Key financial results
- Reported net sales increased 7% and organic net sales rose 6% for the first quarter of fiscal 2027.
Reported sales increased 7% and organic sales rose 6%.
- Gross margin expanded 240 basis points to 75.7% from 73.3% in the prior year period, driven by strategic pricing actions, procurement savings, and manufacturing efficiencies.
Gross margin was 75.7%, an expansion of 240 basis points from 73.3% last year.
- Operating margin expanded 480 basis points to 12.1% from 7.3% last year, driven by sales leverage and disciplined cost management.
Operating margin was 12.1%, an expansion of 480 basis points from 7.3% last year.
- Diluted EPS grew 125% to $0.72 from $0.32 last year, supported by an effective tax rate improvement to 31.9% from 40.5%.
Diluted EPS increased to $0.72 from $0.32 last year, growth of 125%.
- Cash flow used for operating activities was $166 million, an improvement from $340 million in the prior year.
- Free cash flow was a use of $235 million compared to a use of $436 million last year, while capital expenditures were $69 million compared to $96 million.
a use of $235 million compared with the use of $436 million.
Business segment results
- Fragrance: Fragrance organic sales rose 20%, driven by luxury and prestige price tiers with strong performances from Le Labo, TOM FORD, Jo Malone London, KILIAN PARIS, and Estee Lauder.
Fragrance outperformed as organic sales rose 20%.
- Skin care: Skin care organic sales rose 4%, supported by iconic hero products and innovation across price tiers from La Mer to The Ordinary.
Skin care rose 4% organically.
- Makeup: Makeup delivered a second consecutive quarter of organic sales growth with double-digit increases at MAC and TOM FORD.
Looking at makeup, we have reignited our performance, delivering a second consecutive quarter of organic sales growth.
- Hair care: Hair care performance stabilized with growth in The Ordinary's hair density serum offsetting Aveda's brand-specific supply chain logistics challenges.
For hair care, we stabilized performance, progressing sequentially from a modest decline.
- Regions: Asia Pacific led regional growth, and all geographic regions grew organically, with the Americas and EUKEM each growing 4%.
Now for the regions. We grew across the board for the second consecutive quarter.
- Mainland China: Mainland China delivered 9% organic sales growth with high single-digit increases in skin care and makeup and double-digit growth in fragrance.
Mainland China delivered 9% organic sales growth as Skin Care and Makeup each rose high single digit, while Fiance increased double digits.
- Emerging markets: Priority emerging markets achieved 15% organic sales growth, driven by Turkey, Mexico, and India.
Our priority emerging market excelled with organic sales up 15%, driven by Turkey, Mexico and India.
- Channels: Online organic sales grew high single digits, and brick-and-mortar sales, including Travel Retail, rose mid-single digit organically.
Capital allocation
- Capital expenditures were $69 million in the quarter, down from $96 million in the prior year due to the timing of projects and prioritization of consumer-facing investments.
Capital expenditure were $69 million, down from $96 million.
- The company completed the acquisition of the remaining interest in Forest Essentials on October 5, 2026.
we are pleased to have completed the acquisition of the remaining interest in Forest Essentials on October 5.
- Management noted that the approval phase of the restructuring component of the profit recovery and growth plan is behind them, with the vast majority of full run rate benefits expected by the end of fiscal 2027.
Industry trends and dynamics
- Management stated that the beauty category remains very strong with an industry growth acceleration of about 100 basis points compared to fiscal 2026.
- Younger consumers are gravitating toward the fragrance category through platforms like TikTok Shop.
We are seeing still consumer, younger consumer, gravitating towards this category thanks to platform like TikTok shop
Competitive landscape
- In Western European markets, fragrance retail sales grew over 4x faster than the industry, and the company outperformed the industry in the U.S.
- The company outperformed the industry to gain prestige beauty share in Mainland China for the seventh consecutive quarter.
We outperformed the industry to gain prestige beauty share for the seventh consecutive quarter
- MAC gained prestige makeup share in the U.S. for 7 consecutive months and gained share in China, Japan, and Korea.
In the U.S., MAC has gained prestige makeup share for 7 consecutive months, while for the quarter, MAC gained share in China, Japan and Korea.
Macroeconomic environment
- Management's full year outlook assumes no further deterioration in the geopolitical landscape, no material impact from the Middle East conflict, and the stabilization of disruptions in EUKEM.
Growth opportunities and strategies
- The company increased consumer-facing investments by 8% to fuel growth, strengthen brand equity, and support innovation and selling productivity.
we increased consumer-facing investments by 8% to fuel growth and strengthen long-term brand equity and desirability.
- Management is advancing One ELC across its operating ecosystem to drive efficiencies, speed, simpler processes, and productivity through partners like Shopify, WPP, Microsoft, and Google.
Financial guidance and outlook
- For organic sales growth in fiscal 2027, the company expects 4% to 5.5%, up from 3% to 5% previously.
For organic sales growth, we now expect to deliver 4% to 5.5%, up from 3% to 5% previously
- Reported sales growth forecast is 5% to 6.5% including foreign exchange translation.
With the favorable impact of foreign exchange translation, our reported sales growth forecast become 5% to 6.5%.
- Operating margin expansion is now expected to be 170 to 250 basis points, up from 150 to 230 basis points, resulting in a full year operating margin of 12.9% to 13.7%.
- Diluted EPS for fiscal 2027 is expected to range between $3.20 and $3.45, up from $3.10 and $3.35.
Diluted EPS is now expected to range between $3.20 to $3.45, up from $3.10 to $3.35.
- Net cash flow from operating activities is expected between $1.4 billion and $1.5 billion, up from $1.3 billion and $1.4 billion.
We now expect to generate net cash flow from operating activities between $1.4 billion and $1.5 billion, up from a previously expected range of $1.3 billion and $1.4 billion.
Q1 FY2027 results
| Metric | Result | Change |
|---|---|---|
| Reported Net Sales | 7% | increase versus prior year |
| Organic Net Sales | 6% | increase versus prior year |
| Gross Margin | 75.7% | expanded 240 basis points |
| Operating Margin | 12.1% | expanded 480 basis points |
| Diluted EPS | $0.72 per share | grew 125% |
How management sounded
Balanced (+35 on our -100 to +100 scale). Management raised full-year guidance and expressed strong confidence in the ongoing recovery and momentum of Beauty Reimagined. Management sounded more upbeat than on 20% of the 302 calls we cover; most companies sound positive on their own calls, so the comparison says more than the label.
Read the analyst Q&A summary and guidance and outlook for this call.
What to watch before the next call
- The evolution of Travel Retail comparisons and net-to-retail shipment alignment in the second half.
- Consumer demand trends and the performance of key prestige fragrance and skin care innovations in Western markets.
- Geopolitical developments and potential macroeconomic uncertainties impacting regions like the Middle East and Europe.
Earlier calls
- Q4 FY2026 (Aug 19, 2026), tone Balanced: Estée Lauder reported a 3% increase in full year organic sales and a 320 basis point expansion in operating margin. Management expressed strong confidence in the Beauty Reimagined strategy.
