Estee Lauder's Restructuring Push Delivers Fourth Straight Growth Quarter
The Estee Lauder Companies posted a 5% jump in fourth-quarter organic net sales, its strongest quarterly growth of the year and the fourth consecutive period of improvement.
The Estee Lauder Companies (EL) closed a turnaround year with its best quarter yet, reporting fourth-quarter organic net sales growth of 5%, up from 2% in the third quarter and the fourth straight quarter of acceleration. The beauty company, which has spent the past two years cutting costs and headcount under its Profit Recovery and Growth Plan (PRGP), finished fiscal 2026 with organic sales up 3% for the full year, a reversal from a decline in fiscal 2025. As-reported net sales rose 5% to $15.0 billion from $14.3 billion.
The restructuring program that underwrote the turnaround wrapped up its approvals as of June 30, 2026, and its results landed at or above the ranges the company had previously flagged: $1.2 billion in gross benefits at the high end of guidance, a net reduction of 10,000 positions at the top of the 9,000-to-10,000 range, and cumulative charges slightly above the $1.5 billion to $1.7 billion the company had communicated. Those savings showed up directly in margins. Full-year gross margin expanded 150 basis points to 75.5%, with expansion in every quarter of the year, while adjusted operating margin rose 320 basis points to 11.2% from 8.0%, a gain of nearly 300 basis points or more in each quarter. Adjusted diluted earnings rose 66% for the year to $2.51 a share from $1.51, building on the third quarter's 40% pace. As-reported operating margin swung to a positive 5.2% from negative 5.5%, mostly because fiscal 2025 had carried $1,286 million in goodwill and intangible impairments and a $159 million talc settlement charge that did not repeat. Free cash flow more than doubled to $1.32 billion from $0.67 billion, as operating cash flow grew 39% to $1.77 billion and capital spending fell to $457 million from $602 million.
The recovery was uneven across categories. Fragrance carried the year, with net sales up 12% as reported and 10% organically and adjusted operating income up 27%, continuing double-digit organic growth that had already stood out as a highlight through the first three quarters. Skin Care delivered an outsized margin gain, with adjusted operating income up 52% on just 4% organic sales growth. Hair Care swung from an operating loss to a profit for the full year even as organic sales were roughly flat to down 1%, reflecting PRGP-driven expense reductions rather than sales momentum; within the segment, Aveda declined as the company exited underperforming doors and worked through weakness in the salon channel. Makeup was the outlier on the downside: net sales were essentially flat for the year, up 2% as reported and flat organically, but the segment slipped into an operating loss as increased consumer-facing investment outpaced sales leverage.
Two new items complicated the earnings picture. The effective tax rate jumped to 64.8% as reported and 35.7% on an adjusted basis, from negative 8.9% and 38.8% a year earlier, reflecting new valuation allowances on foreign deferred tax assets and the impact of U.S. tax legislation. Separately, the company began receiving refunds tied to IEEPA tariffs during the fourth quarter, recording a $38 million cost-of-sales benefit that partially offset a $102 million gross tariff impact for the year — the first quarter in which tariffs registered as anything other than a pure headwind.
For fiscal 2027, Estee Lauder held its organic net sales growth guidance at 3% to 5%, unchanged from the preliminary range it gave alongside third-quarter results, but raised its adjusted operating margin guidance to 12.7% to 13.5% from the preliminary 12.5% to 13.0%. The guidance arrives without the strategic-combination option that had been on the table earlier in the year: the company confirmed in March that it was in discussions with Puig, then terminated those talks in May, leaving the growth plan resting on the restructuring program alone.