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On Thursday, Estée Lauder Companies’ executives were in an upbeat mood, but shy of ecstatic. After four quarters of decline, and a stock price that’s more than halved in the last two years, the US conglomerate reported a 3 percent uptick in organic net sales for the three months ended Sept. 30, with some gains in challenged areas like China and travel retail.
Topline revenue, profits, and margins all expanded, demonstrating that the company can bank savings and still eke out sales growth. Fragrance soared 13 percent, with big gains from its luxury brands like Le Labo and Tom Ford.
There’s plenty for the company — and its investors — to celebrate. Sales in mainland China, a long-standing drag on earnings, grew 9 percent, and its ailing travel retail division is also improving. In a note, Barclays analyst Lauren Lieberman said there was nothing to suggest its topline recovery will be short-lived. Yet its stock barely moved, suggesting investors remain on the sidelines.
Estée Lauder Companies, which owns premium names like La Mer, Tom Ford and MAC Cosmetics, is still under pressure. Overall, makeup declined 2 percent, and hair care 7 percent, for which the company partly cited poorer performance in its home market of the US.
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Leadership’s message has long been about turnaround; under the auspices of its Beauty Reimagined turnaround plan, announced in February, it has spoken about a reinvention of its business with quicker product launches, more innovation and higher investments in consumer-facing initiatives, and highlighted that it will take time. With this week’s dual news drops — first that the company has partnered with e-commerce platform Shopify to update its direct-to-consumer sites, and then the launch of MAC Cosmetics into Sephora in 2026, it’s moving in the right direction.
However, that right direction is still an uphill battle in a cooling market. The business’ wider gains will be hamstrung without meaningful recovery in the US and reignited growth in makeup. On a call with analysts, leadership was careful to set expectations conservatively, reaffirming that it expects full-year sales growth to be flat or up to 3 percent.
“We don’t expect a linear path, given macro volatility and prior year comparisons,” said chief financial officer Akhil Shrivastava, adding that its first-quarter results gave him confidence.
Rebuilding Brand Power
The announcement that MAC Cosmetics would enter Sephora, which came just a day before it reported its earnings, is a positive gain for Estée Lauder. The company’s efforts to revive the brand, like viral campaigns and stunts with stars like Doja Cat and Kris Jenner, are somewhat hollow without a presence in America’s most taste-making beauty retailer.
On the call, chief executive Stéphane de La Faverie said makeup’s performance in the US is positive on a volume and market share basis, and that its decision to adjust some prices, such as that of MAC Cosmetics’ Studio Fix foundation from $44 to $39, are helping it win over new (and particularly younger) customers. “We see a lot more demand at the entry of prestige,” said de La Faverie, noting that its affordable skincare brand The Ordinary is also accelerating. Its performance in the US could also improve somewhat from the start of the 2026 calendar year. Historically, much of its sales have been done through department stores, which have lost relevance and footfall. The benefits of improved direct-to-consumer e-commerce, in addition to its increased Amazon and Sephora presence should be additive in the US, providing brand desirability is there.
But there’s a prescient need to rebalance sales across divisions.
At $721 million, fragrance is now its third-biggest sales driver — almost six times as much as the next unit, hair care, at $129 million, and fast catching up with makeup, which brought in a little over $1 billion. In the last few months, the conglomerate has inaugurated a fragrance development “atelier” in Paris and opened four new back-to-back stores for Le Labo, Frederic Malle, Jo Malone London and By Kilian in New York’s SoHo.
The company has a clear right to win in premium and luxury perfume — its namesake founder was one of the first non-fashion designers to launch fragrance. But as it becomes more reliant on the category, which now comprises around 20 percent of sales, it joins an increasingly competitive market, loaded both with expensive contemporaries like Manzanita Capital’s D.S. & Durga or L’Oréal’s new Creed and fast-moving masstige players like Phlur and Sol de Janeiro eating away at overall market share.
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And while the firm has some heavyweights in its portfolio, its older, ailing brands are dragging down growth. The company chalked up its weakness to underperformance from the Bobbi Brown and Aveda brands for makeup and hair respectively, both of which have ceded relevance over the years. The founder of the former now has a second buzzy cosmetics line, Jones Road, while the latter looks increasingly like a relic from a bygone era in a market dominated by clinical and professional brands like K18 and Color Wow.
Rebalancing Sales Growth
The Estée Lauder Companies is not the only conglomerate with grand designs for fragrance. In October, fellow American juggernaut Coty announced it would consider divesting its mass cosmetics division altogether to better focus on fragrance, with a goal of owning the market from “$5 to $500,” from affordable body mists to luxury eau de parfums. L’Oréal’s surprise acquisition of Creed from Kering, along with the rights to make scents for Bottega Veneta, Balenciaga and eventually Gucci also materially increases its exposure to scenting.
Right now, fragrance is beauty’s fastest-growing business. But its growth is slowing, even as customers get on board with maximalist trends like layering. Puig, the owner of can’t-be-beat Byredo and maker of popular masstige scents from Carolina Herrera, also warned of a “softer” fragrance market in its third-quarter earnings on Thursday.
To be sure, Estée Lauder Companies’ new leadership has achieved many of its goals in a short space of time. It’s logged market share and sales recovery in China and travel retail and more nimble, innovative product launches. It’s also moved fast to reach customers through Amazon and TikTok Shop, and is now improving its channel proposition via Sephora and its direct-to-consumer sites. (Critics might argue these developments have been table stakes for others for some years.)
In a market arguably dominated by indie players like Makeup by Mario, Rare Beauty and Rhode for cosmetics, and youthful names like Naturium, Cerave and Neutrogena for skincare, rebuilding its brand equity in the US may be the hardest piece of the puzzle to solve.
Perhaps that’s partly why the company chose to maintain its conservative outlook, and continued to talk about the quarter as being at the beginning of a turnaround.
“The environment globally continues to be dynamic with a variety of headwinds and tailwinds,” said de La Faverie. “We remain vigilant.”
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