The Estee Lauder Companies Inc. Class A 2026 Q4 Earnings Call

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 these 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, references to net sales refer to organic net sales, which 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.

Retail sales performance discussed is based on information available as of August 14, 2026. As a reminder, references to online sales include sales we make directly to our consumers through our brand.com sites and through third-party platforms. It also includes estimated sales of our products through our retailers' websites. Throughout our discussion, our profit recovery and growth plan will be referred to as our PRGP. During the Q&A session, we ask that you please limit yourself to one question so we can respond to as many participants as possible within the time scheduled for this webcast. Now we have a brand portfolio video before Stéphane begins.

Thank you, Laraine, and hello to everyone. I am incredibly proud of our fiscal 2026 results. We reignited growth with organic sales rising 3%, driven by the breadth of growth across brands and expanded operating margins significantly. When we introduced Beauty Reimagined in February 2025, we committed to the biggest organizational, leadership, and cultural transformation in our company's history to become faster and more agile with greater discipline. Our ambition was clear, become the best consumer-centric prestige beauty company with more diversified, balanced, and sustainable growth drivers. Before getting into our fiscal 2026 result, which reflect the early success of this ambition, I want to share why I'm more optimistic for the company's future today, 18 months into my tenure as CEO, and address some of the questions that have arisen in recent months. First, can we accelerate growth? Yes, we just did, and we will again.

The PRGP's approvals are done, and now all our energy can be focused on accelerating growth. As we continue to deploy our One ELC operating model, we are enabling the entire organization to do what we do best. This means deepening investment in the desirability of our brands, leveraging superior AI-enabled consumer-driven insights to drive breakthrough innovation and executing with excellence. Second, the elephant in the room, M&A. Our focus has been and will remain growing our core business. We will continue to pursue minority and single-brand deals that enhance our portfolio and can benefit from our ability to create scale and deliver attractive ROIC. We have done this with KILIAN PARIS, Le Labo, and The Ordinary, our three fastest-growing brands in fiscal 2026. We have no doubt we will do it again with Forest Essentials, which we have announced we are adding to our portfolio.

To be clear, for the foreseeable future, we are not entertaining transformational deals that will divert us from our winning strategy. Third, I have heard the question about whether the transformation has left us without the right talent in place. Nothing could be further from the truth. I can say definitely we are now stronger having invested in the retained organization and brought in great new talent across the company, including in creative, marketing, research and innovation, and technology. Even more powerful is what is harder for outsiders to see, the ways that the team is working more efficiently, significantly less layers, fewer silos, clarity of roles, and greater accountability. A truly empowered organization. This is why I am confident we will accelerate our growth and continue to rebuild profitability. Now, let's turn to our strong fiscal 2026 results.

Reported sales rose 5% and organic sales grew 3%, with positive sales performance every quarter. Looking at profitability, we significantly exceeded our initial outlook from last August. Benefits from the PRGP were more robust and achieved more quickly than anticipated, which is a tribute to the extraordinary contribution of our employees around the world and our strengthening cultures around speed of execution. Gross margin expanded 150 basis points, operating margin expanded 320 basis points, and diluted EPS grew 66%. Impressively, Jo Malone London and TOM FORD joined our billion-dollar club. Our portfolio of billion-dollar brands is unparalleled in prestige beauty, with these two brands joining Clinique, Estée Lauder, La Mer, and M·A·C. With their scale, premier brand desirability, breakthrough innovation, and consumer reach, these brands are positioned to be powerful contributors to growth. In fiscal 2026, five of the six delivered sequentially improved organic sales performance.

The Ordinary is quickly ascending towards this milestone, fueled by another year of double-digit organic sales growth in fiscal 2026. Looking at categories, skincare delivered 4% organic sales growth. We drove growth across the price spectrum with The Ordinary vibrant in the entry price tier, Estée Lauder thriving in the art of prestige, and La Mer exceptional in the luxury price tier. For fragrance, our results are amongst the best in the industry, with organic sales growth of 10%. This reflects our continued investment to develop and capture growing demand. Hero scent and newness from Le Labo, TOM FORD, KILIAN PARIS, and Jo Malone London prospered. We also successfully launched Balmain Beauty into the prestige price tier, and we have more to come as we enter fiscal 2027. Looking at makeup, we stabilized performance and improved organic sales trend by 500 basis points, led by M·A·C and TOM FORD.

Lip drove M·A·C renaissance, while TOM FORD innovation in face and eyes powered its growth. We have much more to do in makeup, but we are making encouraging progress as we better position our brand in high-growth channels like social commerce and specialty multi and speed up launch cycles. For haircare, while not yet back to organic sales growth, we are seeing evidence of Aveda's turnaround in the U.S., its biggest market, given share expansion in track salon data. The Ordinary's serum for hair density remained a viral sensation, delivering strong growth in both organic and retail sales. Now for the regions. Each improved in fiscal 2026 versus fiscal 2025, from negative to positive organic sales growth across the board. Mainland China led with broad-based 9% organic sales growth as skincare rose high single digit, makeup rose mid-single digit, and fragrance rose double digits.

We outperformed the market every quarter of fiscal 2026 to gain prestige beauty share for the year, led by La Mer, Le Labo, and TOM FORD. Within Asia-Pacific, global travel retail returned to growth, fueled in part by our investment in experiential retail across mainland China and Korea. Travel retail represented approximately 15% of reported sales in fiscal 2026, similar to the channel's global prestige share. Our priority emerging markets excelled, with organic sales growth accelerating from mid-single digit in fiscal 2025 to high single digit in fiscal 2026, despite the disruption in the Middle East. For the U.S., the U.K. and Ireland, and Korea, we improved organic sales trend throughout fiscal 2026. In the U.S., we returned to organic sales growth in the fourth quarter, with retail sales again rising mid-single digit amid continuous prestige beauty volume share gain.

For fiscal 2026, we gained volume share with every category contributing. In the U.K. and Ireland, we delivered three consecutive quarters of organic sales growth, including the fourth quarter when we also gained prestige beauty share in the U.K. This is especially meaningful given prestige beauty's strength in the U.K. and following many years of share loss. Our performance in Korea was similarly encouraging. With three consecutive quarters of organic sales growth through the fourth quarter, retail sales growth accelerated from high single digit in the third quarter to double digits in the fourth quarter, driving a return to prestige beauty share gain to end the year. Looking at channels, online performance was outstanding, with organic sales rising double digits, driving strong prestige beauty share gain for the channel across many markets, including China and the U.S.

Impressively, online reached 34% of reported sales for fiscal 2026, up 3 percentage points from fiscal 2025 to an all-time record. Finally, when we introduced Beauty Reimagined, we committed to creating transformative innovation as we restored sales growth. During fiscal 2026, we accelerated speed to market, launching breakthrough on-trend and commercial innovation across every category with 23% of sales from innovation. With this fiscal 2026 result, we deliver on all aspect of Beauty Reimagined. As promised, accelerating best-in-class consumer coverage, bringing innovation to market faster, increasing consumer-facing investment, streamlining our fixed cost base, and revitalizing our entrepreneurial spirit. Looking ahead to fiscal 2027, we are doubling down on our strengths to further diversify growth across product categories and geographies, including accelerating growth in North America.

This means expanding more brands into high-growth channels across more markets, launching a bigger and bolder innovation pipeline, continuing to increase consumer-facing investment, including more into our priority emerging markets, and increasingly benefiting from One ELC, our new operating model. We kicked off fiscal 2027 with a robust slate of newness. For the fiscal year, innovation as a percentage of sales is set to increase 200 to 250 basis points, led by skincare. Already out in skincare, Clinique and The Ordinary tapped into emerging ingredient trends with PDRN innovation, while Estée Lauder introduced a breakthrough in longevity as well newness for night. La Mer and Bobbi Brown created next generation editions of beloved hero products, and Clinique introduced a new franchise for sensitive skin, spanning skincare and makeup.

Building on this in makeup, M·A·C launched exciting innovation in a signature lip franchise, including an all-new lip stain, which was a blockbuster success in its early launch in Korea during fiscal 2026. For fragrance, the category we expect to lead prestige beauty's growth again in fiscal 2027. Our first quarter innovations are extensive from Balmain Beauty, along with the new prestige line from KILIAN PARIS and Estée Lauder, to Jo Malone London and TOM FORD in the luxury price tier. We introduced distinctive scents to drive new consumer acquisition across demographics and regional preference. For One ELC operating ecosystem, we are advancing with speed across our three biggest initiatives. We launched maccosmetics.com on Shopify last week, the first of many deployments online and in-store across brands around the world in fiscal 2027, as we modernize capabilities in our direct-to-consumer business to drive growth.