Estée Lauder(EL) - 2025 Q4 - Annual Results

Fiscal 2025 Performance Overview Financial Highlights Fiscal 2025 net sales declined 8% to $14.33 billion, leading to a $785 million operating loss and reduced operating cash flow Fiscal 2025 Select Financial Results | ($ millions, except per share) | 2025 | 2024 | Percentage Change | | :--- | :--- | :--- | :--- | | Net Sales ($ millions) | $14,326 | $15,608 | (8)% | | Organic Net Sales, Non-GAAP ($ millions) | $14,351 | $15,609 | (8)% | | Operating (Loss) Income ($ millions) | $(785) | $970 | (100+)% | | Adjusted Operating Income, Non-GAAP ($ millions) | $1,146 | $1,588 | (28)% | | Diluted Net (Loss) Earnings Per Common Share ($) | $(3.15) | $1.08 | (100+)% | | Adjusted Diluted Net Earnings Per Common Share, Non-GAAP ($) | $1.51 | $2.59 | (42)% | - Operating margin declined to (5.5)% from 6.2%, primarily due to an $815 million increase in goodwill and other intangible asset impairment charges and $362 million in restructuring charges Adjusted operating margin also contracted to 8.0% from 10.2%[5] - Net cash flows from operating activities decreased to $1.27 billion from $2.36 billion, mainly due to lower pre-tax earnings and an unfavorable change in operating assets and liabilities, including the impact from a significant inventory reduction in the prior year[5] - Dividends paid were reduced to $618 million from $947 million in the prior year, following a decision in the second quarter of fiscal 2025 to adjust the dividend to a more appropriate payout ratio[5] Operational and Strategic Highlights Despite headwinds, the company gained market share in China and Japan, expanded online reach, and increased consumer-facing investments via cost reductions - Achieved prestige beauty market share gains in mainland China and Japan In the U.S., share trends improved significantly in the second half of the fiscal year[8] - Expanded consumer reach by launching eight brands on Amazon's U.S. Premium Beauty store and expanding online distribution in Southeast Asia on platforms like Shopee and TikTok Shop[8] - Increased consumer-facing investments by approximately 400 basis points as a percentage of sales, funded by a 6% reduction in non-consumer-facing costs through the PRGP[9] - Advanced technology and innovation by opening a new BioTech Hub in Belgium, collaborating with MIT, and forming strategic AI partnerships with Microsoft and Adobe to drive operational efficiencies[9] Fiscal 2025 Segment Performance Performance by Product Category All product categories except Fragrance saw organic net sales declines, with Skin Care down 12% and Makeup and Fragrance reporting operating losses FY2025 Net Sales & Operating Income by Product Category (Reported) | ($ millions) | Net Sales 2025 ($ millions) | Net Sales 2024 ($ millions) | % Change | Operating (Loss) Income 2025 ($ millions) | Operating Income 2024 ($ millions) | % Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Skin Care | $6,962 | $7,908 | (12)% | $574 | $735 | (22)% | | Makeup | $4,205 | $4,470 | (6)% | $(441) | $93 | (100+)% | | Fragrance | $2,491 | $2,487 | 0% | $(378) | $265 | (100+)% | | Hair Care | $565 | $629 | (10)% | $(41) | $(52) | 21% | - Skin Care organic net sales fell 12%, driven by declines in Estée Lauder and La Mer, particularly in the Asia travel retail business due to subdued Chinese consumer sentiment and retailer strategy shifts[12][14] - Makeup organic net sales decreased 5%, primarily due to declines from M·A·C and Estée Lauder This was partially offset by growth in Clinique, which benefited from its launch on Amazon's U.S. Premium Beauty store[14] - Fragrance organic net sales were flat, with strong double-digit growth from Le Labo offset by a decline from TOM FORD, which experienced retail softness in North America[17] - Hair Care organic net sales decreased 10%, driven by declines at Aveda due to softness in brick-and-mortar channels, which more than offset online growth from its Amazon launch[17] Performance by Geographic Region All geographic regions experienced organic net sales declines, with EMEA down 13% due to travel retail and The Americas impacted by significant impairment charges FY2025 Net Sales & Operating Income by Geographic Region (Reported) | ($ millions) | Net Sales 2025 ($ millions) | Net Sales 2024 ($ millions) | % Change | Operating (Loss) Income 2025 ($ millions) | Operating Income 2024 ($ millions) | % Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | The Americas | $4,411 | $4,581 | (4)% | $(918) | $34 | (100+)% | | Europe, the Middle East & Africa | $5,375 | $6,140 | (12)% | $610 | $836 | (27)% | | Asia/Pacific | $4,537 | $4,888 | (7)% | $9 | $224 | (96)% | - The overall 8% organic net sales decrease was driven by a strong double-digit decline in the global travel retail business (part of EMEA), a mid-single-digit decline in mainland China, and a low-single-digit decline in North America[20][21] - Operating results in The Americas were heavily impacted by $911 million in goodwill and other intangible asset impairment charges and $159 million in talcum litigation settlement charges[21] - The decline in EMEA operating income was primarily due to the decrease in net sales from the global travel retail business[21] Fourth Quarter Fiscal 2025 Results Q4 Performance Summary Q4 fiscal 2025 saw a sequential deterioration with net sales declining 12-13%, driven by travel retail and China softness, resulting in a $546 million net loss Q4 FY2025 Net Sales by Product Category (Organic) | Category | Organic Net Sales Change (%) | | :--- | :--- | | Skin Care | (17)% | | Makeup | (12)% | | Fragrance | 2% | | Hair Care | (15)% | - The sequential deterioration in Q4 net sales was primarily due to a stronger decline in the global travel retail business and ongoing subdued consumer sentiment in mainland China[28] - The operating loss for the quarter was $390 million, compared to a loss of $233 million in the prior-year period The decline was driven by lower net sales and impairment charges[28] - For the fourth quarter, the company reported a net loss of $546 million and a diluted net loss per common share of $1.51[28] Corporate Actions and Strategic Plans Quarterly Dividend The company declared a quarterly dividend of $0.35 per share for both Class A and Class B Common Stock - A quarterly dividend of $0.35 per share was announced, payable on September 16, 2025, to stockholders of record on September 2, 2025[29] Profit Recovery and Growth Plan (PRGP) The PRGP aims to restore sales growth and achieve a double-digit adjusted operating margin, with restructuring charges of $1.2 billion to $1.6 billion and 5,800-7,000 job reductions - The PRGP aims to restore sales growth in fiscal 2026 and achieve a solid double-digit adjusted operating margin over the next few years Actions are expected to be substantially completed in fiscal 2027[30] - In fiscal 2025, the PRGP helped deliver over 200 basis points of adjusted gross margin expansion and reduced non-consumer-facing expenses by 6% to fund investments[31] - The restructuring program component is expected to incur charges of $1.2 billion to $1.6 billion and yield annual gross benefits of $0.8 billion to $1.0 billion[33] - The company estimates a net reduction of 5,800 to 7,000 positions as part of the restructuring program[34] Fiscal 2026 Outlook Full Year Guidance Fiscal 2026 guidance projects reported net sales growth of 2-5% and adjusted diluted EPS of $1.90-$2.10, despite an estimated $100 million tariff impact Fiscal 2026 Full Year Outlook | Metric | Forecast Range | | :--- | :--- | | Reported Net Sales Growth | 2% - 5% | | Organic Net Sales Growth (Non-GAAP) | 0% - 3% | | Reported EPS - GAAP ($) | $1.63 - $1.87 | | Adjusted EPS - Non-GAAP ($) | $1.90 - $2.10 | | Adjusted EPS Growth (Non-GAAP) | 26% - 39% | - The company expects tariff-related headwinds to negatively impact fiscal 2026 profitability by approximately $100 million, net of mitigation actions[39] - Adjusted operating margin is expected to be between 9.4% and 9.9%, with greater expansion anticipated in the second half of the fiscal year as PRGP benefits build[47] - Net cash flows from operating activities are projected to be between $1.0 billion and $1.1 billion, a decline from fiscal 2025, reflecting higher restructuring payments expected to peak in fiscal 2026[47] Key Assumptions and Regional Reorganization Fiscal 2026 outlook assumes mid-single-digit growth in mainland China and modest growth in travel retail, with a new four-region geographic reporting structure - Beginning in fiscal 2026, the company will report under a new regional structure: The Americas; Europe, the United Kingdom and Ireland and Emerging Markets (EUKEM); Asia/Pacific (including global travel retail); and Mainland China[36] - Key outlook assumptions include a mid-single-digit return to growth in mainland China and a return to modest growth in the global travel retail business[43] - The company anticipates low-single-digit organic net sales decline to slightly positive in the first quarter of fiscal 2026[43] Financial Statements Consolidated Statement of (Loss) Earnings The Consolidated Statement of (Loss) Earnings for FY2025 shows a net loss of $1.13 billion on $14.33 billion net sales, driven by $1.29 billion in impairment charges FY2025 Consolidated Statement of (Loss) Earnings Highlights | ($ millions) | Year Ended June 30, 2025 | Year Ended June 30, 2024 | | :--- | :--- | :--- | | Net sales ($ millions) | $14,326 | $15,608 | | Gross profit ($ millions) | $10,597 | $11,184 | | Total operating expenses ($ millions) | $11,382 | $10,214 | | Operating (loss) income ($ millions) | $(785) | $970 | | Net (loss) earnings ($ millions) | $(1,133) | $409 | | Diluted Net (loss) earnings per share ($) | $(3.15) | $1.08 | Condensed Consolidated Balance Sheets As of June 30, 2025, total assets decreased to $19.89 billion and total equity declined to $3.87 billion, while total liabilities remained stable Balance Sheet Highlights | ($ millions) | June 30, 2025 | June 30, 2024 | | :--- | :--- | :--- | | Total current assets ($ millions) | $7,069 | $7,922 | | Total assets ($ millions) | $19,892 | $21,677 | | Total current liabilities ($ millions) | $5,435 | $5,702 | | Long-term debt ($ millions) | $7,314 | $7,267 | | Total equity ($ millions) | $3,865 | $5,314 | | Total liabilities and equity ($ millions) | $19,892 | $21,677 | Select Cash Flow Data Net cash from operating activities decreased significantly to $1.27 billion in FY2025, driven by net loss and working capital changes, with capital expenditures reduced Select Cash Flow Data | ($ millions) | Twelve Months Ended June 30, 2025 | Twelve Months Ended June 30, 2024 | | :--- | :--- | :--- | | Net (loss) earnings ($ millions) | $(1,133) | $409 | | Net cash flows provided by operating activities ($ millions) | $1,272 | $2,360 | | Capital expenditures ($ millions) | $(602) | $(919) | | Dividends paid to stockholders ($ millions) | $(618) | $(947) | Reconciliation of GAAP to Non-GAAP Measures Detailed reconciliations bridge GAAP and non-GAAP measures, with $1.29 billion in impairment and restructuring charges and $159 million in litigation settlements as key FY2025 adjustments - Non-GAAP adjustments to operating income for FY2025 totaled $1.93 billion, primarily consisting of $1.29 billion in goodwill and intangible asset impairments, $486 million in restructuring charges, and $159 million for talcum litigation settlements[69] - The company reconciles reported net sales to organic net sales by adjusting for returns associated with restructuring activities and the impact of foreign currency translation[66][68]