Estée Lauder shares dropped sharply after the company’s latest quarterly update, as investors focused less on the earnings beat and more on what lies ahead for fiscal 2026. Despite delivering stronger than expected Q2 results, management’s warning about tariff headwinds and margin pressure reset expectations and sent the stock into a double digit slide.
Earnings Beat, But Outlook Disappoints
For the quarter ended December 31, 2025, Estée Lauder reported earnings per share of $0.89, topping the consensus of about $0.83 and up roughly 43% year on year. Net sales came in around $4.23 billion, up 6% from the prior year and slightly ahead of estimates. These numbers confirm that the company’s turnaround efforts and cost controls are starting to show in the P&L.
However, the guidance overshadowed the beat. Management reiterated that tariff related challenges are expected to cut fiscal 2026 profitability by about $100 million, mainly in the second half of the year, even after mitigation efforts. They also flagged that Q3 margin will likely contract by roughly 50 basis points due to the timing of marketing investments and those same tariff headwinds.
Why The Stock Sold Off
Ahead of the release, EL had rallied strongly from its April 2025 lows by roughly 139% and was trading in the $115 to $120 range, making it a high expectations stock again. When guidance reminded the market that tariffs, restructuring costs and travel retail weakness are still real constraints, the bar proved too high.
On earnings day, the shares fell about 16% to 20%, closing near $96 to $97, their lowest level in months and roughly 19% down on the session. Commentators summed up the move in three words: Tariffs, costs, and a high bar, noting that investors were looking for a cleaner inflection in margins and saw instead a slower, more expensive path to recovery.
Structural Challenges Still In Play
Beyond tariffs, the company continues to grapple with structural pressures:
- A still subdued Chinese consumer and weaker Asia travel retail, particularly in Korea and Hainan.
- Intense competition in prestige beauty and more cautious spending in the U.S..
- Ongoing restructuring under its “Beauty Reimagined” program, which keeps GAAP earnings below adjusted levels due to transformation charges.
Analysts also highlight that the travel retail reset and reduced reseller exposure, while healthy long term, are creating near term drag in skincare, especially for Estée Lauder and La Mer. That means even with cost cutting and selective price increases, revenue and margin recovery will likely be uneven.
What Investors Are Watching Next
Looking ahead, the key metrics to watch are margin trajectory, the pace of recovery in China and travel retail, and how effectively tariff pressures are offset by pricing, mix, and sourcing changes. Management’s full year framework, calling for adjusted operating margin around 9.8% to 10.2% and adjusted EPS of roughly $2.03 to $2.23 in constant currency, sets a new, more cautious bar.
For bulls, the post earnings drop could eventually set up an opportunity if the company executes on its restructuring and if macro conditions in key beauty markets improve. For bears, the reaction underscores that investors are no longer willing to pay a premium multiple for a story still dealing with tariffs, high costs, and patchy regional demand.
