Estée Lauder(EL) - 2026 Q1 - Quarterly Report

Financial Performance - Net sales for the three months ended September 30, 2025, were $3,481 million, a 3.6% increase from $3,361 million in the same period of 2024[166] - Gross profit margin improved to 73.4% in Q1 2025 from 72.4% in Q1 2024, with gross profit of $2,554 million compared to $2,433 million[166] - Operating income for Q1 2025 was $169 million, a significant recovery from an operating loss of $121 million in Q1 2024[166] - Reported net sales for the three months ended September 30, 2025, increased by $120 million, or 4%, to $3,481 million compared to $3,361 million in the prior year[194] - Adjusted operating income for the same period was $255 million, up 77% from $144 million year-over-year[252] - Net earnings for the three months ended September 30, 2025, were $47 million, a $203 million improvement from a loss of $156 million in the prior year[248] - The effective tax rate increased to 56.9%, a change of 4,360 basis points from the previous year, influenced by losses before income taxes and new U.S. tax legislation[246] Sales Performance by Category - Skin Care product category net sales increased to $1,575 million in Q1 2025 from $1,529 million in Q1 2024, while Fragrance sales rose to $721 million from $630 million[170] - Net sales in the fragrance category increased by $91 million, or 14%, driven by higher sales from Le Labo, TOM FORD, and Jo Malone London[209] - Skin care net sales increased by $46 million, or 3%, primarily due to higher sales from La Mer and Estée Lauder, with a favorable foreign currency translation impact of approximately $7 million[200][202] - Makeup net sales decreased by $8 million, or 1%, reflecting lower sales from Bobbi Brown and Too Faced, partially offset by higher sales from Estée Lauder[203][208] - Hair care net sales decreased by $10 million, or 7%, driven by lower sales from Aveda, with a volume decrease of 14% partially offset by a pricing increase of 6%[211][212] Regional Sales Performance - The Americas region reported net sales of $1,174 million in Q1 2025, down from $1,197 million in Q1 2024, indicating a 1.9% decline[170] - Reported net sales in Asia/Pacific increased by 8%, driven by a volume increase of 4% and a pricing increase of 5%[221] - Reported net sales in Mainland China increased by 9%, driven by a volume increase of 12% and a pricing decrease of 3%[222] - The Americas reported a 2% decrease in net sales, primarily due to a volume decrease of 3%, partially offset by a pricing increase of 2%[219] Restructuring and Cost Management - The company anticipates restructuring and other charges between $1,200 million and $1,600 million, primarily related to employee and asset costs[191] - The restructuring program is expected to yield annual gross benefits of $800 million to $1,000 million, contributing to a return to a double-digit operating margin[192] - A net reduction of approximately 5,800 to 7,000 positions globally is anticipated as part of the restructuring program, representing about 9-11% of total positions[189] - Operating expenses as a percentage of net sales decreased to 68.5% for the three months ended September 30, 2025, down from 76.0% in the prior-year period[228] Challenges and Risks - The company is facing challenges in travel retail and Western Europe, which are expected to impact net sales and profitability[177] - The company is monitoring the impact of new tariffs and expects higher rates to adversely affect profitability and cash flows in fiscal 2026[178] - Global conditions, including inflation and supply chain challenges, could impact consumer purchasing behavior and operational costs[291] - The company faces risks related to changes in foreign investment and trade policies that could impact manufacturing and distribution operations[291] - Fluctuations in foreign currency may affect operational results and the value of foreign assets[291] Cash Flow and Debt Management - Cash and cash equivalents decreased to $2,219 million as of September 30, 2025, down from $2,921 million at June 30, 2025[258] - As of September 30, 2025, total debt amounted to $7,323 million, with long-term debt at $7,320 million and current debt at $3 million[266] - Total debt as a percentage of total capitalization was 65% as of September 30, 2025, unchanged from June 30, 2025[267] - Net cash flows used for operating activities improved to $(340) million for the three months ended September 30, 2025, compared to $(670) million in the same period of 2024[268] - Financing activities resulted in net cash flows of $(239) million, reflecting deferred consideration payments related to the TOM FORD acquisition, partially offset by reduced dividends paid[272] Future Outlook - The company expects inflation to impact operating results and plans to introduce new products at higher prices to offset cost increases[262] - The company believes that cash on hand and generated from operations will be adequate to support its business operations and commitments[259] - The timing and impact of acquisitions and divestitures will be significant for future growth[291] - The company is focused on capitalizing on efficiency improvements and integrating acquired businesses[291]