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EL

ESTEE LAUDER COMPANIES INC (EL)·Q3 2025 Earnings Summary

Executive Summary

  • Q3 FY2025 net sales were $3.55B, down 10% year-over-year; adjusted diluted EPS was $0.65, with gross margin expanding 310 bps to 75.0% on PRGP benefits .
  • Results beat Wall Street consensus: revenue $3.55B vs $3.52B estimate*, and adjusted EPS $0.65 vs $0.31 estimate*; profitability exceeded management’s outlook amid disciplined consumer-facing spend and PRGP-driven cost efficiencies .
  • FY2025 outlook reinstated: GAAP EPS loss of ($1.89)-($1.61), adjusted EPS $1.30–$1.55, adjusted gross margin ~73.5%, ETR ~38%; travel retail expected to be an even larger headwind in Q4 .
  • Management highlighted share gains in the U.S., China, and Japan; online organic growth mid-single digits; strategic supply chain regionalization to mitigate tariff risk was accelerated (increased NA production and ramp-up in Japan) .

What Went Well and What Went Wrong

What Went Well

  • “We delivered our organic sales outlook and exceeded profitability expectations… evidenced by prestige beauty share gains in strategic markets like the U.S., China, and Japan and our mid single-digit organic net sales growth online” .
  • Gross margin expanded 310 bps to 75.0% on PRGP benefits, despite sales declines, reflecting cost-of-sales improvements and lower discounts/promotions .
  • Share gains: U.S. (Clinique, The Ordinary, Bumble and bumble), Mainland China (La Mer, Estée Lauder, Tom Ford), Japan (Le Labo, La Mer, Estée Lauder); online organic sales grew mid-single digit via Amazon, TikTok Shop, Shopee, JD, Notino, Zalando .

What Went Wrong

  • Net sales declined 10% YoY to $3.55B; operating margin contracted vs prior year on volume deleverage and higher consumer-facing investments; adjusted operating margin fell 270 bps to 11.4% .
  • Travel retail weakness persisted (Asia/Pacific down 1% organically; EMEA down 16% organically), with retailer destocking and subdued Chinese consumer sentiment; Korea impacted by social/political unrest and Dr.Jart+ exit in travel retail .
  • Category softness: Skin Care (-11% organic) on Asia travel retail; Makeup (-7% organic) pressured by M·A·C timing/shipments and retailer destocking; Hair Care (-10% organic) on Aveda softness in salon/freestanding channels .

Financial Results

Quarter-over-Quarter and YoY Performance

MetricQ1 2025Q2 2025Q3 2025
Net Sales ($USD Billions)$3.36 $4.00 $3.55
Net Sales YoY (%)(4%) (6%) (10%)
Gross Margin (%)72.4% 76.1% 75.0%
Operating Margin (GAAP, %)(3.6%) (14.5%) 8.6%
Adjusted Operating Margin (%)11.5% 11.5% 11.4%
Diluted EPS (GAAP, $)($0.43) ($1.64) $0.44
Adjusted Diluted EPS ($)$0.14 $0.62 $0.65

Results vs S&P Global Consensus

MetricQ1 2025Q2 2025Q3 2025
Revenue Actual ($USD Billions)$3.36 $4.00 $3.55
Revenue Consensus ($USD Billions)$3.37*$3.98*$3.52*
Adjusted EPS Actual ($)$0.14 $0.62 $0.65
Adjusted EPS Consensus ($)$0.10*$0.32*$0.31*

Values with asterisk (*) retrieved from S&P Global.

Segment Breakdown (Q3 FY2025)

Product CategoryNet Sales ($USD Millions)YoY Reported ChangeOrganic YoY Change
Skin Care$1,807 (12%) (11%)
Makeup$1,035 (9%) (7%)
Fragrance$557 (3%) (1%)
Hair Care$126 (12%) (10%)
Other$25 (4%) (4%)
Total$3,550 (10%) (9%)
GeographyNet Sales ($USD Millions)YoY Reported ChangeOrganic YoY Change
Americas$1,052 (6%) (5%)
EMEA$1,358 (18%) (16%)
Asia/Pacific$1,140 (3%) (1%)
Total$3,550 (10%) (9%)

KPIs

KPIQ3 FY2025Notes
Gross Margin (%)75.0% +310 bps YoY on PRGP benefits
Operating Margin (GAAP, %)8.6% Down vs 13.5% prior-year period
Adjusted Operating Margin (%)11.4% Down 270 bps YoY
Effective Tax Rate (%)34.0% Adjusted ETR 30.8%
Dividend Declared$0.35/share Payable June 16, 2025
Cash From Operations (9M)$671M Lower on earnings and working capital
Capital Expenditures (9M)$395M Lower vs prior-year

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Net Sales (GAAP) GrowthFY2025No full-year guidance provided previously (9%) to (8%) Initiated
Adjusted EPS ($)FY2025No full-year guidance provided previously $1.30 – $1.55 Initiated
Adjusted Gross Margin (%)FY2025N/A~73.5% Initiated
Effective Tax Rate (%)FY2025N/A~38% Initiated
Travel Retail TrendQ4 FY2025Q3 outlook only: strong double-digit decline Q4 expected stronger double-digit decline vs Q3 Lowered
DividendQ3 FY2025$0.35/share $0.35/share (payable 6/16/25) Maintained

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 FY2025)Previous Mentions (Q2 FY2025)Current Period (Q3 FY2025)Trend
AI/Technology initiativesEarly steps; innovation and biotech partnerships (MIT, Belgium BioTech Hub) Beauty Reimagined launched; PRGP expansion Adobe Firefly generative AI integration; recognized by Microsoft AI @ Work; CTO appointment to drive data/AI transformation Expanding scope and execution
Supply chain & tariffsNoted macro pressures; reduced dividend to add flexibility Preparing PRGP efficiencies; outsourcing; procurement Regionalization to mitigate tariffs; increased NA production; accelerated Japan plant ramp; expect meaningful tariff resolution Active mitigation; contingency planning
Product performanceClinique lip strength; La Mer in China; Le Labo momentum Clinique growth; Le Labo strong; TOM FORD/Too Faced impairments Clinique, The Ordinary, Bumble and bumble led U.S.; La Mer, Estée Lauder, TOM FORD led China; Le Labo strong globally Mix shifting to hero brands
Regional trendsJapan double-digit retail growth; China softness U.S. flat; Asia/Pacific down double digits Share gains U.S./China/Japan; UK and Korea challenging; travel retail reset underway Improving ex-travel retail
Regulatory/legalTalcum settlement charge ($159M) Goodwill/intangible impairments (TOM FORD/Too Faced) No new settlements; impairments reflected in prior quarter; FY EPS includes adjustments Legacy items absorbed
R&D execution & leadershipNight-time Skin Care innovations Innovation pipeline continues EVP Global Innovation & R&D to depart; external talent to accelerate transformative innovation Leadership transition; maintain innovation pace

Management Commentary

  • “We delivered our organic sales outlook and exceeded profitability expectations… prestige beauty share gains in the U.S., China, and Japan and our mid single-digit organic net sales growth online” — Stéphane de La Faverie .
  • “We made significant progress in the PRGP… over 300 basis points of adjusted gross margin expansion in each quarter of fiscal 2025” .
  • “We are confident in our ability to return to sales growth in fiscal 2026,” contingent on meaningful tariff resolution and the strategic reset of travel retail .
  • On supply chain: “We already increased North America production of U.S. demand… and accelerated plans to increase volume at our manufacturing facility in Japan to service Asia Pacific” .

Q&A Highlights

  • Trade inventories: Management aims to exit FY2025 with trade inventories aligned to consumer takeaway; travel retail inventories significantly improved and monitored closely; North America retailers tightening inventories reflected in outlook .
  • FY2026 outlook: Expect return to positive sales growth driven by share gains (U.S./China/Japan), PRGP efficiencies, and travel retail mix reduction toward low-teens; external risks include consumer sentiment and tariffs .
  • Tariffs: Exposure minimized via regionalized manufacturing; ramping Japan capacity; pricing power and PRGP savings as additional levers; management hopeful for resolution but planning multiple scenarios .
  • PRGP savings: Additional opportunities in procurement, outsourcing, and SG&A optimization to support solid double-digit adjusted operating margin over the next few years .
  • Balancing growth vs margin: New operating model clarifies brand/region/function roles; reinvest behind high-ROI initiatives while driving cost transformation to safeguard growth and margin ambition .

Estimates Context

  • Q3 FY2025 beat: revenue $3.55B vs $3.52B estimate*; adjusted EPS $0.65 vs $0.31 estimate* .
  • Drivers of beat: gross margin expansion (+310 bps) on PRGP benefits, disciplined consumer-facing spend reallocation to higher-ROI activities, and share gains in key markets .
  • Prior quarters: Q2 beat revenue ($4.00B vs $3.98B*) and adjusted EPS ($0.62 vs $0.32*); Q1 slightly missed revenue ($3.36B vs $3.37B*) but beat adjusted EPS ($0.14 vs $0.10*) .

Values with asterisk (*) retrieved from S&P Global.

Key Takeaways for Investors

  • Profitability outperformed on PRGP execution; adjusted EPS and revenue both beat consensus — a positive setup for near-term sentiment despite top-line declines. Focus remains on sustaining gross margin gains .
  • Ex-travel retail trends are improving with share gains; travel retail reset and mix shift should reduce volatility into FY2026, but Q4 travel retail will be a larger headwind .
  • Strategic channel expansion (Amazon Premium Beauty, TikTok Shop, Shopee) is driving online mid-single-digit organic growth and broader consumer reach; expect continued contribution to retail sales momentum .
  • Tariff risk is actively mitigated through supply chain regionalization (NA/Japan), pricing power, and further PRGP savings; potential resolution is a key FY2026 catalyst .
  • FY2025 outlook reintroduced with adjusted EPS $1.30–$1.55 and ~73.5% adjusted gross margin; investors should recalibrate models for higher ETR (~38%) and pronounced Q4 travel retail pressure .
  • Brand leadership (Clinique, La Mer, Le Labo, The Ordinary) remains strong; watch ongoing UK and Korea remediation and retailer destocking dynamics as potential drags .
  • Execution risk moderated by clarified operating model and leadership changes (CTO appointment; R&D transition); AI/tech partnerships (Adobe Firefly) should enhance speed and creative efficiency .