The Estée Lauder Companies Inc. Q2 FY2026 earnings call

• Marked the one-year anniversary of Beauty Reimagine. - Delivered 4% organic sales growth, with growth and operating margin expanding, and EPS growing 43%. - Focused on five action plan priorities: expanded consumer coverage across online, brick and mortar, and various channels; created transformative innovation in areas like China with Estee Lauder's launches and The Ordinary's growth; boosted consumer-facing investment in freestanding stores and campaigns; realized savings from the PRGP; and unveiled ONE ELC, a new operating model aligning brands, regions, and functions. - In innovation, tracked to 19% of innovation launched in less than a year for fiscal 2026, above the initial 16% expectation. - Advanced enterprise business services, selecting Accenture to transform shared services globally and accelerate AI deployment.

Organic net sales grew 4% year on year. Skincare and fragrance each saw 6% growth, supported by increased consumer-facing investments and innovation. Mainland China achieved double-digit organic sales growth, with Estee Lauder's three breakthrough launches in the longevity skincare science space contributing to its performance. Hainan retail sales grew in high single digits led by Estee Lauder and La Mer. Japan outperformed Prestige Beauty in the quarter driven by MAC and Le Labo. North America sales were flat with sequential improvement from the first quarter, with growth online offset by a decline in brick and mortar. Collectively, priority emerging markets had double-digit growth.

• Narrowed full-year organic net sales growth range to 1% to 3%. - Operating margin expected between 9.8%-10.2%, up from previous 9.4%-9.9%. - Diluted EPS expected to range between $2.5 and $2.25, reflecting year-on-year growth of 36%-49%.

• Potential near-term headwinds including macroeconomic, geopolitical, and retailer-specific uncertainties. - Transition in travel retail retailers servicing Beijing and Shanghai airports and related online businesses causing temporary disruption.

Q: On Americas, where you expect growth to be flat in the year. Curious how thinking about the underlying performance are some of the key moving parts to keep in mind? And then if you could just also provide any color on the cadence of growth, will it be more balanced or skewed towards FQ4?

A: Stephane de La Fabri and Akhil Shrivastava discussed Americas performance, noting North America came out of ten years of market share loss, gained volume share in calendar 2025, and is rebalancing channels. They mentioned there is momentum in North America, with rebalancing of growth, and expect stronger Q4 than Q3 overall due to factors like travel retail transition.

Q: Pivoted to profitability in the quarter, skincare delivered most upside, fragrance positive but more in line, makeup still at breakeven. Talk about what's seen in that segment and progression of profitability for makeup going forward?

A: Akhil Shrivastava said makeup profitability in quarter two was impacted by temporary effect of return on innovation coming in quarter three. But they expect makeup profitability to improve through rightsizing fixed cost, PRGP work, and acceleration of sales with big launches like Double Wear.

Q: Asked about China, promotional environment around 11:11 and Chinese New Year, and driving everyday performance outside key holiday periods?

A: Stephane de La Fabri said China had strong performance during key periods like 11/11, but every day is a shopping moment. Chinese New Year is less promotional and about gifting and experience. The team is creating retailtainment to drive conversion outside big holidays and accelerating freestanding stores.

Q: Hoping to get more color on sell in and sell out dynamics in North America and whether expect gap to close as exit fiscal year?

A: Akhil Shrivastava said gap reduced from quarter one, expected to continue being lower, mainly driven by media investment on online platforms and inventory progress.