Estée Lauder Companies Inc. saw its shares climb approximately 7% in early trading Friday after the beauty conglomerate unveiled an expanded restructuring plan and lifted its full-year earnings forecast. The company now expects to cut between 9,000 and 10,000 positions, representing up to 17.5% of its workforce, as part of a broader cost-cutting initiative under CEO Stéphane de La Faverie's "Beauty Reimagined" strategy.
The job reductions are heavily concentrated on demonstration staff at underperforming department stores and standalone shops, with over 70% of the cuts targeting those roles. This shift underscores Estée Lauder's pivot toward higher-growth channels, including digital and specialty retail, as it grapples with softening demand in the Americas, choppy travel retail, and a prolonged downturn in prestige beauty markets across parts of Asia.
Third-Quarter Results Beat Expectations
For the fiscal third quarter ended March 31, net sales rose 5% to $3.71 billion. Organic net sales, which exclude currency fluctuations and certain one-time items, increased 2% to $3.61 billion. Adjusted diluted earnings per share climbed to 91 cents, up from 65 cents in the year-ago period, easily surpassing analyst estimates.
Fragrance sales were a standout, jumping 13% as reported and 10% on an organic basis to $628 million, driven by brands including Le Labo, Kilian Paris, Balmain Beauty, and Tom Ford. Skincare and makeup were largely flat organically. Sales in Mainland China rose 11% as reported and 6% organically, with the company gaining prestige-beauty market share there for the third consecutive quarter, supported by La Mer, Tom Ford, Le Labo, and The Ordinary.
Expanded Restructuring and Merger Talks
Estée Lauder raised its annual gross benefit target from the restructuring program to $1.0 billion to $1.2 billion before taxes, up from a prior estimate of $800 million to $1.0 billion. It now expects related restructuring and other charges of $1.5 billion to $1.7 billion. The company also lifted its fiscal 2026 adjusted diluted EPS outlook to $2.35-$2.45, compared with the previous $2.05-$2.25 range, and projects organic sales growth of around 3%, at the top end of its earlier 1%-3% guidance.
The job cut expansion comes as Estée Lauder pursues a potential merger with Spain's Puig, the parent of Jean Paul Gaultier and Byredo. Reuters reported in March that the two companies are in talks, with a possible deal creating a $40 billion luxury beauty powerhouse and strengthening their fragrance position against L'Oréal. RBC Capital Markets analyst Nik Modi noted that Estée Lauder faces a "big gap" in fragrance compared with L'Oréal and LVMH, making a tie-up strategically logical.
Tariffs, Legal Costs, and Investment
Estée Lauder's forecast assumes tariffs, consumer sentiment, and Middle East conditions remain stable through May 2026. The company projects roughly $100 million in tariff-related headwinds for fiscal 2026 profits, with Middle East disruptions trimming about 2 percentage points from fourth-quarter sales growth. Additionally, the company recorded an $84 million loss contingency related to a tentative settlement of a securities class action in New York federal court, which dragged reported operating margin to 6.7% from 8.6%, though adjusted operating margin improved to 15.0%.
This week, Estée Lauder also announced a minority investment in 111SKIN, a luxury skincare brand developed by Dr. Yannis Alexandrides. Terms were not disclosed, but the move aligns with the company's focus on premium, science-driven skincare as it trims costs elsewhere.
