Estée Lauder beats Q2 earnings, lifts guidance on turnaround progress
Beauty giant's 'Beauty Reimagined' strategy drives first operating margin expansion in four years as China, US markets stabilize
Estée Lauder Companies posted stronger-than-expected second-quarter earnings and raised its annual sales forecast, offering the clearest evidence yet that chief executive Stéphane de La Faverie's sweeping turnaround strategy is gaining traction.
The cosmetics giant reported adjusted earnings per share of $0.89 for the fiscal second quarter, beating analyst estimates of $0.83. Revenue reached $4.23 billion, narrowly exceeding the consensus forecast of $4.22 billion. Shares rallied 2.9% to $119.61 in New York trading following the announcement.
More significantly for investors who have watched the company navigate a painful two-year slump, Estée Lauder lifted its net sales outlook for fiscal 2026 to 3 to 5% growth, up from the previously guided range of 2 to 5%. The company said it now expects operating margin expansion this fiscal year, marking the first such improvement in four years.
The results represent a critical milestone for de La Faverie, who took the helm in January 2025 and unveiled the "Beauty Reimagined" transformation plan the following month. The strategy, which the company has described as the most significant reorganization in its history, includes cutting 5,800 to 7,000 positions by the end of 2026 and redirecting savings toward consumer-facing initiatives.
"The early signs of stabilization in key markets, particularly in the US and China, are encouraging," according to analysts following the company. The skincare segment, which represents Estée Lauder's largest business, showed particular strength during the quarter, benefiting from improving demand trends in both regions.
The turnaround is built on several pillars: accelerating consumer reach, driving product innovation, boosting digital capabilities, and streamlining operations. Under the Profit Recovery and Growth Plan, the company targets $1.1 billion to $1.4 billion in operating profit savings across fiscal years 2025 and 2026. In the first quarter, the adjusted operating margin expanded by 300 basis points to 7.3%, demonstrating early progress.
Analysts have grown increasingly bullish on the restructuring's prospects. Bank of America Securities upgraded its price target to $130 and added Estée Lauder to its US 1 list, citing higher earnings expectations. Raymond James issued a double-upgrade to "Buy" with a $130 target, while JP Morgan set a $131 price objective. RBC Capital analyst Nik Modi maintained a "Buy" rating with a $113 target, noting expectations for further guidance increases.
"Strategic efforts are gaining traction faster than expected in the US and China turnaround," contributing to the stock's recent outperformance, according to analyst commentary. The company's focus on innovation remains central to the strategy, with a target for more than 25% of total sales to come from new products by fiscal 2026, up from roughly 10% historically.
Yet challenges remain. Travel retail, once a growth engine for luxury beauty brands, presents a mixed picture. Duty-free demand has recovered in China's Hainan province, while South Korea continues to drag on performance. The company is also navigating softer consumer spending in some markets as macroeconomic uncertainty persists.
Estée Lauder's valuation reflects investor optimism about the turnaround, with the stock trading at about 58 times forward earnings. Some analysts caution that the current price already incorporates significant recovery expectations. One recent analysis suggested a fair value of $96.25, advising investor patience despite the progress.
The company's performance in the current quarter will be closely watched as a test of whether the early improvements can be sustained. Fiscal 2026 represents a pivotal year for the transformation, with management positioning it as the period when the benefits of restructuring efforts should become clearly visible in the financial results.
For a company that has struggled with declining sales and compressed margins since the pandemic, the second-quarter results offer a tangible signal that de La Faverie's ambitious overhaul is beginning to deliver. Whether this marks the beginning of a sustained recovery or a temporary respite in a challenging market remains the question that will determine the stock's trajectory in the months ahead.