscal 2026 profits.
The company faces a 39% tariff rate on Swiss imports and 35% on Canadian imports into the U.S. Those costs will hit hardest in the second half of the fiscal year.
Third-quarter operating margins will shrink by about 0.5 percentage points due to tariffs and increased consumer spending.
Citi analyst Filippo Falorni said the market reaction was predictable. The buy-side had set expectations “very high” heading into earnings.
Oppenheimer’s Rupesh Parikh noted the stock needed serious earnings upside to rally. That didn’t materialize.
TD Cowen analyst Oliver Chen saw bright spots in “improving momentum across global luxury markets and early signs of a China inflection.” But the market wasn’t interested.
China Strength Can’t Save the Day
China delivered the quarter’s best regional performance with 13% organic sales growth. That’s encouraging after years of struggles in the critical market.
Europe, the UK, Middle East and Africa grew 2%. The Americas posted flat organic sales.
Skincare and fragrance both notched 6% sales increases. Hair care bounced back with 5% growth. Makeup sales slipped 1%, primarily due to the Estee Lauder brand, though MAC provided some offset.
Gross margin expanded 40 basis points to 76.5%. The company’s Profit Recovery and Growth Plan delivered savings through operational improvements and smarter procurement. However, tariffs, mix shifts and inflation ate into those gains.
CEO Stéphane de La Faverie called the Beauty Reimagined program the company’s biggest transformation ever.
Despite the stock’s collapse, management raised full-year guidance. Organic sales growth is now projected at 1% to 3% for fiscal 2026. Adjusted earnings guidance increased to $2.05 to $2.25 per share.
Raymond James analyst Olivia Tong suggested the second-half outlook includes “some conservatism” layered on top of higher innovation spending. She pointed out that sales growth accelerated in three of four regions and three of four product categories.
Operating margins returned to double digits. The 89-cent adjusted EPS beat even Tong’s bullish 88-cent estimate, despite a five-cent tax rate headwind.
The company expects tariff pressure to continue through the remainder of fiscal 2026, with most of the $100 million impact hitting in the back half of the year.
