Estée Lauder Q1 2026 Earnings: Profitability Returns, Fragrance Sales Surge

The Estée Lauder Companies, a titan in the global prestige beauty industry, just released its financial results for the first quarter of fiscal 2026. For those watching the company's recovery, this latest 10-Q filing offers a compelling look into its progress, revealing a return to profitability and solid sales growth in key areas. Let's unpack the numbers to see what's driving the change.

For the three months ending September 30, 2025, Estée Lauder reported net sales of $3.481 billion, a 4% increase from the same period last year. More impressively, the company swung from a net loss of $156 million in the prior-year quarter to net earnings of $47 million. This turnaround is a significant step forward in its ongoing "Profit Recovery and Growth Plan."

To visualize how the company generates revenue and manages its costs, the following flow diagram breaks down the latest quarterly income statement.

In the diagram, the "Unallocated" revenue of $26 million consists of sales from the company's "Other" category ($25 million), which includes ancillary products and services, as well as a $1 million adjustment for sales returns related to restructuring activities.

Fragrance Leads, Makeup Finds its Footing

A closer look at the product categories reveals a clear star performer: Fragrance. This segment, which includes powerhouse brands like Jo Malone London and Tom Ford Beauty, saw net sales surge by 14% to $721 million. This strong demand was a primary engine for the company's overall revenue growth.

The Skin Care division, Estée Lauder's largest segment, posted a modest 3% sales increase to $1.575 billion. Meanwhile, the Makeup category experienced a slight 1% dip in sales to $1.03 billion.

However, the headline for the Makeup segment is its dramatic improvement in profitability. It recorded an operating loss of just $15 million, a significant recovery from the $185 million loss in the same quarter last year. It's crucial to note that the prior-year figure was heavily impacted by a $159 million charge related to talcum litigation settlements. The absence of this one-time expense is the main reason for the improved year-over-year operating results, both for the Makeup segment and the company as a whole.

Growth in Asia Offsets Softer Americas

Geographically, Estée Lauder saw robust growth in its Asian markets.

• Asia/Pacific (which includes the critical travel retail business) grew 8% to $873 million.
• Mainland China posted a strong 9% increase in net sales to $532 million.

This momentum in the East helped offset a 2% decline in The Americas, where sales fell to $1.174 billion. This regional divergence highlights shifting consumer behaviors and market dynamics.

A Focus on Margins and Efficiency

Estée Lauder's return to profitability was also fueled by improved margins. Gross margin expanded by a full percentage point to 73.4%, thanks to a more favorable product mix and lower inventory obsolescence charges.

Operating expenses as a percentage of sales fell sharply from 76.0% to 68.5%. While improved cost management played a role, this was again largely due to the absence of the prior year's $159 million talcum litigation charge. The company did record $89 million in restructuring charges this quarter as part of its ongoing plan to streamline operations and rebuild long-term profitability.

In conclusion, Estée Lauder's first-quarter results signal that its recovery plan is gaining traction. The strong performance in Fragrance and growth in Asia are promising signs. While the significant year-over-year profit swing is magnified by the absence of a large one-time charge from last year, the underlying operational improvements and strategic focus on efficiency paint a picture of a company methodically working its way back to stronger financial health in a competitive and ever-changing beauty landscape.