On August 19, Estée Lauder Companies (NYSE:EL) released its fiscal 2026 fourth-quarter and full-year earnings, and the numbers finally matched the turnaround story management has been selling for a year and a half. Organic net sales rose 3% for the year, adjusted operating margin expanded 320 basis points to 11.2%, and adjusted diluted EPS jumped 66% to $2.51. After several rocky years, the beauty giant is starting to look like a company executing rather than explaining.
A Brand Portfolio Firing Together
The growth wasn’t concentrated in one lucky category. Fragrance led the way with 10% organic sales growth, fueled by hero scents from Le Labo and TOM FORD, while Skin Care grew 4% across price tiers from The Ordinary to La Mer. Jo Malone London and TOM FORD both crossed into the company’s billion-dollar brand club this year, joining Clinique, Estée Lauder, La Mer, and M·A·C, giving the portfolio six brands at that scale. Gross margin reached 75.5%, up 150 basis points, largely on benefits from the Profit Recovery and Growth Plan, which is now delivering an expected $1.2 billion in annual gross benefits, the high end of the range management had promised.
Organic net sales in Mainland China grew 9% for the full year, outperforming the prestige beauty market and gaining share in every quarter. Globally, online sales reached a record 34% of total reported sales, up 3 percentage points from fiscal 2025. Management continues to prioritize product innovation, which accounted for 23% of total sales in fiscal 2026, and expects that share to expand by an additional 200 to 250 basis points in fiscal 2027, led by Skin Care launches. For fiscal 2027, the company guided to full-year organic sales growth of 3% to 5% and projected an adjusted operating margin of 12.7% to 13.5%, reflecting higher profitability targets than the 11.2% achieved in fiscal 2026.
Cracks Still Showing In Places
Not every part of the business is cooperating. The conflict in the Middle East cut organic sales growth in the Europe, Middle East, and Africa region by 2 percentage points in the fourth quarter, and management said the situation remains dynamic heading into fiscal 2027. Hair Care organic sales declined 1% for the year, weighed down by continued struggles in Aveda’s salon channel. Makeup improved by 500 basis points over the year but still finished essentially flat, a sign the category recovery is real but incomplete. The margin story also leans heavily on cost cutting rather than pure growth.
The restructuring plan eliminated 10,000 net positions and racked up $823 million in cumulative charges, and fiscal 2027 cash flow guidance of $1.3 billion to $1.4 billion is actually a step down from the $1.8 billion generated in fiscal 2026, reflecting higher restructuring payments and rising working capital needs. CEO Stephane de la Faverie also made clear that large acquisitions are off the table for now, telling investors the company is “not entertaining transformational deals,” which limits how quickly Estée Lauder could reshape its portfolio if organic momentum stalls.
Where Wall Street Stands Now
Hedge fund ownership held steady at 47 funds in both the most recent and prior quarters, suggesting institutional investors are watching rather than committing further. The stock trades at a forward price-to-earnings ratio of 32.26 as of August 26, a multiple that assumes a fair amount of the growth acceleration management is promising for fiscal 2027. Short interest sits at 3.46% of float, a meaningful jump from negligible levels and a sign that a real bear camp has formed around the stock.
A Turnaround With Receipts, But Not Finished
Estée Lauder spent fiscal 2026 proving its restructuring plan could produce real margin and earnings gains, not just promises. The fiscal 2027 guidance calls for even more of the same, with faster sales growth and wider margins expected in the first half of the year. For the bulls, continued strength in Fragrance, China, and online sales would confirm the diversification story management keeps emphasizing.
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