0001001250-25-000109
SEC filingRevenue grew 4% YoY to $3.48B, driven by fragrance and skin care, with operating income swinging to $169M from a loss.
For the three months ended September 30, 2025, The Estée Lauder Companies reported net sales of $3,481 million, a 4% increase from $3,361 million in the prior-year period. The growth was driven by a 2% benefit from pricing (strategic price actions and mix) and 1% from volume, with foreign currency translation adding 1%. Gross profit rose to $2,554 million (73.4% margin) from $2,433 million (72.4%), a 100-basis-point expansion. Favorable mix, lower obsolescence charges, and manufacturing efficiencies contributed 90 bps of improvement, partially offset by a 30-bps headwind from foreign exchange transactions.
Operating income swung to $169 million (4.9% margin) from a loss of $(121) million (negative 3.6% margin) in the prior year. The improvement was largely due to the absence of a $159 million talcum litigation settlement charge that weighed on the prior period, along with lower restructuring charges ($86 million vs. $106 million) and cost savings from the Profit Recovery and Growth Plan (PRGP). Operating expenses as a percentage of sales fell to 68.5% from 76.0%, driven by lower general and administrative, advertising, and marketing costs, partially offset by increased consumer-facing investments.
Net earnings were $47 million ($0.13 per diluted share) compared to a net loss of $(156) million ($(0.43) per share) in the prior year. The effective tax rate rose sharply to 56.9% from 13.3%, driven by the loss before income taxes in the prior year, the impact of newly enacted U.S. tax legislation, and a valuation allowance against foreign tax credits.
Skin Care net sales increased 3% to $1,575 million, with operating income up 60% to $187 million. Growth was led by La Mer and Estée Lauder in Asia travel retail, benefiting from a low prior-year base and improved consumer sentiment in Mainland China. Pricing contributed 3%, while volume was flat.
Makeup net sales declined 1% to $1,030 million, with operating loss narrowing to $(15) million from $(185) million. The improvement was primarily due to the prior year's $159 million talcum charge. Bobbi Brown and Too Faced drove the sales decline, partially offset by Estée Lauder in travel retail.
Fragrance was the standout, with net sales up 14% to $721 million and operating income up 43% to $86 million. Le Labo, TOM FORD, and Jo Malone London drove growth through expanded consumer reach, hero products, and new launches. Volume contributed 8%, pricing 5%, and FX 1%.
Hair Care net sales fell 7% to $129 million, with operating loss improving to $(12) million from $(18) million. Aveda's decline reflected reduced promotional activity and salon channel softness, partially offset by Amazon Premium Beauty launch.
By geography, Asia/Pacific net sales rose 8% (9% constant currency) to $873 million, driven by travel retail recovery and Mainland China growth of 9%. The Americas declined 2% due to department store challenges and retailer bankruptcy. EUKEM grew 4% (flat constant currency), with FX providing a 4% tailwind.
Management expects continued volatility and uncertainty, with weak travel retail conversion and challenges in Western Europe and U.S. department stores. Tariffs are anticipated to have an adverse effect on fiscal 2026 profitability and cash flows, though the impact was not material in the first quarter. The company is pursuing its "Beauty Reimagined" strategic vision and the expanded PRGP, which targets $800 million to $1,000 million in annual gross benefits and a return to double-digit operating margins over the next few years. The restructuring program is expected to result in total charges of $1.2 billion to $1.6 billion and a net reduction of 5,800 to 7,000 positions. Management is also monitoring the impact of new U.S. tax legislation and global minimum tax rules.
Cash and equivalents decreased to $2,219M from $2,921M at June 30, 2025, primarily due to $340M of cash used in operations. Total debt remained stable at $7,323M (current $3M + long-term $7,320M). Shareholders' equity was $3,890M, up slightly from $3,865M. Inventory was $2,062M, flat sequentially.
The Notes disclose no material purchase commitments. The only significant contractual obligation is deferred consideration payable of $172M (fair value $174M) related to the TOM FORD acquisition, classified as Level 2 fair value. Talcum litigation settlement liabilities of $113M ($28M current, $85M noncurrent) are recorded.
Buybacks remain suspended. Dividends totaled $127M in the quarter, with a quarterly per-share dividend of $0.35, down substantially from $0.66 a year ago. Long-term debt repayments were $1M, with no new issuances. Capital expenditures were $96M, or 2.76% of sales, down from $141M in the prior-year quarter.
Segment net sales and operating income per Note 13: Skin Care $1,575M (op income $187M, margin 11.9%), Makeup $1,030M (op loss $15M), Fragrance $721M (op income $86M, margin 11.9%), Hair Care $129M (op loss $12M). Fragrance was the standout with 14.4% sales growth. Geographic mix per Note 6: The Americas $1,174M, Europe/UK/Ireland/EMEA $901M, Asia/Pacific $873M, Mainland China $532M. Restructuring charges of $89M and talcum settlement charges of $0 (vs $159M last year) were excluded from segment results.