EL Q1 Earnings Call: Market Share Gains and Margin Initiatives Amid Ongoing Headwinds

Beauty products company Estée Lauder (NYSE: EL) reported Q1 CY2025 results topping the market’s revenue expectations, but sales fell by 9.9% year on year to $3.55 billion. Its non-GAAP profit of $0.65 per share was significantly above analysts’ consensus estimates.

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StockStory’s Take

Estée Lauder’s first quarter results were shaped by ongoing weakness in travel retail and softer consumer sentiment in key markets, but management highlighted sequential improvement in retail sales, particularly in the U.S., China, and Japan. CEO Stéphane de La Faverie emphasized that share gains in these geographies were driven by product innovation, targeted marketing, and new channel partnerships, noting, “Clinique, The Ordinary, and Bumble and bumble drove gains for the U.S., while La Mer, Estée Lauder, and TOM FORD fueled China.”

Looking ahead, management reaffirmed its commitment to returning to growth next year, underpinned by continued execution on the Beauty Reimagined strategy and the Profit Recovery and Growth Plan (PRGP). De La Faverie acknowledged persistent risks—such as tariffs and consumer sentiment—but cited operational changes and supply chain regionalization as key mitigation strategies. “We are taking proactive decisions to mitigate as much as we can,” he said, adding that the company remains focused on restoring double-digit operating margins over the next few years.

Key Insights from Management’s Remarks

Estée Lauder’s management attributed the quarter’s performance to ongoing macroeconomic pressures and decisive internal restructuring. Key drivers included market share gains in core regions, focused product innovation, and operational changes in supply chain and cost structure.

• Travel Retail Decline: The travel retail segment experienced a sharp sales decline, now representing a lower mix of total revenue, as the company actively reduced exposure to this volatile channel.
• Market Share Gains: The company gained market share for the first time in years in the U.S., with Clinique, The Ordinary, and Bumble and bumble leading, while La Mer and TOM FORD drove growth in China and Japan.
• Product Innovation: New product launches, such as Clinique’s Moisture Surge Active Glow Serum and Estée Lauder’s Double Wear Concealer, contributed to share gains, and AI-driven marketing campaigns like Too Faced’s Rebel Rock Lash Mascara shortened time-to-market for key innovations.
• Digital and Channel Expansion: Expansion on platforms like Amazon Premium Beauty and TikTok Shop enabled the company to reach more consumers directly, supporting online sales growth and brand visibility.
• Cost Structure Overhaul: The PRGP restructuring reduced over 2,600 positions, streamlined management, increased outsourcing, and drove improvements in gross margin, though sales deleverage pressured operating expenses as a percent of revenue.

Drivers of Future Performance

Management’s outlook for the remainder of the year is shaped by the ongoing reset of travel retail, evolving trade policies, and continued operational efficiency initiatives.

• Travel Retail Reset: The company expects further sales declines in travel retail as it aligns inventory with end-demand and reduces channel volatility, aiming for stabilization in future quarters.
• Tariff and Supply Chain Mitigation: Management is regionalizing production and leveraging global manufacturing to reduce tariff exposure, while also exploring additional cost savings and strategic pricing to offset potential impacts.
• Efficiency and Margin Focus: Ongoing PRGP initiatives, including outsourcing and procurement optimization, are expected to support gross margin and enable reinvestment in consumer-facing activities, with management targeting a return to double-digit operating margins over the next several years.

Top Analyst Questions

• Steve Powers (Deutsche Bank): Asked about confidence in achieving inventory alignment across all categories; management said most challenges are behind them, especially in travel retail, but noted ongoing monitoring is required due to global volatility.
• Bonnie Herzog (Goldman Sachs): Inquired about assumptions for next year’s growth given retailer destocking and consumer sentiment; management reiterated confidence in returning to growth, citing market share gains and operational efficiencies but highlighted persistent risks.
• Lauren Lieberman (Barclays): Sought clarity on supply chain shifts and timing to reduce China-sourced products; management expects to reduce U.S.-to-China shipments below 10% by year-end, with regional manufacturing in Japan playing a key role.
• Filippo Falorni (Citi): Asked about the scope of future cost savings from the PRGP; management pointed to continued outsourcing, procurement projects, and further organizational streamlining as ongoing opportunities.
• Bryan Spillane (Bank of America): Questioned how the company balances margin targets with reaccelerating growth; management stressed its new operating model and accountability structure will allow for both margin expansion and necessary investments in growth.

Catalysts in Upcoming Quarters

In the coming quarters, the StockStory team will be watching (1) continued market share trends in the U.S., China, and Japan, (2) the pace and effectiveness of inventory and travel retail normalization, and (3) the impact of new product launches and digital channel expansion on retail sales growth. Progress on supply chain regionalization and cost efficiency initiatives will also be important signposts for future profitability.

Estée Lauder currently trades at a forward P/E ratio of 29.4×. Is the company at an inflection point that warrants a buy or sell? The answer lies in our free research report.

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