Estee Lauder returned to sales growth in the most recent quarter, a sign the turnaround strategy deployed by chief executive officer, Stephane de la Faverie has started to bear fruit.
The prestige beauty conglomerate beat analyst expectations with $3.45 billion in organic net sales in the first quarter of fiscal year 2026. That was up 3% from the same period last year, a welcome win after years of challenges with top line growth. Net income also climbed to $47 million, over a 100% change from the year before. Diluted earnings per share rose to .13, compared with a net loss of .43 a year ago.
The company’s drive to reach new consumers had led it to alter its distribution strategy, helping it gain market share both in China and Western Europe. The worst of a luxury slump in China seems to have now passed, according to Morningstar analyst Dan Su, as she said consumer sentiment for prestige beauty seems to be improving in the country. Net sales in China, which has been a pressure point for Estee Lauder for years, increased by 9%, more than other geographies.
De la Faverie has restructured the company- involving mass layoffs, while increasing its digital efforts, and accelerating its retail growth strategy in key markets like China and Western Europe as part of a turnaround strategy since he started the role in January.
“Estee Lauder’s turnaround plan is finally starting to yield some positive results with the improvement we saw in both sales and profitability,” said Sky Canaves, an analyst with EMarketer. “It’s successfully riding that wave of strong demand for luxury fragrance, and is focusing its efforts on the most prestigious brands in that category,” she said.
Analysts say its success this quarter can also be attributed to what is known as the “lipstick effect”– which in Estee’s case, applies to fragrance– as the volatile macroenvironment has consumers reaching for smaller, more affordable luxury goods, rather than more expensive purchases.
Fragrance is Estee’s highest-growth sector, climbing in net sales by 13%, due in large to the success of perfumery Le Labo. New innovation helped the brand experience near triple digit growth, Estee Lauder’s CEO said, as it was able to meet consumer demand with diversified offerings including smaller, more affordable perfume sizes.
In comparison, skincare increased 3%, makeup declined 1%, and haircare–Estee’s consistently weakest sector–declined by 7% from the same period last year.
The company also made strides this quarter with entering new channels and expanding its distribution.On Wednesday, Estee announced a partnership with Shopify, a platform that allows brands to manage their own e-commerce stores. It said this week that beauty brand M.A.C will launch with beauty-specialty chain Sephora, having previously been sold just with Ulta and department stores.
“They (Estee Lauder) have been very vocal about their plan to step up their digital efforts, and they have done that,” said Su. “They are reaching consumers that previously the company was not doing a good job of, making sure they were heard and served.”
The company maintained its full year guidance, pointing to a volatile macro environment involving managing trade policies and consumer confidence. Shares fell around 1% the next day.
“To be fair, it’s really early in the day. It’s just one quarter, and the second quarter, which is the holiday season, is very important for the beauty space because of heavy gifting in skincare, fragrance, cosmetics,” said Su. “ I think the management just wants to make sure that they will hit the targets that they provide.”
Competitors Loreal and LVMH reported sequential profit gains, while Kering reported a 10% decline in revenue.