Estee Lauder's Q3 Earnings Forecast: A Beauty Sector Struggle and RBC's Bullish Bet

Estee Lauder Companies (NYSE: EL) is bracing for a challenging third quarter, with earnings likely to land at the lower end of its guidance range, driven by a perfect storm of weak demand in Asia, operational headwinds, and strategic reinvestment costs. Analysts at RBC Capital Markets, however, see a silver lining in the luxury beauty giant’s long-term recovery plan—despite near-term turbulence. Here’s why investors should pay attention.

The Downward Pressure on Earnings

Estee Lauder’s Q3 2025 forecast calls for GAAP EPS of $0.04–$0.17, a staggering 81%–96% drop from last year’s $0.91. The non-GAAP adjusted EPS is projected to fall to $0.20–$0.30, a 69%–79% decline, as the company battles:
1. Asia Travel Retail Collapse: A “double-digit sales decline” in travel retail, particularly in South Korea, where retailers tightened inventory policies. In China, Hainan’s tourist sales showed modest improvement but remain negative.
2. Consumer Sentiment Slump: Weak demand in China and Korea hit prestige skincare (e.g., La Mer) and makeup brands (e.g., Tom Ford).
3. Margin Squeeze: Rising tax rates (~36% in Q3) and increased marketing spend to drive growth are offsetting cost-saving initiatives.

RBC’s Bullish Case: Why the Pain Might Pay Off

Despite the gloomy outlook, RBC maintains a Buy rating with a $100 price target—a 45% premium to its current price of ~$69. Analyst Nik Modi highlights three key reasons for optimism:

1. Cost Cuts and Operational Overhaul

Estee Lauder’s Profit Recovery and Growth Plan (PRGP) aims to slash costs by $0.8–$1.0 billion annually by 2027 through:
- Workforce reductions (5,800–7,000 jobs globally).
- Supply chain efficiency gains and procurement consolidation.
- Outsourcing non-core functions.

2. Strategic Investments in High-Growth Channels

The company is doubling down on e-commerce and emerging markets, such as:
- Amazon’s U.S. Premium Beauty Store (Clinique’s new distribution channel).
- TikTok Shop in the U.K. for The Ordinary’s budget-friendly skincare.
- Expanding The Ordinary’s presence in Thailand and mainland China.

3. Hainan’s Turnaround and Fragrance Growth

While China’s travel retail remains sluggish, RBC notes tax incentives in Hainan (reducing tariffs for tourists) could stabilize demand. Meanwhile, Estee Lauder’s fragrance division (led by Le Labo’s hit scents) grew 2% in Q2, a bright spot in an otherwise bleak quarter.

Risks and Reality Checks

RBC’s optimism isn’t without caveats. Key risks include:
- Geopolitical Tensions: Escalating trade disputes between the U.S. and China could disrupt supply chains.
- Brand Impairments: Q2 saw $861 million in goodwill write-offs for Tom Ford and Too Faced, signaling potential future hits.
- Stock Volatility: Historically, Estee Lauder’s shares drop 70% of the time after earnings reports, with a median -7.3% one-day decline.

The Bottom Line: A Beauty Sector Struggle, but a Buy for the Long Game

Estee Lauder’s Q3 earnings will likely disappoint in the short term, with EPS plummeting to the lower end of guidance. However, RBC’s bullish stance hinges on two critical factors:
1. Execution of the PRGP: If cost savings materialize and operational efficiency improves, margins could recover.
2. Hainan’s Recovery: A rebound in Chinese travel retail—coupled with global fragrance growth—could stabilize revenue.

The $100 price target assumes a 70% upside, but investors must weigh near-term pain against long-term potential. With insider buying (e.g., $2.96 million purchased by Director Paul Fribourg in February) signaling confidence, and RBC’s track record of outperforming peers, this could be a contrarian buy—provided investors have a 3–5 year horizon.

Final Verdict: Estee Lauder’s Q3 will be ugly, but its strategic pivot could make it a diamond in the rough for patient investors.

Data as of April 2025. Past performance is not indicative of future results.