Estée Lauder finds fresh momentum as fragrance and China lift fiscal 2027 start

The Estée Lauder Companies Inc. (NYSE:EL) has raised its fiscal 2027 outlook after a first quarter in which fragrance growth, improving China trends and cost efficiencies combined to produce a much stronger profit result. Net sales rose 7% to US$3.715 billion, while adjusted diluted earnings per share more than doubled to US$0.72 from US$0.32 a year earlier.

The improvement was not confined to the top line. GAAP operating income climbed to US$408 million from US$169 million, lifting operating margin to 11% from 4.9%. On an adjusted basis, operating income increased 76% to US$449 million and adjusted operating margin expanded to 12.1% from 7.3%. Estée Lauder attributed the margin gains to operating leverage, pricing and procurement, expense and manufacturing efficiencies under its Profit Recovery and Growth Plan, as well as lower restructuring charges.

Fragrance leads category recovery

Fragrance was the standout category, with organic sales rising 20% on double-digit growth from Le Labo, TOM FORD, Jo Malone London and KILIAN PARIS. New launches and continued demand for established products helped drive the result, while fragrance operating income rose 93%.

Skin care organic sales increased 4%, led by La Mer and The Ordinary. Makeup was broadly stable, growing 1% as M·A·C offset a decline from Estée Lauder, while hair care sales were flat as growth from The Ordinary was offset by lower Aveda shipments linked to brand-specific supply-chain logistical challenges. The company said makeup operating results returned to income from a loss in the prior-year quarter.

China and travel retail provide important support

Organic sales grew in every geographic region. Asia/Pacific increased 10%, supported by improved travel-retail replenishment and online sales in Hainan, while Mainland China rose 9% organically. Estée Lauder also reported share gains in selected markets including China, Japan, Korea, the US and Western Europe, although the release described these gains as applying to particular categories and channels rather than the entire business.

The company has lifted its fiscal 2027 organic sales growth forecast to 4% to 5.5%, from 3% to 5% previously. It now expects adjusted operating margin of 12.9% to 13.7%, adjusted diluted EPS of US$3.20 to US$3.45, and operating cash flow of US$1.4 billion to US$1.5 billion. The revised outlook assumes no deterioration in geopolitical conditions or related effects on tariffs and consumer sentiment, and expects stronger growth in the second half of the year in EUKEM.

Profit recovery still has a cash-flow test

The earnings rebound came with a less polished cash-flow picture. Operating cash outflow narrowed to US$166 million from US$340 million, but capital expenditure of US$69 million left free cash flow negative at US$235 million. Cash and equivalents stood at US$3.198 billion at quarter-end, compared with US$2.219 billion a year earlier, while management expects full-year operating cash flow to improve despite higher restructuring payments and working-capital needs.

The next test is whether the first quarter’s margin recovery can endure as Estée Lauder increases consumer-facing investment and works through the uneven parts of the portfolio. The company completed its purchase of the remaining interest in Forest Essentials in October, but said the acquisition is not expected to have a material effect on fiscal 2027 earnings or sales. Its planned Shanghai capital-markets presentation on November 4 should offer a closer look at whether China and travel retail can remain growth engines rather than simply favourable comparisons.