The Estée Lauder Companies Inc. Q1 FY2026 earnings call

• First quarter organic sales growth of 3%, significant sequential acceleration. Mainland China contributed to return to growth, rest of markets improved sequentially. Travel Retail grew on favorable comparable. • In China, significantly outperformed Prestige Beauty with retail sales up double digit, 7 brands grew double digit. Gained share in multiple categories and channels. • In U.S. Prestige Beauty, retail sales growth accelerated, gained share in skin care and hair care. • In Western European markets, some had slow or negative growth, but gained share in France and Spain. U.K. saw sequential improvement in retail sales trends. • Expanded consumer coverage through partnerships like Amazon in multiple markets, TikTok Shop launches, and new partnership with Shopify. • Innovation in various brands and categories, skin care had exciting innovation. Boosted consumer-facing investment with new freestanding stores and campaigns. • Published fiscal 2025 Social Impact and Sustainability report, reemphasized focus on women and girl advancement with new $50 million commitment.

Organic net sales grew 3%. Fragrance had double-digit growth, skin care had low single-digit growth. Makeup and hair care categories saw sales declines. Gross margin expanded 60 basis points to 73.3% in the quarter. Operating margin expanded 300 basis points to 7.3% compared to 4.3% last year.

• Reaffirmed fiscal 2026 full year outlook. Organic net sales expected to be flat to 3% growth for the full year. Anticipate stronger performance in first half with favorable comparisons in Asia Pacific and Mainland China. • Global Travel Retail business has good momentum in West but persistent challenges in East pressure retail sales, with greater impact in second half. • Tariff-related headwinds expected to impact profitability by approximately $100 million, net of planned mitigation actions through October 24.

• Macro-economic environment globally is dynamic with various headwinds and tailwinds. • Uncertainty regarding trade policies and enacted tariffs. • Persistent challenges in Travel Retail East affecting retail sales.

Q: Lauren Lieberman asked about volume trends versus price mix and the importance of driving volume.

A: Stephane de la Faverie and Akhil Shrivastava responded that share gain in units in the U.S. was driven by new launches, price adjustments, and innovation. They mentioned unit growth was returning, with perfume category seeing significant influx of innovation and smaller sizing driving growth.

Q: Dara Mohsenian inquired about short-term clarity on full year guidance and long-term share gains in China.

A: Stephane de la Faverie and Akhil Shrivastava stated the full year guidance was thoughtful considering macro environment and base period differences. China showed share gain with strong performance, but macro volatility and base period challenges in second half were noted. Long-term share gains in China were attributed to market stabilization and retail activation efforts.

Q: Filippo Falorni asked about margin outlook, reinvestment.

A: Akhil Shrivastava and Stephane de la Faverie said margin guidance broadly stands, with gross margin expected to be flat to positive, and consumer-facing investment ongoing. Tariff announcements were positive but tariff impact on P&L had lag, and reinvestment was part of sustainable turnaround plan.

Q: Bonnie Herzog questioned on Travel Retail inventory and conversion trends.

A: Stephane de la Faverie said Travel Retail was volatile, with TR West in good place, TR East having mixed performance. Inventory was rightsized, traffic starting to rebound, but conversion still slightly down with retail activation efforts ongoing.

Q: Steve Powers asked about catching up in new channels.

A: Stephane de la Faverie responded that the company was moving quickly into new channels like Amazon, TikTok Shop, Shopify, and deepening in existing channels, with new organization and region setup enabling faster deployment.

Q: Peter Grom asked about margin phasing.

A: Akhil Shrivastava and Stephane de la Faverie said margin phasing remained as guided, with significant long-term opportunity to expand margin to solid double digit, and work ongoing to deliver guidance while investing in brands.

Q: Chris Carey asked about sustaining SG&A and tax planning.

A: Stephane de la Faverie and Akhil Shrivastava explained that PRGP was creating leverage, SG&A was disciplined with consumer-facing investment, and tax planning was in progress to improve tax rate over time.