Financial Data and Key Metrics Changes - The company is entering fiscal 2026 with momentum, indicating a positive shift in performance [7] - The company has experienced a turnaround in market share, particularly in the U.S. and China, after years of decline [9] - The goal is to achieve a low single-digit growth in China, with a focus on gaining market share [31] Business Line Data and Key Metrics Changes - The Americas organization has gained market share for the first time in a long time, attributed to consumer-facing investments and coverage [14] - The company aims for over 25% of total business to come from innovation, with a commitment to tripling innovation in less than a year [11][22] - The launch of brands on Amazon has been significant, with 11 brands now available in the U.S. and expansion into Canada, Mexico, and the U.K. [15] Market Data and Key Metrics Changes - The Chinese market is stabilizing, with the company gaining market share across various brands, including La Mer and Tom Ford [32] - The competitive landscape in China shows international brands growing faster than local brands, with a significant portion of the market still held by international brands [34] - Emerging markets, particularly India and Southeast Asia, are critical to the company's growth strategy, with a goal of increasing their contribution to total business [37] Company Strategy and Development Direction - The company is focused on a transformation strategy called "Beauty Reimagined," which includes five pillars aimed at improving market share and operational efficiency [4][8] - There is a clear strategy to reposition products at more acceptable price points to attract new consumers and reengage lapsed ones [26][29] - The company is committed to investing efficiently across brands and regions to ensure balanced growth [12] Management's Comments on Operating Environment and Future Outlook - Management is optimistic about the U.S. market's robustness and the potential for luxury beauty to perform well despite economic challenges [42] - There are concerns about consumer confidence in Continental Europe, particularly in France, Germany, and the U.K., which may pose risks [44] - The company is focused on creating an agile operating model to enhance speed and efficiency in decision-making [62] Other Important Information - The company is undergoing a significant operational transformation, which is the largest in its history, aimed at simplifying processes and improving decision-making [13] - The use of AI has been highlighted as a key factor in improving efficiency in product development and reducing risks [24][25] Q&A Session Summary Question: What is the outlook for growth in China? - The company expects mid single-digit growth in China, with a focus on gaining market share and diversifying its portfolio [31][32] Question: How does the company view the competitive environment in China? - International brands are currently growing faster than local brands, with a significant market share still held by international brands [34] Question: What is the strategy for emerging markets? - The company aims to increase the contribution of emerging markets to at least mid double digits, with a focus on India and Southeast Asia [37][39] Question: How is the company balancing investment and margin restoration? - The company is focused on reinvesting to fuel growth while also aiming to restore and build margins through efficiency [70][72] Question: What does success look like for the company in the next year? - Success will be measured by consistent market share gains beyond the U.S. and China, and the ability to create an agile operating model [75][76]

Financial Data and Key Metrics Changes - The company is entering fiscal 2026 with momentum and has made progress in transforming its operations, particularly in regaining market share in the Americas and China after years of decline [4][6] - The company aims for a significant improvement in adjusted operating margin, targeting a swing of 8% to 11% within one fiscal year, with a midpoint improvement of 165 basis points [65][66] Business Line Data and Key Metrics Changes - The Americas region has seen a positive shift, with the company gaining market share for the first time in a long while, attributed to increased consumer-facing spend and investment [11][12] - The company plans for over 25% of its total business to come from innovation, indicating a strong focus on new product development [7][21] Market Data and Key Metrics Changes - The Chinese market is stabilizing, with expectations of mid-single-digit growth, while the company is gaining market share across various brands, including La Mer and Tom Ford [28][29] - Emerging markets, particularly India and Southeast Asia, are critical to the company's strategy, with a goal to increase their contribution to total business from 10% to mid-double digits [33][34] Company Strategy and Development Direction - The company is focused on a strategy called "Beauty Reimagined," which emphasizes consumer coverage and innovation, aiming to reposition products at more acceptable price points to attract new consumers and reengage lapsed ones [5][22][25] - The operational transformation is described as the largest in the company's history, aimed at simplifying processes and enhancing decision-making speed [9][60] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the U.S. market's robustness and the luxury beauty segment's resilience amid economic challenges, while cautioning about risks in Continental Europe due to subdued consumer confidence [39][41] - The company is committed to navigating external volatility and maintaining focus on its strategic goals, despite challenges such as tariffs and market fluctuations [70][71] Other Important Information - The company is leveraging AI to enhance efficiency in product development, significantly reducing the time required for stability testing and packaging risk [19][21] - There is an ongoing review of the product portfolio to ensure alignment with the new strategy, which may involve culling underperforming products or brands [61][62] Q&A Session Summary Question: What is the outlook for growth in China? - The company expects mid-single-digit growth in China, with a focus on gaining market share across various brands, despite the market's maturation [28][29] Question: How is the company addressing the competitive environment in China? - Management noted that international brands are currently growing faster than local brands, with a focus on luxury segments [31][32] Question: What is the strategy for emerging markets? - The company aims to increase the contribution of emerging markets to total business, with significant investments planned for India and Southeast Asia [33][34] Question: How does the company balance investment and margin restoration? - The company is focused on reinvesting to fuel growth while also aiming to restore margins, with a clear strategy to improve efficiency and leverage in the P&L [66][68] Question: What does success look like for the company in the next year? - Success is defined by consistent market share gains beyond the U.S. and China, with a focus on agility and operational efficiency [70][71]

Core Viewpoint - Estée Lauder (EL.US) experienced a decline in performance for the fiscal year 2025, with net sales down approximately 8% year-over-year, and Q4 sales at about $3.41 billion, a 12% decrease, although better than market expectations [1][2] Financial Performance - The company's adjusted gross margin for Q4 was 71.9%, slightly up by 10 basis points year-over-year, driven by price increases, product mix optimization, and cost savings [1] - Sales and management expenses were slightly above expectations, accounting for a year-over-year increase of approximately 0.6 percentage points of net sales, leading to an operating profit of $137 million, exceeding market expectations of $116 million [2] - Adjusted earnings per share (EPS) were $0.09, slightly above analyst expectations of $0.07-$0.08, but significantly down from $0.64 in the same period last year [2] Future Guidance - For fiscal year 2026, the company provided cautious guidance, expecting organic net sales growth between 0% to +3% and reported net sales growth of +2% to +5%, aligning with market consensus [3] - The EPS guidance for 2026 is set at $1.90 to $2.10, indicating a potential year-over-year growth of 26% to 39%, but below Wall Street's previous consensus of approximately $2.1 to $2.20 [3] - The company anticipates an effective tax rate of about 36% for fiscal year 2026, significantly higher than the market's prior estimate of around 32%, which may lower the EPS guidance by approximately $0.14 [3] Market Sentiment - Morgan Stanley reiterated a "neutral" rating on Estée Lauder's stock, projecting a target price of $66, suggesting a potential decline of over 20% in the stock price over the next 12 months [1][4] - The cautious outlook from the new CEO and the expectation of low single-digit sales decline for Q1 2026 reflect management's alignment with market expectations [4] - The company expects high single-digit growth in travel retail channels and a return to stable growth in the Chinese market, but anticipates declines in other regions to moderate [4] Valuation Considerations - Morgan Stanley employs a lower valuation multiple due to the current pressure on the company's earnings base and net sales, alongside uncertainties regarding the "Beauty Reimagined" transformation plan and the impact of tariffs [5] - The firm maintains a cautious stance on Estée Lauder's performance outlook, highlighting risks from weak demand in China and North America, potential loss of market share, and intense price competition from European and Chinese rivals [5]