Estée Lauder(EL) - 2025 Q4 - Annual Report

Part I Business The Estée Lauder Companies Inc. is a global leader in prestige beauty, manufacturing and marketing skin care, makeup, fragrance, and hair care products across approximately 150 countries - The company is a leading global manufacturer, marketer, and seller of quality skin care, makeup, fragrance, and hair care products, with a portfolio of over 20 luxury and prestige brands sold in approximately 150 countries and territories[13] - In February 2025, the company launched "Beauty Reimagined," a strategic vision aimed at accelerating consumer coverage, creating transformative innovation, boosting consumer-facing investments, and fueling sustainable growth through efficiencies[14] Product Categories | Category | Description | | :--- | :--- | | Skin Care | Includes moisturizers, serums, cleansers, toners, eye care, body care, exfoliators, acne correctors, facial masks, and sun care products | | Makeup | Offers foundations, powders, concealers, setting sprays, lipsticks, lip glosses, mascaras, eyeshadows, and eyeliners | | Fragrance | Includes parfum, eau de parfum, eau de toilette, and related lotions, creams, powders, and candles | | Hair Care | Comprises shampoos, conditioners, styling products, treatments, finishing sprays, and hair color products | | Other | Includes royalty revenue from the TOM FORD trademark licensing and sales of ancillary products | - The company's distribution strategy is a mix of wholesale (department stores, duty-free, specialty-multi retailers) and direct-to-consumer channels (freestanding stores, brand websites, third-party online platforms); as of June 30, 2025, the company operated approximately 1,600 freestanding stores[34][35] - Beginning in fiscal 2026, the company will reorganize its geographic reporting into four new regions: The Americas; Europe, the United Kingdom and Ireland and Emerging Markets (EUKEM); Asia/Pacific (including global travel retail); and Mainland China[37][42] Employee Statistics (as of June 30) | Metric | FY 2025 | FY 2024 | | :--- | :--- | :--- | | Total Employees | ~57,000 | ~62,000 | | Demonstrators | ~35,000 | ~37,000 | | Full-time Employees | ~71% | N/A | | Female Employees | ~80% | N/A | | Female VP & Above | ~61% | N/A | Risk Factors The company faces significant risks related to its business, industry, and operations, including intense competition, changing consumer preferences, and operational challenges - The beauty business is highly competitive, with risks from large multinational companies, newer Indie Brands, and rapidly changing consumer preferences and industry trends[85] - The company's success depends on its ability to anticipate and react to changes in consumer preferences, which can shift rapidly due to digital and social media; failure to do so could adversely affect business[89] - Acquisitions and strategic investments carry risks such as integration difficulties, diversion of management attention, and potential goodwill impairment, which has occurred in recent fiscal years[93][95] - Economic downturns, disruptions in business conditions (e.g., pandemics, geopolitical conflicts), and events impacting consumer travel can adversely affect sales, particularly in the significant travel retail channel[99][101] - The company relies heavily on information technology and faces cybersecurity risks; incidents could lead to unauthorized access to data, business disruption, reputational damage, and financial obligations[114][117] - The Lauder family beneficially owns shares representing approximately 84% of the outstanding voting power, giving them significant control over matters requiring stockholder approval and classifying the company as a "controlled company" under NYSE rules, exempting it from certain governance requirements[122][124] Unresolved Staff Comments The company reports no unresolved staff comments from the U.S. Securities and Exchange Commission - None[126] Cybersecurity The company manages cybersecurity risk through an enterprise risk management framework, overseen by the CISO and Audit Committee, with proactive technologies and incident response - Cybersecurity risk is integrated into the company's overall enterprise risk management framework, with the CISO collaborating with the enterprise risk management team[127] - The company has a cybersecurity program that includes proactive monitoring, third-party vendor reviews, security policies, and employee training; it also utilizes third-party experts for periodic maturity assessments[128][129] - Governance is provided by the Audit Committee of the Board of Directors, which receives at least semi-annual updates from the CISO; the CISO, with over 20 years of experience, leads the management-level program[132][133] - While cybersecurity incidents have occurred, the company has not identified any risks from these threats that have materially affected or are reasonably likely to materially affect its business, results of operations, or financial condition[131] Properties The company operates numerous principal owned and leased facilities globally for manufacturing, R&D, and distribution, considered adequate for operational needs Principal Facilities by Region (as of August 13, 2025) | Region | Owned | Leased | Total | | :--- | :--- | :--- | :--- | | The Americas | 4 | 15 | 19 | | Europe, the Middle East & Africa | 6 | 6 | 12 | | Asia/Pacific | 1 | 2 | 3 | | Total | 11 | 23 | 34 | Legal Proceedings Information regarding the company's legal proceedings is detailed in Note 17 of the Financial Statements and Supplementary Data - For a discussion of legal proceedings, see Item 8. Financial Statements and Supplementary Data – Note 17 – Commitments and Contingencies[137] Mine Safety Disclosures This item is not applicable to the company - Not applicable[138] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's Class A Common Stock trades on the NYSE under "EL," with a quarterly dividend declared, and its share repurchase program suspended since December 2022 - On August 19, 2025, a dividend of $0.35 per share was declared on Class A and Class B Common Stock, payable on September 16, 2025[140] - The company suspended its publicly announced share repurchase program in December 2022; repurchases in the fourth quarter of fiscal 2025 were limited to satisfying tax withholding obligations on stock-based compensation[142] Reserved This item is reserved Management's Discussion and Analysis of Financial Condition and Results of Operations In fiscal 2025, the company reported a net loss of $1.13 billion, a significant decline from net earnings of $409 million in fiscal 2024, primarily due to substantial impairment charges and an 8% decrease in net sales to $14.33 billion Consolidated Results of Operations (FY2025 vs. FY2024) | Metric ($ in millions) | FY 2025 | FY 2024 | % Change | | :--- | :--- | :--- | :--- | | Net Sales | $14,326 | $15,608 | (8.2)% | | Gross Profit | $10,597 | $11,184 | (5.2)% | | Operating (Loss) Income | $(785) | $970 | >(100)% | | Net (Loss) Earnings | $(1,133) | $409 | >(100)% | | Diluted (Loss) EPS | $(3.15) | $1.08 | >(100)% | - The company launched the Profit Recovery and Growth Plan (PRGP) in November 2023, which was expanded in February 2025; the plan is expected to result in restructuring charges of $1.2 billion to $1.6 billion and yield annual gross benefits of $800 million to $1.0 billion once fully implemented[165][170][174] - Fiscal 2025 results were heavily impacted by impairment charges totaling $1.29 billion, including $773 million for the TOM FORD trademark, $138 million for the Too Faced trademark and goodwill, and $375 million for the Dr.Jart+ trademark and customer list[178][180][182] - Net sales decreased 8% in fiscal 2025, driven by a 10% volume decline, partially offset by a 2% increase from pricing; the decline was most pronounced in the Skin Care category (-12%) and the Europe, the Middle East & Africa region (-12%), primarily due to weakness in Asia travel retail[193][195][209] - Gross margin increased by 230 basis points to 74.0%, driven by benefits from the PRGP, including lower obsolescence charges and manufacturing cost efficiencies[218][219] - Operating expenses as a percentage of sales increased significantly from 65.4% to 79.4%, primarily due to the large impairment charges, restructuring costs, and a $159 million charge for talcum litigation settlement agreements[222][223] Quantitative and Qualitative Disclosures About Market Risk This section refers to the Market Risk discussion within Item 7, which details the company's management of financial exposures through derivative instruments for foreign currency, interest rate, and credit risks - The company uses foreign currency forward contracts and interest rate derivatives to manage market risk; a hypothetical 10% weakening of the U.S. dollar would have resulted in a net decrease in the fair value of its foreign currency forward contract portfolio of approximately $223 million as of June 30, 2025[266] - A hypothetical 100 basis point increase in interest rates would decrease the estimated fair value of the company's interest rate derivatives by approximately $43 million as of June 30, 2025[268] Financial Statements and Supplementary Data This item incorporates by reference the company's consolidated financial statements and supplementary data, which begin on page F-1 of the annual report - The required information for this item begins on page F-1 of the Annual Report on Form 10-K[289] Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None[290] Controls and Procedures The company's management, including the CEO and CFO, evaluated its disclosure controls and procedures and concluded they were effective as of June 30, 2025, with no material changes to internal control over financial reporting - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of June 30, 2025[291] - No changes in internal control over financial reporting occurred during the fourth quarter of fiscal 2025 that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[292] Other Information During the fourth quarter of fiscal 2025, none of the company's directors or officers adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement - No directors or officers adopted or terminated a "Rule 10b5-1 trading arrangement" or a "non-Rule 10b5-1 trading arrangement" during the fourth quarter of fiscal 2025[295] Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable to the company - Not applicable[296] Part III Directors, Executive Officers and Corporate Governance Information required by this item, beyond what is already provided in Item 1, will be incorporated by reference from the company's 2025 Proxy Statement, to be filed within 120 days of the fiscal year-end - Required information will be included in the 2025 Proxy Statement and is incorporated herein by reference[298] Executive Compensation Information regarding executive compensation will be incorporated by reference from the company's 2025 Proxy Statement - Required information will be included in the 2025 Proxy Statement and is incorporated herein by reference[300] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters This section provides details on the company's equity compensation plans as of June 30, 2025; other required information regarding security ownership will be incorporated by reference from the 2025 Proxy Statement Equity Compensation Plan Information as of June 30, 2025 | Plan Category | Securities to be issued upon exercise (options, warrants, rights) | Weighted-average exercise price ($) | Securities remaining available for future issuance | | :--- | :--- | :--- | :--- | | Equity compensation plans approved by security holders | 14,234,962 | $175.21 | 15,285,363 | Certain Relationships and Related Transactions, and Director Independence Information regarding certain relationships, related transactions, and director independence will be incorporated by reference from the company's 2025 Proxy Statement - Required information will be included in the 2025 Proxy Statement and is incorporated herein by reference[305] Principal Accounting Fees and Services Information regarding principal accounting fees and services will be incorporated by reference from the company's 2025 Proxy Statement - Required information will be included in the 2025 Proxy Statement and is incorporated herein by reference[306] Part IV Exhibits, Financial Statement Schedules This section lists all exhibits filed with the Form 10-K, including corporate governance documents, debt indentures, material contracts, and certifications - This item provides a comprehensive list of all exhibits filed as part of the Annual Report on Form 10-K, incorporating many by reference to previous filings[308] Form 10-K Summary The company has not provided a summary for its Form 10-K - None[317] Financial Statements and Supplementary Data Consolidated Financial Statements The consolidated financial statements for the fiscal year ended June 30, 2025, show a net loss of $1.13 billion on net sales of $14.33 billion, compared to net earnings of $409 million in the prior year, with decreased assets and equity Key Financial Statement Data (FY 2025) | Metric ($ in millions) | Amount | | :--- | :--- | | Net Sales | $14,326 | | Net (Loss) Earnings | $(1,133) | | Total Assets | $19,892 | | Total Liabilities | $16,027 | | Total Equity | $3,865 | | Net Cash from Operating Activities | $1,272 | Notes to Consolidated Financial Statements The notes detail accounting policies and financial results, including significant impairment charges, the expanded PRGP, a U.S. deferred tax asset valuation allowance, and a talcum litigation settlement charge - Goodwill and Intangible Assets (Note 6): The company recorded significant impairment charges in fiscal 2025 totaling $1.286 billion for other intangible assets and $13 million for goodwill, primarily related to the TOM FORD, Dr.Jart+, and Too Faced brands due to lower-than-expected growth and increased discount rates[465][467][468] - Restructuring (Note 8): The Profit Recovery and Growth Plan (PRGP) was expanded, with total expected restructuring charges estimated between $1.2 billion and $1.6 billion; as of June 30, 2025, cumulative charges of $610 million have been recorded under this program[496][508] - Income Taxes (Note 9): A U.S. valuation allowance of $172 million was established against deferred tax assets (foreign tax and R&D credits) due to uncertainty about their future realization, driven by lower U.S. taxable income[536] - Commitments and Contingencies (Note 17): The company recorded a charge of $159 million in Q1 FY25 for talcum litigation settlement agreements to resolve pending and potential future claims through 2029[647][648] - Segment Data (Note 24): Skin Care remains the largest product category with $7.0 billion in net sales, followed by Makeup at $4.2 billion; by geography, Europe, the Middle East & Africa is the largest region with $5.4 billion in sales, followed by Asia/Pacific at $4.5 billion[692]