Estée Lauder Returns to Growth and Raises Fiscal 2027 Margin Outlook

The Estée Lauder Companies returned to full-year sales growth in fiscal 2026 and raised its profitability outlook for fiscal 2027, adding evidence that its multiyear turnaround is beginning to show up in both revenue and margins. Net sales for the year ended June 30 rose 5% to $15.05 billion, while organic net sales increased 3%.

The fourth quarter finished more strongly than the full year, with reported sales up 6% and organic sales up 5%. Estée Lauder said that marked its fourth consecutive quarter of organic sales growth, and the quarter included growth across every geographic region. For the full year, adjusted operating margin rose to 11.2% from 8.0%, a 320-basis-point expansion.

Profit recovery turns sales growth into wider margins

Estée Lauder’s fiscal 2026 results show a sharp improvement from the prior year on several measures. Gross margin increased to 75.5% from 74.0%, while adjusted operating income climbed 47% to $1.69 billion. Adjusted diluted earnings per share rose to $2.51 from $1.51.

The GAAP comparison was even wider because fiscal 2025 included large impairment and litigation-related charges. Estée Lauder reported operating income of $780 million for fiscal 2026, compared with an operating loss of $785 million a year earlier. Its reported operating margin was 5.2%, versus negative 5.5% in fiscal 2025.

The return to growth also reversed a difficult fiscal 2025, when reported and organic sales both fell 8%. Management entered fiscal 2026 saying it expected to restore positive organic sales growth after three years of declines. The full-year result met that objective, and the company ended the year with faster organic growth than it produced across the full twelve months.

Cash generation improved alongside earnings. Net cash provided by operating activities rose 39% to $1.77 billion from $1.27 billion, while capital expenditures fell to $457 million from $602 million. Estée Lauder reported free cash flow of $1.32 billion, almost double the prior year’s $670 million. More than 75% of fiscal 2026 capital spending was directed toward consumer-facing investments, according to the company.

Part of the margin recovery came from the Profit Recovery and Growth Plan, or PRGP. Estée Lauder attributed the improvement in gross margin to operational efficiencies, lower excess and obsolete inventory, and sales leverage, partly offset by inflation and incremental tariffs. Consumer-facing investment still rose 7% for the year, suggesting the company did not achieve the margin gain simply by cutting brand and selling support.

Fragrance leads as China and North America improve

The growth was not evenly distributed across the portfolio. Fragrance was the strongest major category, with organic sales up 10% for the year. Skin care rose 4%, helped by La Mer, The Ordinary and the Estée Lauder brand. Makeup was roughly flat on an organic basis, while hair care declined 1%.

The fourth quarter showed a broader mix. Organic skin-care sales increased 7%, fragrance rose 10% and makeup grew 2%. Hair care remained down 1%. The quarter also included a return to growth in North America, which had been one of the more persistent weak spots in the company’s recent performance. Estée Lauder said campaigns, shipment timing around key shopping periods and higher consumer-facing investment contributed to the improvement in the Americas.

Mainland China was one of the clearest full-year growth drivers. Organic sales there rose 9%, while Asia/Pacific increased 4%. The Americas and Europe, the United Kingdom and Ireland and Emerging Markets each posted 1% organic growth. In the fourth quarter, organic growth reached 7% in mainland China, 9% in Asia/Pacific and 5% in the Americas.

Travel retail, which had weighed heavily on earlier results, also contributed to the Asia/Pacific improvement. Estée Lauder cited higher sales in Korea and Hong Kong travel retail as retailers shifted toward more profitable duty-free models and traveler volumes improved. Hainan travel retail also benefited from better traffic and retail activations, although the company said a change in duty-free retailers serving Beijing and Shanghai airports created pressure elsewhere in mainland China travel retail.

The company also widened distribution during the year. It ended fiscal 2026 with 13 brands available on Amazon across 11 markets and 12 brands on TikTok Shop across nine markets. It opened 33 net new freestanding fragrance stores, led by Le Labo and Jo Malone London, and expanded M·A·C into selected Sephora locations in the United States. Estée Lauder said Jo Malone London and TOM FORD joined the group of brands generating at least $1 billion in annual sales, bringing the total to six.

Fiscal 2027 guidance points to another step up in profitability

For fiscal 2027, Estée Lauder kept its organic sales growth forecast at 3% to 5% but raised the expected adjusted operating margin to 12.7% to 13.5%. In May, the company had given a preliminary margin range of 12.5% to 13.0%. The new range therefore lifts both the floor and the ceiling of the outlook without changing the sales-growth target.

Management expects growth to be stronger in the first half of fiscal 2027 than in the second half. The company cited an earlier product-launch calendar, improving travel-retail shipment trends and easier first-half comparisons. It expects fragrance and skin care to continue growing and makeup to return to full-year growth.

Adjusted earnings per share are forecast at $3.10 to $3.35, which would represent growth of 24% to 34% from fiscal 2026. GAAP earnings per share are projected at $2.52 to $2.85. The outlook assumes no deterioration in the geopolitical environment or related effects from tariffs and consumer sentiment, so those figures remain dependent on conditions that management cannot fully control.

The remaining PRGP benefits are central to the margin outlook. Estée Lauder said approvals for restructuring initiatives were concluded by June 30, 2026, and actions under the plan are expected to be substantially completed during fiscal 2027. The company has recorded $1.4 billion of cumulative restructuring charges so far and expects total charges to finish slightly above the high end of its previous $1.5 billion to $1.7 billion range. It now expects the restructuring component to deliver about $1.2 billion in annual gross benefits, at the high end of its earlier target, with a final net reduction of about 10,000 positions.

Those savings are intended to support both margin recovery and reinvestment. Estée Lauder expects operating cash flow of $1.3 billion to $1.4 billion in fiscal 2027, below fiscal 2026, mainly because of higher restructuring payments and working-capital needs to support growth. Capital expenditures are expected to equal about 4% of projected sales, with spending directed toward existing stores, online distribution and targeted expansion of consumer reach.

The next scheduled test of the fiscal 2027 outlook will come with Estée Lauder’s first-quarter results. The company lists its fiscal 2027 first-quarter earnings release and conference call for November 2, 2026, at 8:30 a.m. ET.