Estée Lauder Stock Analysis (EL) – Structural Sell

Estée Lauder stock (EL) fundamentals, overview

The Estée Lauder (EL) story began in 1946, when Estée Lauder and her husband Joseph Lauder founded the company in New York. The start-up was based on a narrow product portfolio, primarily skin care products, whose success was founded on Estée Lauder's personal sales methods and emphasis on premium quality. The company gradually began international expansion from the 1950s and 60s, while consistently positioning itself in the premium and upper-middle-range beauty care segments. The company went public on the New York Stock Exchange in 1995, and the Lauder family continues to play a dominant ownership and management role to this day, holding approximately 84% of the company's voting rights.

Today, Estée Lauder is one of the world's largest global beauty companies, with a portfolio spanning skincare, makeup, fragrance and hair care. Its brands include Estée Lauder, La Mer, Clinique, MAC, Jo Malone London, Tom Ford Beauty, Bobbi Brown, Aveda and The Ordinary, among others. The company sells its products in more than 150 countries, through its own stores, online channels, and a travel retail network. The Estée Lauder Companies employs approximately 55–56 people worldwide and is characterized by premium branding, innovative product development, and a global distribution presence.

Market capitalization: 38,9 billion USD (2025-12-22)
Investor relations: https://www.elcompanies.com/en/investors
iO Charts share subpage: https://iocharts.io/stocks/EL

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📒Table of Contents📒

• Estée Lauder (EL) specialties
• How does Estée Lauder (EL) make money and what market advantages does it have?
• Estée Lauder (EL) metrics
• Estée Lauder (EL) acquisitions
• Estée Lauder (EL) management
• Competitors: Estée Lauder (EL) rivals
• What risks does Estée Lauder (EL) run?
• Estée Lauder (EL) valuation
• Major news and the last quarter
• Summary

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〽️Market segment analysis〽️

In this section, I examine the dynamics of the market segment, how it operates, who the main players are, and what tailwinds or headwinds the players in the given market have to deal with. I will not analyze companies in depth, but I will touch on the market share of individual companies.

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Estée Lauder (EL) is mostly associated with the luxury industry, particularly the cosmetics sub-segment.. Where do the two meet? There, where expensive cosmetics, perfumes, skin and hair care products are consumed in large numbers mainly by the upper-middle class and the wealthy, they are usually called HNWI or UHNWI individuals. The luxury industry also encompasses many other sub-segments, without claiming to be complete, the better-known companies are:

• ✨Soft luxury (soft luxury):
  • 👗 clothing industry: LVMH, Burberry, Moncler, Kering
  • 💄 perfumes, cosmetics, skin and hair care products: Estée Lauder, L'Oreal, Coty, Kering
  • 🥂 spirits market, premium concentrates, sparkling wines: LVMH, DEO, Brown-Forman, Remy Cointreu
• 💎 Hard luxury:
  • 👜 leather industry, bags, accessories: LVMH, Hermes, Kering
  • 🏎️ automotive: Ferrari, Porsche
  • ⌚💍 watches, jewelry: Richemont, LVMH, Rolex

As you can see, the individual segments are quite different from each other and, apart from conglomerate companies like Kering and LVMH, there is relatively little overlap. I have written about the luxury industry in several articles, which you can read about in the following stock analyses:

• Kering Stock Analysis (PPRUY) – Gucci is not selling
• Porsche AG (P911) Stock Analysis – They're Not Pressing the Gas
• Burberry Stock Analysis (BRBY) – The Knight Does Not Charge

Going back to Estée Lauder (EL), it is basically a premium cosmetics company and these two words define the market segment in which it operates very well.

🥣Premium segment of the luxury industry

Why do we consider cosmetics and perfumes to be part of the luxury industry? Primarily because because the vanity megatrend supports their sales. This means that as people become wealthier, they tend to spend more on products that have some prestige value, and the number of wealthy people is constantly increasing. Supporting the above with numbers:

• 💰 At the end of 2023, there were 59 million dollar millionaires on Earth, this means that their net worth was at least $1 million (real estate typically counts),
• 📈 this number is constantly rising, primarily due to the concentration of wealth in the USA, China and Western Europe.

In an analytical context, this is relevant because global luxury and premium consumption (including the cosmetics and fragrances market) relies on a narrow but rapidly expanding segment, the size of which already rivals the population of a medium-sized country. However, it doesn't really matter whether a company's products are consumed by the super-rich or the upper-middle class. This is primarily a question of price, and in the case of cosmetics and perfumes, you also have to consider that, for example, a luxury buyer consumes 3-4 bottles of a 200-500 USD perfume or cosmetic product per year, so you can actually compare such products to, say, a leather bag or a watch by multiplying the price over several years of consumption.

The problem with this is that any product with a relatively low entry price can no longer be purchased not only by luxury consumers, but also by consumers in the emerging middle and upper middle classes. Simply because the entry barrier is lower due to the lower price. To illustrate the situation with an example:

• 💆‍♀️ The price of a premium skincare product, say Estée Lauder Advanced Night Repair (50 ml): about 115-130 USD.
• 💎 A luxury product in skincare, Estée Lauder Re-Nutriv Ultimate Diamond price: 300–450 USD (but that's about the same for a perfume).
• 👜 Price of a Gucci leather bag: $2500–$3000.
• 👑 Price of a Hermès leather bag: $10,000–$20,000 (but a Birkin or Kelly bag can be up to $100,000).
• ⌚ Price of an entry-level Rolex: $6–$8000.
• 💍 Price of a luxury Rolex: $60,000–80,000 (but rare pieces can cost up to $200,000).
• 🚗 An entry-level Porsche: $70,000–$75,000.
• 🏎️ An entry-level Ferrari: 230 000 USD.

☝🏼As you can see, a middle-class person can afford a skincare product or perfume, even if it's a luxury item, because they physically have that much money, and at most they won't spend it every time. On the other hand, they can't afford a Ferrari or a luxury Rolex, they simply don't have that much capital or they'd have to go into debt. 

So, theoretically, consuming soft luxury goods over several years will have the same effect as purchasing a one-time hard luxury good, but in reality, it doesn't. This is because:

• 🔄 they switch to substitute products more easily and give up prestige,
• ⏸️ lower-income earners postpone their consumption much earlier than higher-income earners, and inflation or economic downturns also affect this group more,
• 🧴➡️⌚ It is easier to find substitute products in the cosmetics and perfume industry than, say, luxury cars or watches.

So, you shouldn't mix premium, luxury, and ultra-luxury products, this was the fate of Burberry, but even more so of Kering, I wrote more about this here: Kering Stock Analysis (PPRUY) – Gucci is not selling.

🧴The cosmetics industry, where Estée Lauder (EL) is listed

The cosmetics industry is a seemingly simple, but in reality structurally complex market. A basic cream or makeup product is not particularly complicated in a technological sense: The majority of raw materials are standardized, most formulas can also be produced by contract manufacturers, and the entry barrier is lower than, for example, in the pharmaceutical industry. The real complexity is not in manufacturing, but in regulation (INCI, regional compliance), quality assurance, scaling, supply chain and brand management, which is where Estée Lauder (EL) fell, as you will see later. A global premium brand must simultaneously comply with different regional regulations (US, EU, China), ensure product consistency, while responding quickly to trends and consumer expectations. This requires significant organizational and operational capabilities.

The competitive advantage (moat) of The Estée Lauder (EL) lies not in the secrecy of its formulas, but in a combination of intangible and structural factors. This includes, above all, the globally built premium brand portfolio, in which some brands have been around for decades, others have cult status, and are able to maintain a pricing premium. In addition, distribution control is an important competitive advantage: it does not matter who controls the production capacity and where it is located territorially. The third pillar is innovation and marketing scale: the company is able to test products in parallel on multiple brands, regions and price points, and then scale up successful solutions globally, L'Oreal is a great king in this.

Overall, manufacturing in the cosmetics industry is easy to copy, but real competitive advantage is slow to build. In the case of Estée Lauder, it is a combination of decades of capital invested in brands, consumer trust, distribution access and global operating experience. This does not make the company stronger, but it gives it a structural advantage over smaller, single-brand or purely DTC-based players.

But how big is the market really? According to Statista and other sites:

• 💄 The beauty industry generates over 650 billion USD in revenue worldwide.
• 🧔‍♂️ The men's personal care market is expected to reach USD 276,9 billion in revenue by 2030.
• 🧴 Revenue from the skincare segment is expected to grow to up to USD 177 billion by 2025.
• 📣 Beauty companies are estimated to have spent $7,7 billion on advertising in 2022.
• 🛒 Cosmetic retailers reported online sales of $17,09 billion.

What is the difference between make-up, skin and hair care, and dermatology?

🥣Make-up (decorative cosmetics)

• 🎯Objective: immediate aesthetic effect.
• 🛍️Purchase motivation: fashion, self-expression, following trends, basically a matter of vanity, and more and more men are wearing makeup.
• ⏳Product cycle: short; trends (colors, textures) come and go quickly, brands are popular with consumers, it is easy to enter the market.
• 💸Pricing: wide band, but strong promotional pressure, high competition, market erosion.
• ⚠️Risk: high volatility, trend dependence.
• 🌴Growth: ~2-4% per year.

📌In practice: The make-up market is marketing and creative intensive, that is, they remain in the public consciousness largely because of advertising. The formulas are less technically complex, the competition is about speed, influencers and platforms, that is, who can reach the widest consumer base fastest and most cost-effectively. In an economic slowdown, this is the first category where consumers cut back on spending or look for substitute products.

👩🏼‍⚕️Skincare

• 🎯Objective: improving skin quality, prevention, vanity issue, anti-aging.
• 🛍️Purchase motivation: longer-term results, routine, therefore encourages longer-term consumption.
• ⏳Product cycle: medium; innovations are implemented more slowly, in return a longer product cycle.
• 💸Pricing: higher average price, better pricing discipline.
• ⚠️Risk: moderate; strong brand loyalty.
• 🌴Growth: ~5-7% per year, and the hair care segment 3-5% per year.

📌In practice: Skincare is built on repeat purchases, so it provides a more stable income. The active ingredient narrative, clinical trials, and promise of long-term use reduce cyclicality. This is the profit engine of many premium companies, and consumers have a hard time giving it up because they think that if they stop using the drug, the effect will not be satisfactory.

💊Dermatology market

• 🎯Objective: treatment of specific skin problems (acne, rosacea, eczema, sensitive skin).
• 🛍️Purchase motivation: function, efficiency, medical recommendation, more complex industry than the previous ones.
• ⏳Product cycle: long; scientific validation dominates, reliability is a key issue.
• 💸Pricing: flexible both downwards and upwards, but strong confidence premium, consumers find it difficult to switch.
• ⚠️Risk: low; less trend-sensitive.
• 🌴Growth: ~8-10% per year.

📌In practice: This segment is on the border between cosmetics and pharmaceuticals. It is not a fad, but driven by trust and credibility. It is also resilient in economic downturns because the consumer is buying treatment, not an experience, and moreover, the appearance of diseases is not really cyclical, existing problems must be treated. In fact, these are also cosmetics, but the products contain some active ingredient that is medicinal in nature, and the industry is strongly knowledge- and trust-driven. It is a faster growing segment than the previous two, which are largely dominated by L'Oreal.

🧴 Perfume / fragrance industry (fragrance)

• 🎯Objective: It is used to express emotional impact, identity, and status.
• 🛍️Purchase motivation: self-expression, memory, prestige, gift-giving.
• ⏳Product cycle: long; a successful fragrance can remain on the market for 10–30 years, with a great reputation effect.
• 💸Pricing: wide range, with extremely high margins in the upper segment, they ask for up to 3-400 USD for a well-known name, while ultra-luxury can reach a price of 1000 USD.
• ⚠️Risk: lower than make-up; surprisingly resistant to cycles, many people give it as a gift.
• 🌴Growth: ~4-6% per year.

📌In practice: The fragrance industry is not built on trend speed, but on icon creation. A perfume is not “refreshed” every year like a makeup collection; the goal is to become a permanent reference point, which is why it works with well-known individuals. The production cost is low compared to the selling price, the real value is created in the brand, the story and the distribution. That's why you can't create great-sounding fragrance brands out of thin air, consumer confidence is strong. More expensive brands are generally less intrusive and their effect lasts longer. Many people give perfume as gifts, so it is relatively resistant to economic cycles, but it is typically deferred consumption, not nearly as strong as products in the hard luxury segment.

What are the competitors in Estée Lauder (EL)'s markets?

Since Estée Lauder (EL) competes in 4 sub-segments at the same time, it is worth knowing who its main competitors are:

• 🏆 L’Oreal (OR): market leader in the make-up, skin care and dermatology segments. Estée Lauder's (EL) biggest rival.
• 🇯🇵 Shiseido (TSE:4911): Japanese company, especially strong in skincare and Asia. More regionally focused, but a relevant competitor in Estée Lauder's core categories.
• 🧴 Procter and Gamble (PG) and Unilever (UL): Not a premium position, but they absorb price-sensitive demand in an inflationary environment and have a strong marketing-supply scale. These two companies have the substitute products that more price-sensitive, non-WHNWI or UHWNVI consumers switch to in an economic downturn.
• 🌸 Coty (COTY): strong in fragrances and licensed brands (e.g. Gucci, Burberry), but does not compete in the skin and hair care, make-up, and dermatology segments.
• Chanel (private): Chanel is a privately held global luxury house with extreme pricing power, operating with iconic brands in fashion, perfume and cosmetics, tightly controlled distribution and exceptional profitability, while not being forced to adapt to quarterly market expectations.
• 🍺Biersdorf AG (BEI): a German-based global skin care company that competes with Estée Lauder primarily in dermatological and functional skin care. Its main brands are NIVEA, Eucerin, La Prairie and AquaphorIt sells strong medical, pharmaceutical and everyday products.
• ⚡ elf Beauty: rapid product development, data-driven marketing; pressure on entry premium in terms of price-value ratio.
• 🇨🇳 Floral and Perfect Diary: Chinese brands, culturally localized offerings, strong domestic platform integration; they are eroding the share of premium import brands, especially as the Chinese increasingly turn to brands produced in their own country (a good example is the purchase of domestic electric cars).
• 🌺 Interparfums: only fragrances and perfumes, narrower focus, high margins, fast product cycles. Indirect competitor to Estée Lauder's (EL) fragrance business.
• 💎 LVMH (MC): vertically integrated luxury brand, present in the perfume segment, but not a significant player, rather providing fragrances only as an additional product, e.g. Dior, Givenchy, Kenzo, Marc Jacobs, etc.
• 👑 Round (PPRUY): a player similar to LVMH, their Kering Beauté branch concentrates perfumes, like Gucci or YVS Fragrances, but they are not specific.

Of the above, only L'Oreal is actually considered a real opponent, because they jointly dominate the skin care segment with Estée Lauder (EL), which is a duopolistic market, while in the dermatology sub-segment, L'Oreal is almost monopolistic. These companies are not nearly as strong in the complementary industry of fragrances, where competition is much greater, but this also accounts for a smaller portion of their revenue.

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🙋‍♂️Estée Lauder (EL) specialties🙋‍♂️

In this section, I examine what specialties the analyzed company has, what its position is in the market, and whether it does anything differently than its competitors. If so, what and how, and what impact does this have on their operations.

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Estée Lauder (EL), contrary to its name, is not a French company, but an American one, and is named after the Lauder family. The Lauders trace their roots back to Estée Lauder, the founder, who died in 2004, and whose husband was Joseph H. Lauder, with whom they founded The Estée Lauder Companies. However, the name is not of French origin, but rather comes from Hungarian and Czech Jewish families who immigrated to the United States before their children were born. "Estée" is a nickname, derived from the name Josephine Esther Mentzer. Eshter is probably a transliteration of the Hungarian name Eszter, whose nickname is Eszti, which could have been Estée, but Josephine was already born in America.

Estée Lauder (EL) as a company traces its roots to her maternal uncle, chemist Dr. John Schotz, who created several different products. One of his multi-use creams was named after Estée and began selling it in various beauty supply stores and clubs. This eventually grew into the company then called Estée Lauder Cosmetic Co. in 1946, which Estée founded with her husband, Joseph. They introduced their first perfume, Youth-Dew, which was a bath oil, in 1953, so EL didn't start its business in this market segment yesterday either. In the first year, 50,000 units were sold, while by 1984 this number had increased to 150 million.

Estée was the marketing genius of the company, she was the first in the world to give away free samples to prospective customers and thus maintain their loyalty to the company's products. Estée Lauder (EL) went public in 1995, when the founder was 87 years old. The Lauder family still owns about 84% of EL's voting rights, with these votes held by third and fourth generation family members. Several members of the Lauder family are on Fortune's 2023 list of the Richest People, with the following amounts:

FORTUNE LIST PLACEMENT	Name	POSITION IN THE EL	Estimated net worth
77.	leonard lauder	was: CEO/Executive Chairman currently: honorary president	21 billion USD
534.	Jane Lauder	was: executive vice president currently CDO, member of the board of directors	5 billion USD
591.	Ronald Lauder	was: board member currently: non-operating owner	4,6 billion USD
582.	William Lauder	was: CEO/Executive Chairman currently: board member	3,4 billion USD
949.	Aerin Lauder	Founder of AERIN brand style and image director at EL	3,1 billion USD
2133.	Gary Lauder	has no operational or board role	1,3 billion USD
	WE ARE FULL:		38,4 billion USD

The identity of the family members is important because some of them have had a major impact on the life of Estée Lauder (EL), as you will see later. Today, Estée Lauder (EL) is actually a conglomerate that has acquired countless brands over the years, but it cannot be called a serial acquisition company. They place their brands on a 4-element scale, consisting of luxury, large, growing and developing categories:

• luxury: La Mer, Jo Malone London, TOM FORD, AERIN Beauty, Le Labo, Editions de Parfums Frédéric Malle, KILIAN PARIS and BALMAIN Beauty, as well as Estée Lauder's Re-Nutriv products.
• nagy: Estée Lauder, La Mer, Clinique and M·A·C.
• growing: Jo Malone London, TOM FORD, The Ordinary, Aveda, and Bobbi Brown Cosmetics.
• developing: Le Labo, Too Faced, Dr.Jart+, Origins, KILIAN PARIS, Bumble and bumble, Editions de Parfums Frédéric Malle, Smashbox, Darphin Paris, Lab Series, AERIN Beauty, NIOD, Aramis, BALMAIN Beauty and GLAMGLOW.

In the figure below, you can see how these relate to each other in a coordinate system, with the Y axis showing increasing pricing power, which does not necessarily correspond to where certain brands are classified. For example, BALMAIN is a growing brand, but also has strong pricing power. Estée Lauder has been selling its products not only under the original brand, but also under 22 other different names for a very long time, and AERIN Beauty was founded by one of the Lauder family members, Aerin Lauder.

The company basically competes in the market in 4 segments: make-up, i.e. beauty cosmetics, skin and hair care, fragrances, and there is an other category, which includes all kinds of licenses, trademarks and the like, as can be seen in the image below. Skincare accounts for roughly half of the revenue, while make-up is roughly 1/4 of the total turnover, with the rest dwarfed by the two main revenue-generating sources.

The Estée Lauder Companies operates neither in a purely contract manufacturing nor in a fully vertically integrated model. The reality is a hybrid manufacturing structure, with some facilities owned and others leased. I basically like companies where the company owns the entire supply chain because they have much better pricing power, but in return this means more capital-intensive operations in the short term. Examples of this are Copart or Old Dominion Freight Line, where the two companies essentially own all the land and buildings needed to operate. What is very clearly visible in the picture below? How they serve the world with products:

• North and South America: 4/15 pieces, own and leased production and distribution center
• Europe, Middle East and Africa: 6/6 pieces
• Asia and Oceania: 1/2 pieces (after the problem became apparent, they quickly started building)

So, essentially, they served the fast-growing Asian market through America, because they simply had no manufacturing, development, or distribution plant in a market with roughly 4 billion people. They have since changed that, and their closest service base is in Japan. And that's how we got to the Daigou system, without understanding which you can't understand Estée Lauder's (EL) current problem.

💥Estée Lauder (EL) sales channels

You've probably noticed that there are no Estée Lauder (EL) stores in your area. Estée Lauder does not operate in a classic "single-brand retail" model (with a few exceptions), but rather relies on selective distribution and listing, meaning it uses other brands' store networks for distribution. This is partly because its own store network:

• 🏗️ capital intensive
• 📉 gives lower ROIC (at least distorts it in the short term)
• 🌍 more difficult to scale globally

Why doesn't Estée Lauder spend on this? Because the advertising costs for such products are incredibly high, which drains capital, as you'll see later when I analyze the SG&A section. Instead, they use existing store networks. Such as:

• 🏬 premium department stores, drugstores selling all kinds of things
  • 🏢 Macy’s
  • 🧥 Nordstrom
  • 🛍️ Selfridges
  • 🎩 Harrods
  • 🧴 Rossmann (in Europe)
• 💆‍♀️ beauty salons
  • 💄 Sephora
  • ✨ Ulta Beauty
• 🌐 online channels
  • 🛒 Estée Lauder's own webshop
  • 💻 Sephora Online
  • 🛍️ Ulta online store
• ✈️ travel retail stores (Daigou system)
  • 🛄 airport duty free shops (shop-in-shop format)
• 🧭 regional specificities (especially China)
  • 🛒 Tmall, JD.com
  • 🏝️ Hainan Island etc.

What is the Daigou system? (代购)

From the above, it can be seen that this is actually partly a drugstore business, as people typically buy make-up and skincare products from here, but the DTC leg is also strong. The most exciting of the above options are products purchased in so-called travel retail, which in the vast majority of cases means nothing more than that customers go into the duty-free shop at an airport and pick up one of the Estée Lauder products. Or, if they are Chinese, they go to Hainan Island, which is a special administrative region of China (or rather, under it). Why is this important? Because it is also part of Daigou.

Hainan's uniqueness stems from its status as an exception within China: It is simultaneously an offshore duty free zone, a free trade experimental space, and a tool to redirect domestic consumption. This triple function has made it strategically important, and risky, for premium consumer goods. Just like at the airport, because:

• 🛄 Offshore duty free domestic travel: Chinese citizens can purchase duty-free products without a passport on domestic flights. Customs and tax benefits remain, and administration is minimal.
• 💳 High purchase quotas: The annual duty free limit per capita is significantly higher than in other domestic channels, which enables high-volume, repeat purchases.
• 🏛️ State strategy to bring consumption home: The goal was to ensure that Chinese luxury and premium spending was realized within China, not abroad (Europe, Japan).
• 🏷️ Selective brand listing: Large premium brands (cosmetics, fragrance, luxury) appear in concentrated, high-prestige retail environments, with strong promotional support.

Daigou: Daigou is nothing more than Chinese individuals or micro-traders buying trusted Western brands abroad and then informally reselling them in China, generating a kind of grey import. The whole thing is built on a chain of trust: it comes from abroad, so it's real. Taxes, customs, and official distribution are often avoided. It's a gray area, but it's a huge volume, and if one of their biggest markets is China, like Estée Lauder, then this will definitely increase their revenues significantly, while they won't have to bear the additional state burden. Not only Estée Lauder (EL) did this, but also Kering (PPRUY). In Japan, orders of magnitude more Gucci bags were sold in airport duty-free shops than elsewhere, because leather goods were significantly cheaper here than elsewhere, due to the weak Japanese currency.

Why was this particularly important for the beauty industry? Beauty products are small, high-value, and fast-moving, making them an ideal fit for the daigou phenomenon and the Hainan model. A significant portion of the turnover was channeled into the duty free system by Chinese end-consumption, which showed strong growth in the short term in "travel retail" statistics. Then came COVID and the lockdowns!

⚡A perfect storm for Estée Lauder (EL)

Estée Lauder (EL) has been hit hard by COVID travel restrictions. I would like to point out that EL only has a manufacturing and R&D base in Asia in Japan, not in China, but nowhere else. Since consumption came from outside, Chinese sales declined, but in 2020-21, a lot of money was poured into the market and people's appetite for consumption increased, so other markets covered up the company's weaknesses. Estée Lauder (EL) products were very popular in America, and skincare was booming, as everyone was at home due to the lockdowns.

Then in 2023, people were released from COVID lockdowns, so the previously artificially high demand in the US died down, while restrictions remained in place in China. This was compounded by the fact that the Chinese state tightened up on the daigou phenomenon and the Hainan model, which is understandable, as they did not want consumers to avoid paying taxes and strengthen the grey import. This resulted in Chinese demand, which had previously been concentrated abroad, migrating domestically, where Estée Lauder did not have a manufacturing and distribution base. (EL)'s average product consumption remained high, due to:

• 📦 they worked with high inventory levels, the amount of inventory increased, the turnover rate slowed down,
• 🏷️ they faced promotional pressure, had to lower the prices of their products (which always erodes the brand name in the premium and luxury industry),
• 📉 Due to deteriorating gross margins, revenue, margins and share price began to fall.

Another nail in the coffin for EL was that management miscommunicated the company's dependence on China, even though they had no production assets in the country. Estée Lauder was eventually sued by investors in the United States, alleging that it had not properly and timely communicated the extent of its dependence on China, particularly its daigou and travel retail channels., see here: lawsuit.

The other is that during the prosperous period of 2010-2022, management was very irresponsible with the company's money when it came to acquisitions, as shown in the Acquisitions in section I'll explain in detail later. Quite a few of these didn't work out, Too Faced, GlamGlow, Becca, Dr. Jart+ are the biggest money-burning mistakes.

From the above it can be seen that:

1. ❌ Estée Lauder (EL) was mismanaged by management,
2. 🏭 they did not have adequate production capacity in China, while becoming overly exposed to consumption in the Far East,
3. 🔥 and made acquisitions that mostly just burned money.

☝🏼It follows from this that Estée Lauder has primarily structural and non-cyclical problems, which are much more difficult to correct than waiting for an economic recovery.

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💰How does Estée Lauder (EL) make money and what market advantages does it have?💰

In this section, we examine what exactly the company does to generate revenue, what products and services it has, how indispensable they are. Does it have any competitive advantage (economic moat), how defensible is it, and whether the trend is decreasing or increasing, and what is likely to happen in the long term.

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Estée Lauder (EL) is still the second largest skincare and makeup manufacturer, far behind L'Oreal, which according to some industry statistics may have a market share of around 18,5%. If we look only at revenue, Estée Lauder (EL) is third, but Unilever's products do not compete as much with EL and L'Oreal's products in terms of quality and pricing, so it is more of a duopolistic market.

Company	Beauty industry income
L'Oréal	44,53 billion USD
Unilever	26,15 billion USD
Estée Lauder	15,2 billion USD
P & G	15 billion USD
LVMH	8,94 billion USD
Chanel (private company)	8,32 billion USD
Beiersdorf	8,14 billion USD
Shiseido	6,94 billion USD
Nature & Co	6,39 billion USD
Coty	6 billion USD

The table above contains even earlier data, the 2025 LTM revenue is 14,446 billion USD, meaning that Estée is only in 4th place in terms of revenue. However, the Beauty segment also includes perfume manufacturers such as Chanel and Coty, the former is not a listed company and since EL only collects 2,5 billion USD in revenue from fragrances, there are plenty of larger companies there. However, if we look at the market segments individually, the following picture emerges:

(I.e.According to Euromonitor, in 2024, Estée Lauder (EL) had a 16% market share in the prestige skincare segment, L'Oreal had 15%, and Shiseido had 8%. In the premium make-up segment, the same is 22% and 18%, but here LVMH is third with 14%, and EL's leading brands are Bobbie Brown and MAC.

In contrast, Estée Lauder (EL) has a market share of 6 and 4% in the less prominent fragrance and hair care markets, compared to L'Oreal's 17 and 25%. However, I think it is plausible that Estée Lauder has an economic advantage over smaller and less well-known players due to its size and reputation. If I break down Estée Lauder's (EL) revenue streams, we can see the following:

• 🧴 skincare: ~49%
• 💄 Make-up: ~29%
• 🌸 Perfumes: ~18%
• 💇‍♀️ Hair care: ~4%
• 🧩 Other: under 1%

It is also worth noting that Estée Lauder (EL) has many brands that have premium or even luxury pricing. It doesn't matter how much of a brand's portfolio is made up of premium and luxury products, because the lower the price of a product, the faster customers will replace or abandon it, or perhaps postpone consumption. In this regard, Estée Lauder stands out from its competitors, as this company has the best quality, affordable brands. Here are some examples:

Lower price category

• 💄Makeup
  • MAC lipstick: approx. $25–$30
  • Clinique foundation: approx. $35–$45
  • The Ordinary serums: approx. $8–$15
• 🥣Skincare
  • Clinique moisturizing cream (50 ml): approx. $35–$45
  • Estée Lauder basic serums (smaller packaging): approx. $50–$70
• 🫧Perfumes
  • Jo Malone London cologne (30 ml): approx. $75–$85
  • MAC / Clinique fragrances (50 ml): approx. $60–$80

These products are entry points for brands, optimized for high volume, for a very broad consumer base. The price range is roughly between $8 and $30.

Mid-premium segment

• 🥣Skincare
  • Estée Lauder Advanced Night Repair (50 ml): approx. $115–$130
  • Bobbi Brown skincare: approx. $60–$100
• 💄Makeup
  • Estée Lauder foundations, serum-based make-up: approx. $45–$65
• 🫧Perfumes
  • Jo Malone London (100 ml): approx. $150–$165
  • Tom Ford Beauty Signature fragrances (50 ml): approx. $140–$180

This is where Estée Lauder's largest revenue and operating profit are concentrated. Quasi-value champions, premium products that generate strong repeat customer impact. These products are relatively scalable because this price level is affordable for a middle-class consumer. The price range is roughly in the range of 45-150 USD.

Luxury and ultra-luxury segment (halo products)

These are not for volume, but for pricing power and brand capitalization.

• 🥣Skincare
  • La Mer Crème de la Mer (60 ml): approx. $380–$400
  • La Mer The Concentrate (50 ml): approx. $450–$480
  • Estee Lauder Re-Nutriv Ultimate Diamond: $300–$450
• 🫧Perfumes
  • Tom Ford Private Blend (50 ml): approx. $280–$350
  • Jo Malone London Special Editions: 200+ USD

The above products embody a status symbol. Extremely high gross margin, but low volume, because too much volume would erode brand power and prestige. However, Estée Lauder does not make a living from these, but rather from premium segment products. The price range is roughly between 300-500 USD, which roughly affects 8 out of the 23 brands. They produce in the luxury segment, but they also have models in a lower price range.

Estée Lauder's moat in this regard is its ability to monetize the same consumer at multiple price levels within the same company, with the lower tier of the portfolio legitimizing the upper tier, and the upper tier acting as a pricing anchor for the entire brand family. However, I must point out that Estée Lauder (EL) does not produce many products in the full entry segment, like L'Oreal, from which Garnier, Maybelline and L'Oreal Paris products may be familiar, these are actually 5-15 USD products, for mass production.

What Estée Lauder (EL) has fallen behind in, however, is dermatological products, which are based on the triad of science + medical channel + trust. Because of this, it is highly priced, consumers find it difficult to switch, and its growth is also higher, somewhere around 8-10%, than the other segments in which Estée Lauder (EL) competes. Essentially, EL owns almost only the Clinique brand, while L'Oreal owns La Roche-Posay, CeraVe, Vichy, and SkinCeuticals, so Estée is significantly behind here.

💡It is also interesting to note that the proportion of online, DTC sales was only 13% in 2018 and will be 31% in 2025, so Estée Lauder (EL) places great emphasis on direct sales. However, it is not possible to serve consumers with this channel alone.

How complicated is it to create a fragrance brand?

I thought a lot about what kind of economic competitive advantage can be created in relation to fragrance brands. Then it occurred to me that nowadays everyone has their own, especially celebrities who advertise them, because unlike various skin care and dermatological products, there is not so much technology behind the brand. Although I am not at all familiar with the fashion industry, and as a man I do not use such products very much, I was still able to gather a lot of well-known people who help their own brands as influencers.

What I want to find out is how much could an Estée Lauder (EL) brand be worth when it's quite easy for anyone to create one? Could it be that perfumes are actually a no moat business? Let's see some examples:

Rihanna – Fenty Fragrance

• 🏢 Ownership model: majority control in the LVMH structure, but a joint product with them.
• 🌸 Product: perfume
• 🎯 Positioning: premium–luxury.
• 💵 Pricing: $150-200.
• 📊 Rating: The entire Fenty ecosystem (beauty + fragrance) is worth billions of dollars implicitly, you can't just separate this perfume from it. Fenty Beauty is worth roughly $2,8 billion.

📌In practice: Rihanna is not a licensee, but a co-founder, which is rare; it's much more common for stars to just buy the product from somewhere and rebrand it as their own.

Ariana Grande - Ariana Grande Fragrances

• 🏢Owner/license: LUX Brands
• 🌸Product: perfume
• 🎯Positioning: mass product (masstige).
• 💰Pricing: $50-80.
• 🛣️Annual turnover: hundreds of millions of USD.
• 👛Rating: estimated 300–600 million USD brand value.

📌In practice: It's actually a licensed product from LUX Brands with Ariana Grande as its face.

Kim Kardashian - KKW Fragrance

• 🔰Start: 2017
• 🌸Product: perfume
• 🎯Positioning: After 2022 stopped / repositioning
• 👛Rating: not estimable

📌In practice: huge initial traffic, weak long-term brand loyalty, its value was not lasting, a classic "celebrity spike", it lasted as long as it was advertised, then crashed.

Britney Spears - Britney Spears Fragrances

• 🏢Licensing partner: Coty
• 🌸Product: perfume
• 💰Pricing: $30–$60
• Life: >15 years
• 👛Rating: low prestige, but stable income, typically priced around a few hundred million USD.

📌In practice: Like Ariana Grande, this is a licensed product, but Britney Spears' name has been in the public consciousness for decades.

David Beckham - Beckham Fragrances

• 🏢Licensing partner: Coty
• 🌸Product: perfume
• 🎯Positioning: mass smell
• 👛Evaluation: moderate but stable

📌In practice: Beckham is a football icon, but like Ariana Grande, this is a licensed product. It's not particularly premium, but with a lot of advertising, interest can be maintained.

Selena Gomez - RareBeauty

• 🏢Owner: Rare Beauty
• 🌸Product: make-up, skin and hair care.
• 🚚Distribution: Sephora (globally), own DTC
• 🎯Positioning: masstige / entry premium
• 💰Pricing: $20-30
• 🛣️Annual turnover: 500-700 million USD
• 👛Rating: estimated at 1,2-2 billion USD

📌In practice: Selena Gomez is not a licensed face, but the founder of the beauty brand, but they do not sell perfumes, only make-up and skin care products. However, Selena is the real owner, she does not have any licensed products. This example also supports the fact that it is not impossible for a person without industry expertise (singer Selena Gomez) to achieve success in the skin care industry.

From the above, it can be seen that there is no particular innovation behind these products; their success depends more on how much money the owners spend on advertising to maintain interest in the brand. Since influencers are now mostly used to promote products, through channels like TikTok, Instagram, YouTube, or other social media channels, in the long run, the success of the fragrance industry, but also of make-up and skincare, depends on who can spend more on marketing. In other words, anything that has a difficult technological foundation, like dermatology, depends on advertising costs.

🏰Economic moat🏰

In this segment, I examined whether the company has any economic competitive advantage, which Warren Buffett referred to as the “economic moat,” which deters competitors from besieging the company’s fortress, i.e. its business, and taking its market. In this case, these could be the following:

• 🫸Cost/scale advantage: van, since in many cases these are mass products aimed at a different price level. Of course, this requires a properly distributed distribution network, which is a structural issue, and Estée Lauder has shortcomings in this area, but it is certain that economies of scale matter.
• 🫸Switching cost: I don't think there is any, and this is the biggest problem for Estée Lauder. Of course, the usual high-prestige brands are harder for consumers to replace if they are not price-sensitive, but there are an awful lot of substitute products on the market and it is very easy to move down the price ladder.
• 🫸Network effect: van, especially since videos have gone viral on social media. However, this basically depends on marketing costs, those who can spend enough on advertising and have a not-so-bad product can quickly reach a lot of consumers.
• 🫸Intangible assets, know-how, trademark: all of them are there,  because people associate brand names with quality, and Estée Lauder is, in my opinion, one of the strongest players in the luxury skincare market. This is perhaps its biggest competitive advantage over its competitors.
• 🫸Barriers to entry: medium high, which is also evident from the fact that these companies hardly spend on research and development, which is roughly 6-7% of their revenue, while Estée Lauder spends 25!% of its revenue on marketing, which is part of the SG&A section, according to some sources, which can be as much as 4 billion USD per year. So in this industry, advertising costs can essentially be counted as R&D. However, I think that building trust in brands, setting up a distribution network, manufacturing, and advertising costs require millions of USD in capital, so I won't enter the beauty industry, whether I'm happy or not. However, a durable luxury item that can be used in the long term develops a more lasting brand power. Everyone has heard of a Louis Vuitton bag, a Rolex watch or a Cartier piece of jewelry, but have you heard of the LAMER or BAILAN brands? The best known is MAC, which does indeed appear on Top make-up lists, but to the average person it may not mean as much as, say, a Ferrari.

Estée Lauder's (EL) economic power is often described as having a wide moat, but I feel a bit the same way about Nike: it's too easy for consumers to switch to another brand, and it's essentially just brand loyalty that keeps them with the company. However, due to the economies of scale, the ability to go viral, the huge marketing spend and the brand power, I would give it a narrow moat, because I don't think Estée Lauder (EL) would disappear tomorrow or consumers would be able to easily replace their products with a similarly prestigious brand.However, the switching cost is essentially zero and I see the consumer base as too broad to not switch to another brand due to a new fashion wave or an economic crisis.

💡The fashion industry is fundamentally a very unpredictable segment, it is almost impossible to predict what consumers will buy or give up, which for me adds an extra, difficult to articulate and measure risk to the equation regarding Estée Lauder (EL).

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🎢Estée Lauder (EL) metrics🎢

In this section, I examined what metrics characterize the company, how it stands on the revenue side, what margins it operates with, whether it has debt, what the balance sheet shows. I look for items that are extreme – too high debt, high goodwill, etc. - what return on capital the company works with, what its cost of capital is, how the revenue and cost sides are structured. I also examine trends, owner value creation, and how the company uses the cash generated.

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📈What is the S&P 500 yield?📉

Compared to previous analyses, I have introduced a new section to compare the metrics below. Since many people use the US stock market index as a benchmark and also buy S&P 500 ETFs, it is worth looking at what companies are doing in aggregate (obviously, you should be happy if the company you are analyzing outperforms these values).

S&P 500 2024 data:

• 📈 SP&500 revenue growth: + 7 %
• 💹 SP&500 Profit Growth: + 10 %
• 📊 SP&500 gross margin: 45%
• 💼 SP&500 net margin: 13%
• 🔁 SP&500 ROE: 15%
• 🏗️ SP&500 ROIC: 12%
• ⚙️ SP&500 ROCE: 11%

In my PayPal (PYPL) analysis, I made a rule to list not only the S&P500 data, but also the numbers for the specific submarket in the metrics section, because they provide great comparative data for the analysis. Unfortunately, Estée Lauder (EL)'s metrics have gotten so bad over the past 2 years that they are below both the industry and S&P500 averages, so in this case, I have to forgo it.

Let's start, as usual, with the distribution of income, which in the case of EL is as follows:

• 🧴 Skincare: USD 7 billion (minimal increase compared to 2024)
• 💄 Make-up: USD 4,2 billion (essentially the same as in 2024)
• 🌸 fragrances: 2,6 billion USD (essentially the same as in 2024, minimal increase)
• 💇‍♀️ Haircare: $0,55 billion (essentially the same as 2024, minimal increase)

Estée Lauder (EL) closes its books on June 30, so there is a half-year lag in the numbers, below you can see the LTM results to the right, so it is a bit distorted, as the numbers for the 2025 and 2026 reporting years are mixed. The above is shown in a territorial distribution, the following numbers come out:

• 🌎 North and South America: USD 4,4 billion (as of FY2025, -4% ​​vs. 2024)
• 🌍 Europe, Middle East, Africa: USD 5,4 billion (as of FY2025, -12,5% ​​vs. 2024)
• 🌏 Asia and Oceania: USD 4,5 billion (as of FY2025, -7% compared to 2024)

Unfortunately, Estée Lauder (EL) does not detail the last line, which is why it is difficult to determine the company's exposure to China and this is how the company was able to mask its dependence for years. As you can see, we see declining sales in every region, and if I had added the year 2023, the numbers would be even more worrying. The situation is not much better on a quarterly basis either, so it's not that the metrics have suddenly improved quarter-on-quarter.

In the image above, you can see the revenue and product production costs compared to each other, which clearly shows why the EL has not collapsed yet: Significant cost reductions were implemented, which meant workforce reductions and containment of operating costs. The problem is that I think it's too late, because if you look behind the revenue, you can see that basically all the other metrics have collapsed or are in negative territory. What does negative territory mean? That the company is operating with a negative net profit, making a loss, and therefore burning money at the moment. Why hasn't the company collapsed yet? Because:

• 👥 4000 people were laid off (the target is 5800-7800 people)
• 📉 they have reduced their fixed costs
• 💸 Dividend cut by 47% in October 2024 (but still paid)
• 📦 the number of products has been reduced (the number of SKUs has decreased)

Even so, the company generated negative operating and net profit, i.e. a loss of 930 million USD in 2025, compared to -1130 million USD a year ago.

The image above clearly shows how earnings per share fell, which is a completely normal consequence of negative profits. It is also clear that although gross profit only fell by 2,5-3 billion USD, this pushed other, lower-end metrics into negative territory due to high SG&A costs and other items.

I think the image above is incredibly telling. In green you see total revenue, in blue the cost of product production, in orange the SG&A costs, which mostly means labor and marketing costs, in red the long-term debt and in purple the interest paid afterwards, and in yellow the dividends. I have quantified them for better understanding:

• 💰 income: 100%, $3,728 million
• 📉 profit: −930 million USD (so not profitable)
• 🏭 cost of product production (cost of sales, this will be the Gross Profit): 25,8%, $3,728 million
• 📣 labor, advertising, offices, retail, other ctg. (SG&A): 65,4%, 9,454 million USD (mainly due to the extremely high advertising costs, which are 30–35% of this, i.e. 20–23% of revenue; interesting fact: for L'Oreal this is 15% lower, around 50%)
• 🏦 debt: 7,320 million USD, but 10 years ago it was only 1,910 million USD, which is almost 400% higher (they also have about 2000 million USD in other rental obligations, so the total debt is about 9400 million USD)
• 💸 interest: USD 351 million on debt (approx. 4,7% annual interest)
• 💵 dividend: 505 million USD

What do I mean by the above? The fact that advertising costs in the cosmetics industry are extremely high, and if the company reduces them, its brands will be consumed less, so it can only cut this to a very small extent (reduced by USD 200 million compared to 2024), otherwise it will not be able to maintain its business. If the company also has a large amount of debt, then it also has to take into account interest costs. The debt has quadrupled in 10 years, which is the result of irresponsible management, and there is also half a billion USD in dividend costs, the payment of which should have been suspended long ago to improve its financial situation, not just cut by 47%. The 2200 million USD in cash is enough for about 2 years in the current situation, so I wouldn't be surprised if the dividend is the next victim.

Although it doesn't matter much, I've included a picture of the margins, but they obviously follow the revenue and debt metrics outlined above. The EBITDA margin is close to zero, while the operating and net profit margins are negative, which is consistent with the negative profit. However, I would like to emphasize that the normal operation of Estée Lauder (EL) is not the current situation, but the situation between 2013-2019, therefore we should not only look at 1-2 years, but at 5-10 year averages. What is clearly evident from what has happened so far is that the company also suffers from structural problems and has fallen victim to significant mismanagement.

And the high marketing costs tell me that because money has to be constantly poured into advertising, consumers are much less brand loyal to cosmetic products than to other luxury/premium industrial products. It is also telling that L'Oreal's SG&A costs are 15!% lower than Estée Lauder's (EL). Moreover, this is a 10-year trend, not only is the difference this big now, but it was this big in "peacetime" as well, which clearly shows how much stronger the larger competitor is in many respects.

One could argue that the entire luxury industry was hit by the crisis, but Kering (PPRUY), which collapsed like a camping chair, is still profitable, as is Porsche (P911), even though they have recently rammed fewer segments into the ground than the automotive industry. Nike (NKE)? Also profitable, even though it's not even a luxury segment and the switching cost is lower than clothing. I wrote more about these here, there are many parallels, it's worth reading these analyses as well:

• 🥼Kering Stock Analysis (PPRUY) – Gucci is not selling
• 🏎️Porsche AG (P911) Stock Analysis – They're Not Pressing the Gas
• 👟Nike Inc. (NKE) Stock Analysis – Chasing Innovation

🧮What do ROIC and ROCE metrics show?🧮

ROIC – Return on Invested Capital – shows how efficiently the company uses its total invested capital to generate profit. Read more here.

• It shows the company's fundamental value creation capability.
• It filters out the impact of the financing structure.
• If ROIC exceeds the cost of capital (WACC), the company is creating value.

ROCE – Return on Capital Employed – shows how efficiently the company uses its long-term financing sources. Read more here.

• It measures the profitability of business activities.
• It does not take into account tax effects.
• A good basis for comparison between different industry players.

Indicator	What does it measure?	Who is it useful for?	When is it considered good?
ROCE	Total return on capital	Long-term investors	If higher than the industry average
ROIC	Return on invested capital	Equity investors	If higher than WACC
ROE	Return on equity	Shareholders	If stable and sustainably high

Estée Lauder (EL) Ownership Value Creation

On the owner value side, I usually look at what the company uses the free cash generated. Basically, a company can do the following things with cash:

1. 🔄 puts it back into business
2. 📉 reduced debt
3. 💵 pays dividends
4. 📊 buys back shares
5. 🏢 acquires other companies

In the current situation of Estée Lauder (EL), it is relatively difficult to highlight what the company should do, as it is in a very tight situation. It cannot cut its huge marketing costs because it would worsen the business. It cannot reduce its debt much, since it is burning money because it is losing money. I think the next step, if the numbers do not improve, could be two things:

• ⏸️ dividend suspension
• 📈 increase the loan portfolio

The latter, however, comes with an interest burden, so Estée Lauder (EL) will have to pay it back sometime in the medium or longer term. What else does high debt prevent besides paying dividends? It prevents the company from buying back its own shares, which Estée Lauder (EL) has done in the past, to put it mildly, in an opportunistic manner. What was the point of spending $2,3 billion on this in 2022, near its all-time high, when the share price has fallen 86% since then? True, it has corrected some and is now “only” 71,1% down from its highest share price, but how much more effective would it be to buy back shares now than 3 years ago! To give a counterexample, this is what PayPal (PYPL) did, where they bought back 13% of their shares over the past 1,5 years:

• (I.e.PayPal Stock Analysis (PYPL) – Price Does Not Equal Value

The above is confirmed by looking at the shareholder yield indicator, which is a good indicator of how efficiently the company has used its free cash. A higher percentage is better, anything below 0 actually means value destruction, but the current 1,32% is not much. What are these big holes in the graphs? The impact of the increase in debt caused by acquisitions, which has not really resulted in revenue and profit so far. Since I mentioned PayPal earlier, the same value there is 12,11%, and from this point of view it doesn't matter what industry it is, since in both cases the shareholder yield came from debt reduction, share buybacks, and dividend payments.

As for value creation, I would like to mention again that it is not worth looking at the value creation of the past 1-2 years, but rather at the 5-10 year average. The previous 15-30% is a particularly good value, since the S&P500 average is somewhere around 11-12%, while the current negative numbers are terrible. Putting value creation into numbers, ROIC>WACC is the right state, currently the equation looks like this: somewhere between -4,9%

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💵Estée Lauder (EL) Acquisitions💵

In this section, I examine how acquisitive the nature of the company is and what impact each acquisition had on the life of the company, if any.

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Estée Lauder (EL) has been acquiring a number of brands in recent years to expand its portfolio. It currently has 23 different brands competing in multiple categories, from masstige to luxury. Since EL did not develop these in-house, with the exception of Aerin Lauder's AERIN Beauty, it has had to spend significant money on acquisitions. Here's a quick reminder: In the image below you can see the shareholder yield, which is the most characteristic of debt and cash usage. The relationship is that if the blue line falls, debt rises.

This in itself is not a problem, as long as the company does not overpay for the acquisitions and as long as they generate a lot of revenue. The image below shows almost all the acquisitions of the past year:

Of the brands shown in the above figure, Tommy Hilfiger was sold in 2000, there was no failure, the company and the TH fragrance license were also transferred to the buyer. BECCA Cosmetics and GlamGlow were practically written off. BECCA was taken out of business, GlamGlow was scaled back, they were essentially unsuccessful acquisitions. But let's see the full list, what it actually cost:

Brand	Year of purchase	Purchase price	Annual income (estimate)	Judgment
MAC Cosmetics	1994 / 1998 (100%)	~475 million USD (total)	~3 billion USD	✅ Successful (home run)
Sea	1995	Not public	~1,2–1,5 billion USD	✅ Successful (luxury icon)
Bobbi Brown	1995	Not public	~1 billion USD (peak)	✅ Successful
JO MALONE LONDON	1999	Not public	~700–900 million USD	✅ Successful (tenfold)
Aveda	1997	Not public	~1 billion USD	✅ Successful
Tommy Hilfiger (fragrance license)	1993	License	Not relevant	➖ Exit (sold 2000)
Smashbox	2010	Not public	~300–400 million USD	⚠️ Medium
Le Labo	2014	Not public	~400–500 million USD	✅ Successful (niche luxury)
Editions de Parfums Frederic Malle	2015	Not public	~150–200 million USD	✅ Successful (prestige)
Glamglow	2014	~450 million USD	~200 million USD (peak)	❌ Failed (description)
Too Faced	2016	~$1,45 billion (4,4x forward revenue)	?	⚠️ Underperformer
Dr. Jart +	2019	~1,1 billion USD	~400–500 million USD	❌ Partially unsuccessful (≈800 million impairment)
DECIEM (The Ordinary)	2021 (majority)	~1,7 billion USD (with options)	~600–700 million USD	⚠️ Mixed (strategic purchase)
Tom Ford Beauty	2022	~2,8 billion USD	~1 billion USD	❌ Overpaid (≈773 million impairment)
BECCA Cosmetics	2016	Undisclosed (estimate: $2-300 million)	~200–300 million USD	❌ Closed (2021)

Of the above, GlamGlow was bought at the top, expensively, Too Faced is still struggling, but they overpaid significantly for it, what happened with Dr. Jart+ is described brutally in the books. Tom Ford was the brilliant fashion designer and creative director of the Gucci Group, but since he left Kering, he is best known for selling the brands under his name at very high prices, the Zegna group bought the clothing division, and Marcolin bought the sunglasses division. In other words, the market is willing to grossly overpay for it, but then they don't really live up to the expectations placed on it. BECCA was closed in 5 years. These brands were worth a total of about 7,8 billion USD.

What I found strange, however, was that I couldn't find the lines for the classic write-off/impairment charge, etc. in the books. In fact, in the 10-K reports you have to look for the items Goodwill and Other Intangible Assets and Restructuring and Other Charges. How much nicer are these names for the same thing? Of course, this is not a prohibited practice, essentially what happens is that Esée Lauder (EL) uses the impairment items:

• ⏳ spread out over time,
• 🧩 reported in aggregate,
• 🏷️ does not display it broken down by brand.

In the case of successful brands (MAC, La Mer, Jo Malone), there was no substantive description, which is telling.

Year (FY)	Brand / device	Description amount	Comment
2017	Rodin Olio Lusso	~31 million USD	Smaller niche brand, underperformance
2019	Smashbox (partial)	~90 million USD	Make-up slowdown, goodwill + intangibles
2020	Multiple brands (COVID)	~US$1,426 million	Goodwill + intangible + long-lived assets
2021	BECCA / GlamGlow / retail tools	~188 million USD	Brand closures + store description
2023	Dr. Jart+ (partial)	~471 million USD	Asian slowdown, overoptimistic growth
2024	Dr. Jart+ (cumulative)	~800 million USD (total)	Accumulated over several years
2025	Tom Ford Beauty	~773 million USD	Intangible impairment - overpayment
2025	Other intangible assets	~513 million USD	Consolidated, unbranded

❗In the last 5 years alone, brands worth $4,171 billion were written off, which is ~53% of the $7,8 billion mentioned earlier. This means that Estée Lauder (EL) has brutally overpaid for its acquisitions, which is clear.work management error.

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🤵Estée Lauder (EL) management🤵

In this section, I examine who runs the company and how. What is the bonus system, how much risk – skin in the game – do the managers take on while running the company? Is there a family connection, or perhaps a special “heritage” factor?

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Estée Lauder (EL) replaced essentially its entire management in early 2025. We've seen this at Novo Nordisk, PayPal, but heads have also fallen at Kering and Starbucks, so this is pretty much the normal reaction to a mismanaged company. In the case of Estée Lauder (EL), the Lauder family owns 84% ​​of the voting rights through shares, so there were Lauder family members on both the management and the board.

I have written several times about how the founder mentality and family structure are double-edged swords, should generally be considered a positive, as the management's interests point in the same direction as those of the company's owners. Since the Lauder family has quite a few billionaires, their wealth comes mostly from their ownership of EL shares. The problem is that in the event of operational mistakes, it is much more difficult to remove family members from management, since they are also shareholders. Several key people left at the beginning of 2025:

• CEO- Fabrizio Freda, who previously gained experience at Procter&Gamble, then served as CEO at EL between 2009-2023. Under him, the Chinese travel/retail overdependence was built and overpriced acquisitions can also be attributed to his name. He remained with the company as a strategic advisor. FF is famous for one more thing: he was previously a Top 3 CEO in terms of remuneration, there was a year when he took home more than 70 million USD.
• Jane Lauder, who is the grandson of the founder, the company's vice president, left the management in 2024 and who had worked at the company since 1987 and was mentioned as a potential CEO to replace Fabrizo Freda.
• William P. Lauder, who was the executive chairman of the board and who was Estée Lauder's grandson, a third-generation family member, and exercised strategic control over the company.

Why did William P. Lauder have to leave? Because a power struggle broke out within the Lauder family after the Chinese retail expansion failed, and essentially the family members were divided into two camps: one defending Fabrizio Freda, and the other wanting change. In the end, the latter group won out and Stéphane de La Faverie was appointed CEO and a member of the board of directors. Jane Lauder, who wanted to be CEO, understandably took this hard and was so angry that she wrote a letter to the board of directors demanding that her cousin, William P. Lauder, be removed from his position as well. In the end, the family drama was brought to an end with two key casualties, but for the first time in history, no Lauder family member was placed in a direct management position, but Ronald S. Lauder remains a member of the management. Is this positive or negative? It is not yet known, as the new CEO has only been in office since January 2025. Also leaving the previous management were CFO Tracey T. Travis and Group President Peter Jueptner.

Stéphane de La Faverie

👤 Position: Chairman of the Board of Directors and Managing Director.
💼 Experience: 10+ years at Estée Lauder; previously global head of the Estée Lauder brand, strong brand and P&L focus, previously group president.
💰 Remuneration: not a full year's worth of data is public; CEOs typically earn 15-16 million USD/year (fixed + bonus + shares), but it's difficult to say exactly at this time.
📊 His capital in the company: moderate share package (RSUs), non-family owned.

📌In practice: Compared to the previous CEO, he is not a visionary personality, his main task is to restore operational management, reduce costs and restructure. Since he comes from the inside, he knows the company well. He has not been working there for a year, so it is difficult to judge how effective he will be.

Michael Bowes

👤 Position: Vice Chairman of the Board of Directors, Chief People Officer.
💼 Experience: global HR, organizational transformations, restructuring in a multinational environment, previously worked for Estée Lauder (EL).
💰 Remuneration: estimate 3–5 million USD/year.
📊 His capital in the company: low–moderate (executive RSUs).

Roberto Canevari

👤 Position: Deputy Chairman of the Board of Directors, Chief Value Chain Officer.
💼 Experience: supply chain, manufacturing and logistics; cost reduction, inventory optimization. He was not an EL employee before, he came with a fresh start.
💰 Remuneration: estimate 3–5 million USD/year.
📊 His capital in the company: low–moderate (executive RSUs).

Jane Hertzmark Hudis

👤 Position: Deputy Chairman of the Board of Directors, Chief Brand Officer.
💼 Experience: At EL since 1987; global marketing and brand strategy, iconic campaigns. Has worked for the company since 1987.
💰 Remuneration: estimate 6–7 million USD/year.
📊 His capital in the company: low–moderate (executive RSUs).

Rashida La Lande

👤 Position: Vice Chairman of the Board of Directors and General Counsel.
💼 Experience: legal and compliance management, litigation, regulatory risk management.
💰 Remuneration: estimate 10-11 million USD/year.
📊 His capital in the company: low–moderate (executive RSUs).

René Lammers, Ph.D.

👤 Position: Deputy Chairman of the Board of Directors, Chief Research & Innovation Officer.
💼 Experience: scientific background, R&D, skin biology; incremental innovation.
💰 Remuneration: estimate 3–5 million USD/year.
📊 His capital in the company: low–moderate (executive RSUs).

Ronald S Lauder

👤 Position: Director, Clinique Laboratories, LLC.
💼 Experience: member of the founding family, Estée's younger son; strategic and political connections; non-day-to-day operational role. Has been with the company since 1987.
💰 Remuneration: not relevant in the classical sense.
📊 His capital in the company: nearly 5 billion USD, a member of the Lauder family with significant voting power.

📌In practice: Ronald is the only member of the Lauder family in management, but he doesn't hold a NEO position either, but he does carry the Clinique brand, which is Estée Lauder's only serious dermatology brand, so it's good that a family member has a more serious role here.

Akhil Shrivastava

👤 Position: Deputy Chairman of the Board of Directors and Chief Financial Officer.
💼 Experience: finance, cash flow, restructuring; capital discipline focus. He was not previously an EL employee, he came with a blood refresher.
💰 Remuneration: estimation 5–7 million USD/year.
📊 His capital in the company: low–moderate (executive RSUs).

Meridith Webster

👤 Position: Chief Communications and Public Affairs Officer.
💼 Experience: corporate communications, reputation management, public affairs. He was not an EL employee before, he came with a fresh start.
💰 Remuneration: estimation 2–4 million USD/year.
📊 His capital in the company: low–moderate (executive RSUs).

As for management compensation, Estée Lauder (EL)’s DEF-14A form has a perfect picture of how total compensation is calculated, which you can see below. The key is the EAIP and PSU sections, where you can see the level at which compensation is tied to company metrics. Management won’t be taking home too much until the numbers are in place, and that’s fine. I’m not saying I’ve seen a better structure than this, for example, CSU has an outstanding compensation structure: Constellation Software Stock Analysis (CSU) – In Series.

However, Estée Lauder's is not bad either, the interests of the management members point in the same direction as those of the company, and if not, the management control is in the hands of the family, so I do not expect the proportion of shares owned by NEOs to be exceptionally high. However, the option compensation should not be too high, which in this case is somewhere around 2% of revenue. Of course, this is also 300 million USD per year, which is not a small amount for a loss-making company. If you would like to take a closer look at the salaries and their breakdown, you can do so here: DEF-14A.

The board of directors consists of 14 members, of which Jane, William and Gary M. Lauder (son of Ronald S. Lauder) represent the Lauder family, while the other directors are CEOs or high-ranking members of other companies. Examples include Parkside, Continental Grain, Rent and Runway, AIE Creative, etc. so each of them has significant experience as a company manager. Naturally, the 3 Lauder family members have a significant stake in the company. Gary M. Lauder is the head of Lauder Partners LLC, a venture capital fund that invests in startups. Eric L. Zinterhofer is the husband of Aerin Lauder, who is also a member of the board and essentially represents the family.

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🆚Competitors: Estée Lauder (EL) rivals🆚

In this section, I examine who the competitors of the analyzed company are, what is their market position, whether they are in a subordinate, secondary or superior role. What is their market share and what is their specialty? Are they losing or gaining market share to their competitors?

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Estée Lauder (EL)'s direct competitor is L'Oreal (OR), with whom EL competes the most. Of course, neither company can be considered a market leader in the fragrance industry, but this does not account for the majority of their revenues, they are more likely to compete in the skin care and make-up segments. However, L'Oreal is significantly stronger than Estée Lauder in a few ways:

• 🏭 larger plant size,
• 🧪 strong dermatological presence,
• 🌍 They reach a much wider audience (in return, a less premium portfolio).

In return, Estée Lauder's (EL) product and brand portfolio theoretically contains higher quality brands, meaning that it is more of a premium/luxury brand overall than L'Oreal. However, Estée Lauder's economic advantage is not a "hard brand moat", but a marketing-intensive, partly paid moat. If you look at the criteria that a premium or luxury product must meet, e.g. rarity, exclusivity, significant heritage, etc., then not all of them are met:

Criterion	Status	Evaluation
Heritage/history	✅	Decades of authentic brand stories (Estée Lauder, Clinique, La Mer)
High gross margin	✅	Brand-based pricing, not cost competition
Quality consistency	✅	Stable product quality, low reputation risk
Pricing power	⚠️	La Mer and Jo Malone are strong, limited at the portfolio level
Brand equity (self-supporting brand)	⚠️	MAC and La Mer yes, most are marketing dependent
Distribution control	⚠️	Controlled but not exclusive (Sephora, travel retail)
Emotional value/status	⚠️	It is present in some luxury brands, but not dominant at the corporate level (who can list EL's brands by heart?)
Durability	⚠️	Trend and cycle sensitive due to make-up weight
Low promotional intensity	❌	Constant marketing and promotional pressure
Rarity / Scarcity	❌	Mass production, no artificial demand pressure (like say, Ferrari or Rolex)
Copyability limit	❌	Formulas and products are easily reproducible, except in dermatology
Target group with low price sensitivity	❌	Most of the revenue comes from price-sensitive consumers

Let's look at the above in some metrics: L'Oreal's revenue is currently nearly four times as large, while the other two metrics are incomprehensible because Estée Lauder (EL) has negative operating and net profits. If you go back to 2021-2022, L'Oreal's revenue was at least twice as large, and despite the economic environment being the same for both companies, L'Oreal did not collapse.

The situation is roughly the same in margins, with the caveat that it is worth looking at the longer term here as well. As you can see, the gross margin of the two companies is the same, there is no particular difference in product production, so the economies of scale advantage is there. In contrast to the other metrics, Estée Lauder's execution is now much weaker. But, it wasn't always like this, between 2016 and 2022 the companies were going head to head, so it's not that Estée Lauder (EL) lacks potential, but that the company was mismanaged.

Value creation: As the two companies have been neck and neck in the past, EL's slightly fluctuating ROE is interesting, but higher than its competitors, while its other metrics are similar. This also confirms that the problem was not with Estée Lauder's (EL) fund's business, but with brutal mismanagement.

Debt ratio: L'Oreal has used its capital wisely, at around 20% of revenue, so they have twice as much cash as Estée Lauder (EL). But they have much more debt, and if we take into account the value of net debt, the difference is twice as much. Another problem is that if the companies wanted to pay this off, they would have to take into account net profit, so the numbers would look like this:

• Estee Lauder (EL)
  • 🏦 Net debt: −7,2 billion USD.
  • 📉 Net profit: −0,92 billion USD.
  • ❌ Who can pay? NO.
• L'Oreal (OR)
  • 🏦 Net debt: 4 billion USD.
  • 📈 Net profit: 6,1 billion USD.
  • ✅ Who can pay it off? YES, in less than 1 year.

I don't think I need to explain that EL is currently not even on par with L'Oreal in this area. But, this is again due to a series of bad management decisions and pointless acquisitions.

And finally, one more picture, which only includes L'Oreal, the shareholder yield, which I have already shown a picture of before, only in relation to EL. As you can see, the graph is always above the 0% line, meaning that L'Oreal is not destroying value, and in some places it is performing quite well, if not brilliantly. There are no huge negative craters, no senseless destruction of value, as in the case of Estéle Lauder (EL).

But why is all this irrelevant? Because L'Oreal is overvalued, so even though it's a great company, you probably won't be able to make a huge profit on it. Of course, I'm only saying this at first glance, without in-depth analysis it's impossible to determine this more precisely.

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⚡What risks does Estée Lauder (EL) run?⚡

In this section, I examine all the risks that could affect the company's long-term future. Currency, regulatory, market disruption, and so on.

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I have already listed the risks of Estée Lauder (EL) in the rest of the in-depth analysis, as most of the problems stemmed from previous management missteps, such as forced acquisitions, poor capital allocation, shares acquired at high valuations, poor distribution chain, China dependence, and I could list more. However, we do not know if this will change in the future, but it currently looks like it will.

👔 Execution risk

• 🎯 High SG&A dependency: Maintaining demand requires significant marketing expenditure, and cost cutting may cause a decrease in revenue in the short term.
• 🧩 Portfolio complexity: too many brands, with different life cycles, skeletons may fall out of the closet, descriptions may come later.
• (I.e. Restructuring risk: Implementing layoffs, SKU reductions, and organizational transformations is risky and costly, with workforce reductions, for example, also entailing significant payouts.
• 🧭 Leadership credibility: After past overpayments, the market is skeptical of strategic promises. Fortunately, there are no plans for further acquisitions, although the company does not have the capital for them.

📌In practice: The operational challenge facing EL is to implement cost reductions without damaging the revenue base and without having to take on more debt.

🌏 Regional and market exposure

• 🇨🇳 China dependence: The decline in the daigou channel and the regulatory environment are causing volatile demand. The Chinese state has heavily trimmed this leg to bring the tax back to the country, so I doubt whether the revenue from this will reach its previous level.
• ✈️ Travel retail: high profitability, but a highly cyclical and geopolitically sensitive source of income.

📌In practice: A significant portion of EL's revenue is tied to regions and channels where demand can change suddenly. This is not only tied to economic cycles, but also to fashion trends, which are incredibly difficult to predict.

📣 Marketing and brand risk

• ???? Marketing-intensive model: High advertising costs are not optional, but a structural necessity, but competitors have lower costs. The main question is why Estée Lauder (EL) needs to spend more than its competitors.
• 🧠 Limited self-sustaining brand power: few brands can maintain volumes without marketing.
• ???? ️ Price-sensitive consumer base: The reduction in promotions is quickly reflected in sales. This also means that there are significant discounts on Estée Lauder (EL) products, which is not usually the case for luxury products.

📌In practice: most of the brand power is artificially maintained, not from natural demand, but there is some correlation between the amount of money spent and consumption. This is of course completely normal, the question is how much value this has. I think the excessive advertising suggests that the economic moat of the EU is not nearly as strong as the analyses show.

💼 Acquisition and capital allocation risk

• 💰 Risk of overpayment: Past acquisitions, such as Dr. Jart+ and Tom Ford Beauty, have caused value destruction, as I wrote above.
• (I.e. Impairment precedent: The market is expecting further write-downs if growth fails to materialize, the extent of which is currently inestimable.
• (I.e. ROIC vs. WACC tension: New investments should bring a higher return, let's say it won't be difficult to do so compared to the current one.

📌In practice: the quality of capital allocation is a key issue, because mistakes quickly appear in the results and significantly destroy shareholder value. I don't think there will be any for years, there simply aren't enough resources, and the current goal is to reduce debt and significantly improve metrics, as well as return to profitability.

🧾 Financial and balance sheet risk

• 📊 Margin pressure: high SG&A + limited pricing power.
• (I.e. Increasing net debt: Cash flow is more sensitive in an interest rate environment, high interest burden (currently USD 350 million per year).
• 💵 Unprofitable company: high debt and loss-making operations always carry a double risk.

📌In practice: The reason I don't like companies with debt is that revenue is contingent and debt is fixed, and when you have a combination like what happened with Estée Lauder (EL) where you have negative profits and significant debt, it's a double whammy, especially when you have relatively little cash available and it's burning through quickly.

I made a self-check list that confirms the thesis about the company:

1. low or zero debt: YES/PARTLY/NO
2. significant economic benefit that can be protected in the long term: YES/PART/NOT
3. excellent management: YES/PART/NOT
4. excellent indicators, significant owner value creation: YES/PARTLY/NO
5. the majority of the total return comes from the reinvestment of generated cash, not from dividends: YES/PARTLY/NO
6. appropriate company valuation: YES/PARTLY/NO

It's rare for the self-check list to have such a bad result, as you can see, there is no clear YES in any line. The only line of opinion is management, because for now it is difficult for me to judge how effectively the new leaders will work in the future. There has been a new CEO since January 2025, I think it is worth giving them more time, in the next 1-2 years it will become clear how they will manage Estée Lauder.

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👛Estée Lauder (EL) valuation👛

In this section, I will examine the company's current valuation compared to historical values ​​and consensus fair values.

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Rating metrics

In the two rows below you can see valuation metrics. The first row shows the current valuation, the second row shows the historical valuation. Although I don't think these metrics are particularly good - they hide a lot - they can be used as a benchmark.

• Share price (2025-04-01) 107.57 USD; P/E: 63.98; EV/EBITDA: 109.11; P/FCF: 36.94 (Based on Finchat.io)
• Historical median valuation (10-year average): P/E: 34.77; EV/EBITDA: 23.87; P/FCF: 33.63 (Based on Gurufocus)

Why don't you see a DCF model in this segment? Because each input data produces a huge variance in the output, and most of the data is an estimated value. Therefore, the valuation will never actually be a single exact number, but rather a range can be defined where the current valuation falls.

You should apply a margin of safety to this price range, according to your risk appetite. 

So don't expect an exact price, no one can say this for a stock. However, there are fair value prediction services, almost every major stock screening site has one, I've aggregated them below. However, if you want a good stock support service, subscribe to The Falcon Method (The Falcon Method), entry prices are given for the stocks analyzed there.

Rating

• Wall street estimates: 66.43-123.43=94.93 USD (I took into account the Alphaspread, the average of the two extreme values:)
• Peter Lynch Median P/E: $50.51
• Morningstar: $120 (4 stars)
• Gurufocus: $114.16
• AlphaSpread: USD 83.89 (22% overvalued compared to the base case)
• SimplyWallst: $108.01
• Valueinvesting.io: 37.69 USD
• Stock Analysis: $95.8
• The Investor Podcast Analysis: $67

Average (based on 9 reviews): ~86 USD (21% overvalued)

How should the numbers be interpreted? The above "margin of safety" rule should be applied according to your conviction, so if you really believe in the company, you can even buy it at fair value. However, since the stock is trading above this, there is no point in calculating a margin of safety, instead, here is an interesting fact: Michael Burry bought into Estée Lauder shares at around USD 66, and he was already doing well at the current price of around USD 108.

The NOPAT yield chart above clearly shows that the share price essentially first caught up with and then exceeded the operating profit generated, which was not difficult, since it is negative. In other words, the price cannot be so low as to justify the valuation of a loss-making company, especially since the share price bottomed out at USD 53, and since then the price has risen by over 100%. Looking at it through these lenses, it's hard to see that Estée Lauder (EL) is cheap.

The EVA data doesn't show anything different either, as the company is not creating value, so the red bars have disappeared from the picture. However, the data is relatively old, the share price has risen a lot since September, so I think that the future value added marked in gray would be much higher today than it was 3 months ago. This is also true for the FGR chart on the right, based on these, Estée Lauder (EL) is not cheap either.

💡Based on the above, the stock is not cheap at all, as the market has priced in the idea that Estée Lauder (EL) will return to its previous growth trajectory. This is a dangerous situation because if this does not happen, then the stock has already been overpaid in its current state. This is a true turnaround story that will either work out or not. 

However, I would like to draw everyone's attention to the research conducted by Professor Hendrik Bessembinder at the University of Arizona, which clearly shows that even the companies with the largest price increases between 1997 and 2024 suffered an 80% drop in price throughout their history, but still returned to where they were before. These were Apple, Microsoft, NVIDIA, Alphabet, Amazon, and ExxonMobil, and I don't think anyone would call them bad companies, although they excluded from the set those companies that went completely bankrupt, that is, suffered a 100% loss.

Estée Lauder (EL) is very far from this and I don't think this will happen to it, but it is worth considering whether the company's business model is sustainable and whether its economic advantage is truly intact. If so, then this is just a temporary state, but there is currently no justification for this valuation, the price has run a little ahead of the underlying fundamental quality.

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🌗Significant news and the last quarter🌗

In this section, I will examine what happened in the last quarter, whether there were any significant news/events. If the company reports semi-annually, we examined this period.

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Estée Lauder (EL)'s fiscal year ended June 30, 2025, and they are currently in the second quarter of 2026, so the last available quarter is Q1 2016. However, there was another event in December 2025, the Global Consumer & Retail Conference, where they essentially confirmed the previous ones, which I have included in the Beauty Reimagined section.

🎉2026 1st quarter

• 📈 Organic revenue growth: 3%
• 📊 Gross margin: 73.3% (increased by 60 basis points)
• 🏭 Operating margin: 7.3% (increased by 300 basis points)
• 💹 Diluted EPS: 0.32 USD (almost double year-on-year)
• 💸 Net cash flow from business activities: -340 million USD (significant improvement compared to the previous year)
• 🏗️ Capital expenditures: 96 million USD (32% decrease on an annual basis)
• 🧾 Effective tax rate: 40.5%

📌In practice: To interpret the above numbers, it is worth knowing the base from which the improvement started, as it is quite low. So it is not a big deal that the numbers can improve, since in annual terms:

• 💰a net profit: -930 million USD (-1113 million USD in 2024)
• 📊a operating profit as well: -495 million USD (-785 million USD in 2024)
• 📈EPS: -$2,6/share (-$3,2/share in 2024)

It is also worth knowing that the numbers in the quarterly report improved compared to the previous quarter if you go back 2-3 quarters, not compared to them.. Compared to Q1 2025, the numbers have indeed improved, but they were already very bad, so overall, we can say that the decline has stopped and growth has started from a low base, but nothing more. This means, compared to Q1 2025, that:

• 💰a net profit: USD 47 million (-USD 156 million in 2024)
• 📊a operating profit as well: 169 million USD (-121 million USD in 2024)
• 📈az EPS: $0,1/share (-$0,4/share in 2024)

It's a big question what happens next quarter, but historically December is Estée Lauder's (EL) strongest consumption quarter, which will skew next quarter's numbers.

💄Beauty Reimagined and PRGP program

• Double-digit sales growth in China.
• PRGP: Profit Recovery and Growth Plan.
• Reducing non-consumer costs by 4%.
• The company will triple the amount spent on innovation within a year and aims to have newly developed products account for 25% of its turnover.
• 800-1000 million USD cost reduction (this essentially reduces the amount in the SG&A category)
• More than 4,000 positions were eliminated within a target range of 5,800–7,000 people. They currently have about 55-56,000 employees, and they will employ 62,000 more in 2022. In fact, this is also part of the cost-cutting package.
• Consumer-facing costs increased by 4% (this is part of the restructuring).
• Repositioning products: this helps to reach new consumers, especially in the lower prestige segment, where L'Oreal is very strong.
• Collaboration with Amazon: Opening Amazon Storefront in Mexico, UK.
• TikTok shop opening in the United States, Malaysia and Singapore.
• Shopify partnership in the DTC space.
• The MAC brand enters the American Sephora network (Sephora is one of the largest distribution chains for the sale of Estée Lauder products), with which the company targets younger consumers.
• Establishing a biotechnology lab in Belgium, which could be important in the dermatology competition.
• Collaboration with MTI, primarily in the field of materials research.
• The fragrance segment grew by 13%, supported by the Tom Ford, Kilian Paris, Jo Malone London and Aramis brands.

📌In practice: The above initiative is essentially aimed at the company cutting back on unnecessary expenses and promoting brands that are already more profitable. It is not clear to me why China has started buying EL products again. This could be because Estée Lauder has taken appropriate steps, but it could also be a natural process, for example, L'Oreal's values ​​have never seen such a decline before. But, the new management is at least trying to change things. Of course, there are also the usual peasant-blind solutions, such as the AI-supported fragrance selection tool at the Jo Malone London brand and the like, I don't think these should be taken seriously. It should also not be forgotten that the restructuring costs are somewhere between 1.2-1.6 billion USD, which Estée Lauder will have to conjure up from somewhere.

⏩Business Forecast

The company reaffirms its guidance for fiscal year 2026, which predicts organic net sales growth of between 0% and 3%.. Stronger performance is expected in the first half of the year, primarily due to favorable base effects in the Asia-Pacific region, driven by global travel retail and the Chinese mainland market. The Christmas overspending will also only appear in the first half of 2026, as the second quarter, the September-December period in terms of EL, has been the strongest for years:

• 2023 Q2 (December 2022): 4620 million USD (other quarters: 5539/4245/3930 million USD, here the EL started to collapse in the first quarter)
• 2024 Q2 (December 2023): 4279 million USD (other quarters: 3751/3609/3518 million USD)
• 2025 Q2 (December 2024): 4004 million USD (other quarters: 3940/3871/3361 million USD)
• 2026 Q2 (December 2025): N/A million USD (other quarters: 3550/3411/3481 million USD)

However, retail sales may come under greater pressure in the second half of the year due to challenges in East Asia and a high base. The full-year operating margin is expected to be between 9,4% and 9,9%. Tariff-related costs could still hurt profitability by around USD 100 million, although the company is exploring additional mitigation measures.

📌In practice: The above is followed by restructuring costs of 1.2-1.6 billion USD, meaning the final bill will be 1.3-1.7 billion USD. If the 800-1000 million USD cost reduction is successful, this will mean a cost of -200-900 million USD, so Estée Lauder will probably be in a similarly bad situation in 2026.

Management statements:

Stéphane de La Faverie, Morgan Stanley Conference (this was an event after the Q report)

• "Today, we're really excited to talk about our progress that we are making as part of The Estée Lauder Companies Beauty Reimagined program that we've announced now almost a year ago. I would say, over the five pillars that I think you know very well, I think we are somewhere well on the way, and some, obviously, continues to require some work for us. I think, if I can summarize it from the first three pillars of Beauty Reimagined, which is consumer coverage, accelerating innovation, and putting more investment in consumer-facing, I think we are very well on the way.”
• "We have seen momentum in the US with our ability to maintain share and even growing share in China, where, frankly, in China, for many years, we have been always at the forefront of consumer coverage."
• "Now, I want to just be completely honest, because when we announced on February 4 that we were accelerating innovation to more than 25% of our sales, and even by saying we're going to triple the innovation in less than a year, obviously, it takes some time.”
• "I think, when you look at it from an employee standpoint, we announced in February that we were going to eliminate between 5,800-7,000 positions. Today, we are well above 4,000, but there's still some work to be done in outsourcing, in procurement."
• "If you read through all the announcements, obviously, with Aude being here, more than 70% of my executive team is either new to the company or new in their position in the executive team, so including me, Akhil, obviously, Aude being one of the newcomers in the company.”
• "I am really confident that we are on our way to just turn around the US because you think about it, and you've been following us for many years. I think we've been in a market share loss for many, many years. I think what I'm really proud of in a very recent, short period of time is that we've been able to just maintain share. More importantly, like I said earlier, is that we are now in a unit market share gain. We are getting market share in dollars in skincare and in hair in the last quarter, but we are gaining market share across multiple categories in unit."
• "I think if we can consistently get to the, I would say, highest low single-digit growth for the market, I think that would be fantastic.”
• "I'm basically seeing the same moment happening in the UK with Clinique that we've built over a year ago in the US That gives me great confidence that we can take this model and really deploy it in the UK I think the last thing I would say is big focus for us are the emerging markets."

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Summary of Estée Lauder (EL)

Summary of the analysis, drawing lessons.

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Estée Lauder (EL) is one of many luxury companies that have run into serious trouble in the past few years. Kering, Burberry, Porsche, and countless clothing brands could also be mentioned, such as Nike or VF Corp. However, EL's metrics collapsed to the point where they had negative profits for about 2 years, suffered from structural problems, made incredibly expensive acquisitions, which the market rewarded with a -85% drop in share price. Then came the 100% rebound when they said goodbye to the CEO and part of the management and the new management seems to be turning the company around. But the hard part is just now coming., cost reductions need to be implemented, a lot of restructuring costs need to be paid, which is a billion-dollar item, so I don't think the metrics will improve much in 2026 either.

On the other hand, valuation has already run ahead, the market has priced in that Estée Lauder (EL) will become profitable again in the future, but it is not yet. At the current moment, based on the metrics, I think the company is even overvalued, which does not mean that it cannot do well, only that the price has already doubled from the low of 51 USD, but the fundamentals would not hurt to follow this. And I don't think this currently makes Estée Lauder (EL) a good buy in the short term, because the risk is much greater than the expected price increase, this is a real turnaround story.

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Frequently Asked Questions (FAQ)

What kind of company is Estée Lauder?

The Estée Lauder Companies is a global, premium and prestige beauty company with a focus on skincare, makeup, fragrance and hair care, with a strong portfolio of brands and worldwide distribution. Its business model is based on high gross margins, brand building and innovation.

What markets does Estée Lauder operate in?

The company is active in the prestige beauty markets worldwide, particularly in North America, Europe and Asia. Its key channels include specialty stores (e.g. Sephora), department stores, travel retail (airports), as well as online and direct-to-consumer sales.

Who are Estée Lauder's main competitors?

Its main competitors include L'Oréal (especially its Luxe and Active Cosmetics divisions), LVMH (fragrance and beauty portfolio), Coty, Shiseido and Beiersdorf.

What are Estée Lauder's main brands?

The portfolio's flagship brands include Estée Lauder, MAC, Clinique, La Mer, Bobbi Brown, Jo Malone London, Tom Ford Beauty, The Ordinary (DECIEM) and Kilian Paris. The brands cover different price levels and target groups from entry-level prestige to luxury.

How is Estée Lauder different from L'Oréal?

Estée Lauder has a narrower focus on the prestige segment, while L'Oréal also has a strong mass market and dermatology presence. As a result, Estée Lauder operates with higher marketing intensity and more cyclical demand, while L'Oréal has a more diversified and stable revenue profile.

What is the current state of Estée Lauder's fundamentals?

Fundamentally, the company is in a turnaround phase. Revenues and profitability are stabilizing after a decline in 2023-2024, while a cost reduction and organizational transformation program is underway. Short-term risks are high, but gross margins and brand strength remain strong.

What does the dermatology submarket mean within the skincare market?

The dermatology submarket comprises clinically tested, physician-recommended skin care products, often sold through pharmacy channels. It is characterized by high credibility, functional promise and above-average growth; in this segment, L'Oréal (e.g. La Roche-Posay, CeraVe) has a stronger position than Estée Lauder.

Who is the CEO of Estée Lauder?

The CEO of Estée Lauder is Stéphane de La Faverie, who took over the position in 2024. As an internal appointee, the focus is on cost discipline, portfolio rationalization, and relaunching growth.

What should you know about the Lauder family?

The Lauder family has played a decisive role in the company's management since its founding. Although operational leadership is now in the hands of professional management, the family's strategic and ownership influence remains significant.

Who owns the majority of voting rights in Estée Lauder?

The majority of voting rights are held by the Lauder family, through a two-class share structure. This allows them to maintain control even if their economic ownership is lower.

Is Estée Lauder a serial acquisition company?

Estée Lauder has historically been an active acquirer, building many brands through acquisitions, but I wouldn't call it a serial acquirer. However, in recent years, the focus has shifted to optimizing the existing portfolio and integrating previous acquisitions, rather than aggressive new acquisitions.

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