EPS of $0.44 decreased by 52.2% from previous year
Gross margin of 75.0%
Net income of 159.00M
""Organic sales declined 9% as expected. Travel retail declined 28% organically and it continues to shrink as a percentage of our business towards the low teens. Gross margin was a bright spot, expanding over 300 basis points to the fourth consecutive quarter as the PRGP continued to deliver meaningful benefits."" - Stéphane de La Faverie
Estee Lauder Companies Inc (EL) QQ3 2025 Earnings Review: Organic Decline, Margin Expansion, and Beauty Reimagined Progress with Path to 2026 Growth
Executive Summary
The Estee Lauder Companies (EL) delivered a Q3 FY2025 result characterized by a material YoY decline in organic net sales amid persistent travel retail weakness, yet with continued gross margin expansion and a disciplined approach to cost management under its Beauty Reimagined (BR) and PRGP initiatives. Revenue for the quarter was $3.55 billion, down 9.9% year over year, with travel retail organic declines of 28% driving most of the pressure. Excluding travel retail, organic sales declined 3% sequentially improving from Q2, underscoring a gradual stabilization in underlying demand in core markets. Gross margin expanded by more than 300 basis points to roughly 75% (about 0.75), marking the fourth consecutive quarter of margin expansion and reflecting PRGP benefits, pricing actions, and efficiency gains. Operating margin stood at 11.4% (versus 14.1% a year ago), as higher consumer-facing investments and volume deleverage from travel retail more than offset PRGP-driven gross margin gains. Net income was $159 million with basic EPS of $0.44 for the quarter. Management reiterated BR priorities and detailed a plan to return to positive growth in fiscal 2026, supported by share gains in the U.S., China, and Japan, ongoing digital-channel expansion (Amazon Premium Beauty, TikTok Shop), and the continued rollout of new products across a broader price tier spectrum. The company also highlighted a substantial restructuring effort under PRGP, with over 2,600 net positions being eliminated and a flatter organizational design intended to improve accountability and speed. Full-year guidance for FY2025 maintains a still-challenging backdrop with an expected organic net sales decline of 8-9%, gross margin around 73.5%, an effective tax rate near 38%, and EPS in the $1.30-$1.55 band (FX impacts modestly dilutive). The near-term trajectory hinges on travel retail recovery, stabilization of consumer demand in key regions (notably the U.S., Europe, and China), tariff developments, and the effectiveness of BR investments in restoring sustainable growth and margin expansion by FY2026.
Net income: $159M; Net margin: 4.48% (YoY delta: -51.82%; QoQ delta: +126.95%).
Earnings per share (diluted): $0.44; YoY EPS delta: -52.17%; QoQ delta: +126.83%.
Cash flow and balance sheet:
Financial Highlights
Revenue and margin metrics:
- Quarterly revenue: $3.55B (Q3 2025). YoY change: -9.90%; QoQ change: -11.34% (per incomeMetrics).
- Gross profit: $2.661B; Gross margin: 0.7500. YoY gross profit delta: -6.07%; QoQ delta: -12.67%.
- Operating income: $306M; Operating margin: 11.40% (vs 14.10% prior year; YoY delta: -42.37%). QoQ delta: +152.76% (reflecting seasonality and cost actions).
- Net income: $159M; Net margin: 4.48% (YoY delta: -51.82%; QoQ delta: +126.95%).
- Earnings per share (diluted): $0.44; YoY EPS delta: -52.17%; QoQ delta: +126.83%.
Cash flow and balance sheet:
- Operating cash flow (nine months): $284M; Net income: $159M; Depreciation & amortization: $212M; Working capital changes: $44M.
- Capital expenditures: $122M; Free cash flow (FCF): $162M.
- Cash at beginning of period: $2.586B; Cash and cash equivalents: $2.631B; Total debt: $9.382B; Long-term debt: $7.298B; Net debt: $6.751B.
- Total assets: $19.886B; Total liabilities: $15.541B; Total stockholders’ equity: $4.345B.
Liquidity and efficiency:
- Current ratio: 1.414x; Quick ratio: 1.019x; Cash ratio: 0.530x.
- Inventory turnover: 0.454x; DSO: 45.43 days; CCC: 120.85 days.
Capital allocation:
- Stock repurchases: $35M; Dividends paid: $126M; Payout ratio: 79.2%.
Valuation context (as of the period):
- Price-to-earnings: 37.39x; Price-to-sales: 6.70x; Price-to-book: 5.47x; Dividend yield: 0.53%; Enterprise value multiple: 57.39x.
Note: Some numbers (e.g., EPS for the quarter) reflect reported GAAP results; management commentary references a higher quarterly EPS in different disclosures.
Income Statement
Metric
Value
YoY Change
QoQ Change
Revenue
3.55B
-9.90%
-11.34%
Gross Profit
2.66B
-6.07%
-12.67%
Operating Income
306.00M
-42.37%
152.76%
Net Income
159.00M
-51.82%
126.95%
EPS
0.44
-52.17%
126.83%
Key Financial Ratios
currentRatio
1.41
grossProfitMargin
75%
operatingProfitMargin
8.62%
netProfitMargin
4.48%
returnOnAssets
0.8%
returnOnEquity
3.66%
debtEquityRatio
2.16
operatingCashFlowPerShare
$0.79
freeCashFlowPerShare
$0.45
dividendPayoutRatio
79.2%
priceToBookRatio
5.47
priceEarningsRatio
37.39
Net Income vs. Revenue
Expense Breakdown
Management Commentary
The third-quarter call emphasized the strategic progress under Beauty Reimagined and the PRGP program, while also flagging near-term headwinds. The management reiterated a strong emphasis on market-share recovery in core geographies and on expanding online and selective third-party platforms to offset travel-retail weakness. Key themes include:
- BR strategy and channel acceleration: “During the third quarter and through April, we moved quickly across brands and platforms… online organic sales grew mid-single-digit in Q4, driven by pure play and third-party platforms” (Stéphane de La Faverie).
- Margin discipline and PRGP progress: “gross margin expanded over 300 basis points… PRGP continued to deliver meaningful benefits” and Akhil Shrivastava highlighted gross margin expansion of ~310 basis points year-over-year driven by efficiencies and pricing actions.
- Growth leverage in core markets: “We outperformed in the U.S., China, and Japan and gained market share in several brands” with Clinique, The Ordinary, and Bumble & Bumble cited as contributors in the U.S.; La Mer, Estée Lauder, Le Labo contributing in China and Japan.
- Outlook and risk management: the leadership discussed tariffs and regionalized manufacturing as a mitigation strategy, with the expectation that fiscal 2026 could return to growth if tariffs resolve and consumer sentiment stabilizes, while warning of potential continued volatility if tariffs persist.
"Organic sales declined 9% as expected. Travel retail declined 28% organically and it continues to shrink as a percentage of our business towards the low teens. Gross margin was a bright spot, expanding over 300 basis points to the fourth consecutive quarter as the PRGP continued to deliver meaningful benefits."
— Stéphane de La Faverie
"Organic net sales declined 9% and was within the outlook range we gave in February. We delivered $0.65 EPS, exceeding our outlook and operating margin was 11.4%."
— Akhil Shrivastava
Forward Guidance
Management guidance and rationale:
- FY2025 full-year outlook: total organic net sales down 8% to 9%; gross margin around 73.5%; effective tax rate ~38%; EPS between $1.30 and $1.55; currency translation expected to dilute EPS by about $0.03.
- Near-term dynamics: travel retail headwinds are expected to continue into Q4 and are a meaningful driver of the gap between organic and retail toplines; however, BR initiatives are designed to enhance pricing power and operating leverage over time, with a focus on top-line growth in non-travel channels.
- FY2026 and beyond: EL targets a return to positive growth and a solid double-digit adjusted operating margin over the next few years, anchored by share gains in the U.S., China, and Japan, further progression in BR, and ongoing PRGP savings. Tariff resolution remains a critical risk factor; absent a meaningful resolution, tariffs could materially impact 2026 profitability.
Key watchpoints for investors: (1) progress in travel retail normalization and inventory destocking in key geographies, (2) the trajectory of consumer demand and confidence in China and the U.S., (3) effectiveness and ROI of BR/PRGP-driven investments and outsourcing initiatives, and (4) tariff developments and supply-chain regionalization impact on cost structure and pricing flexibility.
Competitive Position
Company
Gross Margin
Operating Margin
Return on Equity
P/E Ratio
EL Focus
74.96%
8.62%
3.66%
37.39%
CL
61.10%
21.20%
1.69%
28.79%
COTY
64.10%
-21.60%
-11.20%
-2.94%
ELF
71.30%
9.87%
4.60%
50.11%
KVUE
58.50%
16.80%
3.60%
28.91%
Gross Profit Margin
Operating Profit Margin
Return on Equity
P/E Ratio Comparison
Investment Outlook
The stock remains anchored by a high-quality brand ecosystem and a disciplined path to margin expansion, with BR/PRGP-driven improvements and selective channel investments. The near-term challenge is the travel-retail headwind and tariff-related uncertainty; however, EL has demonstrated resiliency through share gains in key markets and a strategic shift toward higher-ROI investments. The long-term thesis rests on sustainable market-share gains, continued innovation across price tiers, and a leaner operating model that accelerates decision-making. Investors should monitor tariff developments, progress toward FY2026 growth, and the ROI of ongoing outsourcing and procurement initiatives. A balanced stance would reflect good exposure to upside if tariffs ease and consumer demand stabilizes, with caution warranted given the current travel-retail drag and leverage risk.
Key Investment Factors
Growth Potential
Sustained market-share gains in core regions (U.S., China, Japan) supported by BR execution, product innovation, and enhanced online/offline channel penetration. New launches (e.g., Clinique Moisture Surge Active Glow Serum; Estée Lauder Double Wear Concealer; La Mer night-care extensions; TOM FORD Lip products) have driven early-category momentum and cross-brand growth, particularly in high-potential markets like China. Expanded freestanding stores and accelerated e-commerce presence (Amazon Premium Beauty, TikTok Shop) bolster customer acquisition and lifetime value.
Profitability Risk
Tariffs and geopolitical tensions pose material downside risk to profitability and could delay the rebound in organic growth; travel-retail exposure remains a near-term drag; consumer sentiment is uneven across the U.S., Europe, and China; FX translations and inventory dynamics add volatility; execution risk around large-scale PRGP outsourcing and organizational restructuring.
Financial Position
Solid liquidity position with roughly $2.63B in cash (cash at hand), but elevated net debt (~$6.75B) given total debt ~$9.38B. Current ratio of 1.414x provides some cushion, yet leverage remains a meaningful constraint. Ongoing PRGP-driven gross margin expansion supports cash generation, though near-term earnings may be pressured by travel-retail weakness and higher consumer-facing spend.
SWOT Analysis
Strengths
Deep premium brand portfolio with leadership positions across Clinique, Estée Lauder, La Mer, Le Labo, Jo Malone London, TOM FORD, and The Ordinary
Visible share gains in key markets (U.S., China, Japan) and strengthening brand equity
Gross margin expansion and cost discipline via PRGP; ongoing efficiency initiatives including outsourcing and procurement optimizations
Global omnichannel footprint (brand.com, Amazon Premium Beauty, TikTok Shop, Shopee) and expanding freestanding-store strategy
Weaknesses
Significant exposure to travel retail volatility, which creates revenue and margin volatility
Elevated net debt level relative to peers; reliance on macro conditions for a meaningful sales rebound
Complex organizational redesign risk during transition (BR/PRGP) and potential execution risk across geographies
Opportunities
Accelerated growth through BR priorities (consumer coverage, innovation, and investments with higher ROI)
Further channel expansion (Amazon, TikTok Shop, Southeast Asia platforms) and brand-store development
Product innovation across lower- and higher-price tiers to recruit new consumers and refresh franchises
Regionalized manufacturing and supply chain diversification to mitigate tariffs and improve cost structure
Threats
Tariff escalations or absence of resolution could materially impact profitability in 2026
Continued weakness in consumer sentiment in China, Europe, and the U.S. could restrain demand
FX headwinds and supply-chain disruptions add volatility to earnings