ESTÉE Lauder Companies

Sources: 10-K FY2025 and FY2026 for FY2023–FY2026 GAAP income statement lines. FY2022 lines are per FY2022 10-K and S&P Global data via StockAnalysis. Adjusted metrics come from company non-GAAP reconciliations. All figures USD M unless labelled.

6a. Income statement

Notes on the income statement: - FY2022 and FY2023 adjusted operating income are per S&P/StockAnalysis standardized data; the company's own FY2022/23 adjusted figures may differ slightly.

• FY2024 adjusted OI is back-solved from the FY2025 release, which reported a 28% decline to $1,146M.

• FY2022 pre-tax income and interest expense are per FY2022 10-K and S&P data; treat as approximately verified.

• Basic EPS equalled diluted EPS in FY2025 (-3.15) and FY2026 (0.50).

6b. Margins

Revenue CAGR FY2022–FY2026: -4.0% a year (from $17.74B to $15.05B). The five-year CAGR including FY2021 ($16.22B, FY2025 Fact Sheet) is -1.9%.

6c. Balance sheet (30 June)

Notes on the balance sheet: - FY2025 and FY2026 debt and equity are per the company's condensed balance sheet (FY2026 release). FY2022–FY2024 are per S&P/StockAnalysis standardized data.

• FY2024 total assets were $21,677M per S&P versus about $21.7B per the 10-K; the minor difference is due to classification.

• FY2022 and FY2023 equity exclude redeemable noncontrolling interest (DECIEM) of $842M and $832M.

• Lease totals are derived from S&P line items for FY2022–FY2024 and from the company release for FY2025–FY2026.

6d. Cash flow

Sources: FY2025–FY2026 per company release; FY2022–FY2024 per S&P/StockAnalysis. FY2026 also included $300M of TOM FORD deferred consideration in financing.

6e. Ratios (derived)

ROIC uses a normalized 25% tax rate because GAAP tax rates were heavily distorted in FY2024–FY2026. Total debt to total capitalization (company definition, including leases) was 66% at 30 June 2026 versus 65% a year earlier (10-K FY2026).

6f. Commentary on trends, inflections and drivers

Revenue. FY2022 was an unsustainable peak. Net sales of $17.74B were inflated by Hainan and Korea duty-free channels in which "daigou" resellers bought prestige skin care in bulk, plus pandemic-era Chinese spending redirected from overseas travel.

• When Beijing tightened enforcement and Chinese consumer sentiment weakened, Asia travel retail collapsed. EL had overshipped and had to destock.

• Skin care, the profit engine, fell from $9.90B in FY2022 to $6.96B in FY2025, a 30% decline.

• The 10-K FY2025 attributes about $829M of the FY2025 skin care drop to Estée Lauder and La Mer combined, mainly in Asia travel retail.

FY2026 is the inflection: reported +5%, organic +3%, with growth in all four regions and four consecutive quarters of organic growth, accelerating from +2% in Q3 to +5% in Q4.

Gross margin.

• Fell from 75.8% (FY2022) to 71.3% (FY2023) on excess-and-obsolescence charges and deleverage.

• Rebuilt to 75.5% in FY2026 through PRGP procurement savings and lower E&O.

• FY2026 absorbed $102M of incremental tariffs, partly offset by $38M of IEEPA refunds in Q4.

This shows the supply-chain reset is structural, not just mix-driven.

Operating profit. GAAP operating income swung from $3.17B (FY2022) to a $785M loss (FY2025) as impairments accumulated:

• FY2023: $207M of intangible impairments.

• FY2024: $471M of goodwill and intangible impairments.

• FY2025: $1,286M, mostly the TOM FORD trademark ($773M) and Dr.Jart+.

Restructuring charges also built up: $813M was recognized in FY2026 alone. Adjusted operating margin troughed at 8.0% in FY2025 and recovered to 11.2% in FY2026.

Net income. FY2026 GAAP net earnings of only $182M reflect a 64.8% effective tax rate. The tax rate was driven by new foreign valuation allowances, US tax law changes (the One Big Beautiful Bill Act), transfer-pricing reserves and stock-compensation shortfalls (FY2026 release). The adjusted tax rate was 35.7%. This structurally high adjusted rate, guided at 33–34% for FY2027, is a persistent drag on EPS conversion.

Balance sheet.

• Leverage rose sharply with the $2.8B TOM FORD deal, financed with commercial paper and about $2.0B of May 2023 notes.

• Net financial debt peaked at about $4.4B in FY2024–FY2025.

• Equity shrank 32% between FY2023 and FY2026 because cumulative impairments eroded retained earnings while dividends continued.

• Tangible book value is negative (about -$1.9B per S&P data).

• Net financial debt to adjusted EBITDA improved to about 1.5x in FY2026 from about 2.2x in FY2025. Moody's measured gross debt/EBITDA at 4.4x in March 2025 on its own basis, which keeps both rating agencies at negative outlook.

Cash flow.

• FCF nearly doubled to $1.32B in FY2026, helped by capex falling to $457M (3.0% of sales, versus 6.5% in FY2023) and a $539M favorable payables and liabilities swing.

• The company guides FY2027 operating cash flow down to $1.3–1.4B because of higher restructuring cash payments and working-capital needs.

• Buybacks have been suspended since December 2022. About 25.1M shares remain authorized.

Working capital. Inventory fell from $2.98B (FY2023) to $2.00B (FY2026). The cash conversion cycle shortened from about 138 days to about 79 days, one of the clearest tangible PRGP outcomes.

Management guidance (FY2027, 19 August 2026).

• Organic sales +3% to +5%, weighted to H1 because of earlier launches and travel-retail restocking against an easy comp.

• Fragrance and Skin Care continue to grow; Makeup returns to growth.

• Adjusted operating margin 12.7–13.5%.

• Adjusted EPS $3.10–3.35 (+24% to +34%).

• Operating cash flow $1.3–1.4B; capex about 4% of sales.

• Assumes no further geopolitical deterioration.

Consensus expectations. Implied forward P/E of about 28x suggests consensus FY2027 EPS of about $3.3–3.4, near the top of guidance. The average price target is $107.48.

Bull case

1. Operating leverage is front-loaded. Most of the about $1.2B in PRGP run-rate benefits land in FY2027. Each 1 point of organic growth on about $15B of sales, at a 75% gross margin, drops through powerfully while non-consumer costs stay flat. A 13.5% margin on about $15.7B of sales gives about $2.1B of adjusted operating income, about 25% above FY2026.

2. Fragrance is a structural growth engine. Two new $1B brands (Jo Malone London, TOM FORD), +10% organic growth and 33 new stores in one year diversify the business away from Asian skin care.

3. China and Asia TR have rebased. Mainland China grew 9% with share gains, and duty-free operators have abandoned destructive discounting. The 21% Asia/Pacific collapse in FY2025 now makes the comparison base easy.

Bear case

1. Margin ceiling and tax. Even at the top of guidance, 13.5% remains about 700bp below L'Oréal. A 33–34% adjusted tax rate and around 368M shares constrain EPS conversion. GAAP EPS of $0.50 implies a 188x trailing P/E.

2. North America and makeup. The Americas grew only 1% organically. Makeup posted an adjusted operating loss, and the brand portfolio (Too Faced, Bobbi Brown) still needs impairment-prone repair. Department-store decline is secular.

3. Balance sheet and credit. Both agencies sit at the lowest A-band notch on negative outlook. Equity has shrunk to $3.8B with negative tangible book, and FY2027 operating cash flow is guided down. Tariffs and Middle East disruption could revive downgrade risk and limit M&A.

Key catalysts and monitorables (next 12 months).

• FY2027 Q1 results (2 November 2026): H1 travel-retail shipments and Makeup trajectory.

• 17 November 2026 AGM: say-on-pay vote after the 114% CEO pay increase.

• Forest Essentials closing (H2 2026).

• Holiday, 11.11 and Chinese New Year sell-through in China.

• North America organic growth, M·A·C Sephora productivity and Amazon scale.

• Tariff refunds and new tariff actions; Swiss and Canadian sourcing.

• Credit rating outlook revisions (a move to stable would be a re-rating signal).

• Any resumption of buybacks.

• Talc claim run-rate under the annual caps.

• Further bolt-on M&A after Puig.

Analyst verdict. The Estée Lauder Companies exits FY2026 as a credible turnaround rather than a broken franchise. The evidence is concrete:

• Four consecutive quarters of organic growth, accelerating to +5% in Q4.

• Growth in every region.

• Gross margin rebuilt to 75.5%.

• Adjusted operating margin expanded 320bp to 11.2%.

• Free cash flow nearly doubled to $1.32B.

• Inventory discipline unrecognizable from the FY2023 overstock era.

Beauty Reimagined has also changed the commercial model in ways that compound. M·A·C has entered Sephora, there are 13 brands on Amazon, fragrance retail is expanding and China execution has improved. Walking away from Puig on valuation showed discipline that the market rewarded.

The bull narrative still prices in a lot. At about $94, EL trades on about 29x guided FY2027 adjusted EPS and about 15x EV/adjusted EBITDA. That premium assumes margin recovery continues well beyond FY2027 toward the high teens. The gap to L'Oréal (20.2%) and Puig is still about 700–900bp even at the top of guidance. A persistent 33–35% adjusted tax rate, a shrinking equity base and two negative-outlook credit ratings limit financial flexibility. North America, the region that matters most for multiple expansion, grew only 1%, and makeup remains loss-making on an adjusted basis.

Net assessment: execution risk has fallen materially, but valuation already reflects a good part of the FY2027 plan. The asymmetry depends on two things. The first is whether FY2027 H1 confirms the guided acceleration while tariffs and Middle East disruption stay contained. The second is whether management can show a credible path from about 13% to mid-to-high-teens margins without another impairment cycle. We would characterize EL as a quality recovery story at a full multiple. It is positive for investors with an 18–24 month horizon who believe in luxury-fragrance-led mix improvement. Investors needing near-term valuation support should wait for evidence of North American acceleration and a stable credit outlook before adding exposure.

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Where company filings and aggregator data differed (e.g., FY2024 total assets, Americas recast sales, institutional ownership percentages), both values are noted.