Estée Lauder's fourth-quarter sales exceeded expectations, but the profit guidance for fiscal year 2026 fell short of expectations, leading to a 15% drop in pre-market trading of US stocks | Earnings Report Insights

Estée Lauder reported stronger-than-expected quarterly results on Wednesday, but a weak full-year outlook disappointed investors, causing the beauty giant's stock to plummet nearly 15% in pre-market trading.

The financial report released on Wednesday showed that Estée Lauder's net sales for the fourth fiscal quarter (three months ended June 30) reached $3.41 billion, exceeding the market estimate of $3.4 billion; adjusted earnings per share were $0.09, also surpassing analysts' expectations of $0.073. However, Estée Lauder's forecast for adjusted earnings per share for fiscal year 2026 is between $1.90 and $2.10, lower than the analysts' average expectation of $2.21.

As a result, Estée Lauder's stock price fell nearly 15% in pre-market trading. Although the company's stock has risen 20% year-to-date, outperforming the S&P 500 index, this weak fiscal outlook seems to have erased some of those gains.

Impacted by Tariff Shocks, Estée Lauder's Earnings Guidance Falls Short of Expectations

Estée Lauder expects organic net sales growth for fiscal year 2026 to be between 0% and 3%, slightly above the market expectation of 1.94%. Although this growth forecast indicates that the company may recover from an 8% decline in organic sales in the previous fiscal year, the growth rate still appears conservative.

In terms of earnings, Estée Lauder expects adjusted earnings per share for fiscal year 2026 to be between $1.90 and $2.10, while analysts' expectation is $2.21.

Estée Lauder anticipates that tariff-related headwinds will impact profitability by approximately $100 million for fiscal year 2026. This setback primarily stems from President Trump's comprehensive tariffs on imported goods, putting Estée Lauder under dual pressure of rising product prices and cautious consumer spending, similar to other luxury brands and retailers.

Additionally, Estée Lauder is working to reduce its reliance on duty-free shops in China and South Korea, which had contributed up to one-third of the company's revenue in the post-pandemic years. As Chinese consumers resume outbound travel, sales in the "travel retail" category have significantly declined.

Investors are eagerly awaiting evidence that sales in this business segment have bottomed out. Meanwhile, the company also faces ongoing challenges in the two major markets of China and the U.S., as the performance in these key markets will directly affect Estée Lauder's ability to achieve its conservative growth expectations.

Under New CEO, Transformation Strategy Shows Initial Results

The company's new CEO, Stéphane de La Faverie, is implementing a series of transformation measures, including cost-cutting through layoffs and outsourcing some services, while increasing sales investments on platforms like Amazon and TikTok, gradually reducing reliance on traditional department store channels.

This strategic adjustment signifies that Estée Lauder is moving away from the department store dependency model that has defined the company for a long time.

However, De La Faverie's long-term success largely depends on the recovery of sales in the Chinese market and the increase in market share in the U.S., as Estée Lauder is losing ground in competition with rivals like L'Oréal and emerging brands