Estée Lauder Reports 12% Revenue Decline, Cites Tariffs, Shifts Strategy

Estée Lauder Companies Inc. (EL.US) reported its fourth-quarter earnings for the fiscal year ending June 30, 2025, revealing a 12% year-over-year decline in revenue to $3.41 billion, which still exceeded market expectations. The company's earnings per share stood at $0.09, also surpassing forecasts. However, the company's guidance for the fiscal year ending June 2026 fell short of market expectations, primarily due to the impact of rising U.S. tariffs, which the company estimates will erode its profits by approximately $100 million.

The company projected adjusted earnings per share for the fiscal year 2026 to be between $1.90 and $2.10, which is below market expectations. This news led to a significant decline in the company's stock price, reflecting investor concerns over the financial outlook and the challenges posed by external economic factors. The company's guidance underscores the broader challenges faced by multinational corporations in navigating a complex global trade environment, where tariffs and regulatory changes can have a substantial impact on profitability.

In response to these challenges, Estée Lauder's CEO, Stéphane de La Faverie, is implementing cost-cutting measures through layoffs and outsourcing certain services. The company is also increasing its investment in e-commerce platforms such as Amazon and TikTok to boost sales of skincare and makeup products. This shift marks a departure from the company's traditional reliance on department stores and represents a new strategic direction.

The success of this transition hinges on whether Estée Lauder can revive its sales in the China market and gain a larger share of the U.S. market. The company faces stiff competition from emerging brands and rivals such as L'Oréal. Faverie is also focused on reducing the company's dependence on duty-free shops in China and South Korea, which contributed up to one-third of its revenue in the years following the outbreak of the pandemic. However, as Chinese consumers resume international travel, sales in these duty-free shops have significantly declined.

Estée Lauder anticipates organic sales growth of 0% to 3% for the fiscal year 2026, which is below the market expectation of 1.9%. In contrast, the recently concluded fiscal year 2025 saw an 8% decline in organic sales. The company's efforts to navigate these challenges and adapt to the evolving market landscape will be crucial in determining its future performance.