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SEC filingEstée Lauder reported net income of $162M in Q2 FY2026, reversing a $590M loss in the prior year, driven by sales growth and the absence of large impairment charges.
For the second quarter of fiscal 2026 ended December 31, 2025, Estée Lauder reported net sales of $4,229 million, a 6% increase from $4,004 million in the prior-year quarter. Gross profit rose 6% to $3,235 million, with gross margin expanding 40 basis points to 76.5%, aided by cost efficiencies from the Profit Recovery and Growth Plan (PRGP). Operating income swung to $401 million from a loss of $580 million in the prior year, primarily because the prior-year period included $861 million in impairment charges for goodwill and other intangible assets. Net income was $162 million ($0.44 per diluted share) versus a net loss of $590 million ($1.64 per share) a year ago.
For the six-month period, net sales increased 5% to $7,710 million, gross profit rose 6% to $5,789 million, and operating income was $570 million contrasted with an operating loss of $701 million in the first half of fiscal 2025. Net income for the six months was $209 million ($0.57 per diluted share) compared to a net loss of $746 million ($2.07 per share) in the prior-year period.
As of December 31, 2025, cash and cash equivalents stood at $3,082 million, up from $2,921 million at June 30, 2025. Total assets were $19,634 million, a slight decrease from $19,892 million. Total debt remained relatively flat at $7,322 million (current and long-term), with long-term debt of $7,319 million. The debt-to-capitalization ratio was 64.5% versus 65.4% at June 30, 2025. Inventory decreased to $1,895 million from $2,074 million, reflecting PRGP-driven reductions. Accounts receivable increased to $1,657 million from $1,530 million, consistent with higher sales. Total equity improved to $4,031 million from $3,865 million, driven by net income and comprehensive income.
Operating cash flow for the six months was $785 million, up from $387 million a year ago, primarily due to higher net earnings excluding non-cash items. Capital expenditures were $204 million, down from $273 million. Free cash flow was $581 million versus $114 million. The company used cash for dividends ($255 million), deferred consideration payment ($150 million related to TOM FORD), and share repurchases ($67 million, largely for tax withholdings). Debt repayments were minimal at $2 million. Overall, cash generation improved significantly.
Management highlighted challenges in Western Europe, Asia travel retail (including airport retailer changes), and US department stores (a retailer bankruptcy). Tariffs remain a near-term headwind, with expected adverse effects on profitability and cash flows in fiscal 2026. The PRGP expansion, announced in February 2025, is expected to generate restructuring charges of $1,200–$1,600 million before taxes and annual gross benefits of $800–$1,000 million. The company continues to implement "Beauty Reimagined" to drive efficiencies and reinvest in consumer-facing activities. Tax rate was significantly impacted by the One Big Beautiful Bill Act (estimated $20 million in Q2, $28 million year-to-date) and valuation allowances.
Segment performance in Q2: Skin Care led with 7% sales growth and $454 million operating income; Makeup grew 1% with modest profit (prior year included $258 million impairment); Fragrance rose 9% with $105 million operating income (prior year had $549 million impairment); Hair Care grew 6% with $18 million operating income. Restructuring charges were $207 million in Q2 and $296 million year-to-date. The company recorded a $1 million charge in net sales for returns associated with restructuring. The PRGP has cumulatively approved $1,249 million in charges through January 30, 2026, with $865 million in restructuring charges and $370 million in other expenses. Goodwill remained stable at $2,137 million. Other intangible assets net were $3,696 million, down from $3,759 million. Deferred revenue totaled $539 million at quarter-end. Stock-based compensation was $182 million for the six months. The company suspended share repurchases since December 2022. Dividends were $0.35 per share quarterly.