Estée Lauder (NYSE: EL) Posts FY2026 Turnaround: Adjusted EPS Up 66%, Raises FY2027 Margin Outlook

The Estée Lauder Companies (NYSE: EL) reported fiscal year 2026 results on August 19, with adjusted EPS rising to $2.51 from $1.51 in the prior year, a 66.2% increase, and GAAP net sales growing 5.0% to $15.05 billion. The company also raised its fiscal 2027 adjusted operating margin outlook, citing delivery ahead of its internal targets for the year.

FY2026 Financial Results

• Net sales reached $15.05 billion on a GAAP basis, up 5.0% year over year, while organic net sales of $14.81 billion rose 3.4% on a comparable basis.
• Adjusted operating income increased 47.2% to $1.69 billion, with adjusted operating margin expanding 320 basis points to 11.2% from 8.0% in fiscal 2025.
• GAAP operating income swung to $780 million from a loss of $785 million in the prior year, which had been weighed down by $1.29 billion in goodwill and intangible impairments and $159 million in talcum litigation charges.
• GAAP diluted EPS improved to $0.50 from a loss of $(3.15), while adjusted diluted EPS rose to $2.51 from $1.51.
• Free cash flow totaled $1.32 billion, compared with $0.67 billion in fiscal 2025, as operating cash flow grew 39% to $1.77 billion and capital expenditures declined 24.1% to $457 million from $602 million.

What Drove the Results

Adjusted operating margin expansion of 320 basis points to 11.2% was the central operational story, driven by gross margin gains sourced from the company's Profit Recovery and Growth Plan (PRGP) and operating leverage. Full-year gross margin reached 75.5%, up 150 basis points from 74.0%, despite a gross tariff impact of $102 million, partially offset by $38 million in IEEPA tariff refunds received in the fourth quarter. The PRGP, now concluded in its approval phase as of June 30, 2026, is expected to yield annual gross benefits of approximately $1.2 billion and resulted in a net reduction of approximately 10,000 positions, both at the high end of previously communicated ranges.

By product category, Fragrance was the standout, with net sales rising 12% on a reported basis and 10% organically to $2.78 billion, alongside a swing to $204 million in operating income from a loss of $378 million in fiscal 2025. Skin Care generated $7.34 billion in net sales, up 5% reported and 4% organically, with operating income of $1.42 billion versus $574 million a year earlier. The company expanded to six billion-dollar brands in fiscal 2026, adding Jo Malone London and TOM FORD to that group.

The GAAP effective tax rate rose sharply to 64.8% from negative 8.9% in the prior year, reflecting higher taxes on foreign earnings, new U.S. tax legislation, and changes in unrecognized tax benefits across multiple jurisdictions. This weighed on GAAP EPS relative to adjusted figures. The $84 million loss contingency related to a pending securities class action settlement, net of insurance recoveries, also represented a material non-cash divergence between GAAP and adjusted results.

Guidance Raised for Fiscal 2027

Estée Lauder affirmed its fiscal 2027 organic net sales growth outlook of 3% to 5% and raised its adjusted operating margin outlook to a range of 12.7% to 13.5%, above the previously communicated figure. Management cited plans to accelerate growth in North America and further diversify across product categories and geographies. PRGP actions are expected to be substantially completed in fiscal 2027, with the majority of full run-rate benefits slated for realization in that year.

Wall Street View

Analyst sentiment heading into the report leaned constructive, with the majority of covering firms at Buy or Strong Buy. The raised FY2027 margin outlook, combined with the PRGP delivering at the high end of expectations, provides a concrete forward anchor for consensus estimates to re-rate.

Investor Takeaway

The fiscal 2026 results confirm that the PRGP restructuring generated measurable margin recovery, with adjusted operating margin at 11.2% and free cash flow more than doubling to $1.32 billion. The more forward-looking question is whether the raised FY2027 adjusted operating margin target of 12.7% to 13.5% is achievable against a backdrop of ongoing tariff exposure and geographic mix shifts, particularly given that the full run-rate of PRGP benefits has not yet been realized. Shares gained 16.30% on Wednesday, August 19, while the S&P 500 advanced 0.21%.