In its quarterly earnings call last week, the Estée Lauder reported a 10% drop in net sales to $3.6 billion for its third quarter ended March 31, 2025, with organic net sales down 9%. Despite the revenue decline, gross margin expanded 310 basis points to 75.0%, benefiting from its Profit Recovery and Growth Plan (PRGP), according to its financial results report.
“In the third quarter of fiscal 2025, we delivered our organic sales outlook and exceeded profitability expectations,” said Stéphane de La Faverie, President and Chief Executive Officer, in a media statement. He added that the company is “building momentum” under its ‘Beauty Reimagined’ strategy, pointing to market share gains in the US, China, and Japan and online sales growth.
Current operational performance
As detailed in the company’s financial reporting, ELC’s operating margin fell to 8.6% from 13.5% a year earlier, while adjusted operating margin contracted to 11.4% from 14.1%. Diluted net earnings per common share dropped to $.44 from $.91, and adjusted diluted EPS decreased to $.65 from $.97.
Net cash flows from operating activities for the nine-month period were $671 million, down from $1.47 billion, reflecting lower earnings and increased restructuring payments.
The sharp contraction in operating margin and cash flow could signal a critical juncture for ELC and its suppliers. For industry stakeholders, the company’s increased restructuring payments and operational shifts, which are being implemented to “help restore operating margin and also fuel reinvestment in consumer-facing areas to drive sustainable sales growth,” the financial results report stated, include an estimated “net reduction in positions of 5,800 to 7,000.”
The restructuring program, therefore, could mean tighter cost controls, potential changes in procurement volumes, and a sharper focus on efficiencies across ELC’s supply chain, especially as the program’s focus includes ” (i) reorganization and rightsizing of certain areas and (ii) simplification and acceleration of processes, along with the focus on (i) outsourcing of select services and (ii) evolution of go-to-market footprint and selling models,” the report detailed.
Global sales category highlights
Performance varied across categories. Skin care sales fell 11%, largely due to weakness in Asia’s travel retail market, with Estée Lauder and La Mer seeing declines. The company cited subdued sentiment among Chinese consumers, comparisons with last year’s replenishment orders, and shifts by retailers in Korea and China toward more profitable duty-free models.
Makeup sales dropped 7%, impacted by lower shipments from M·A·C and Estée Lauder. ELC attributed the decline to shipment timing, retailer destocking, and soft retail demand, although it highlighted new launches such as M·A·C’s Nudes Collection and Estée Lauder’s Double Wear Stay-in-Place 24-Hour Concealer.
Fragrance sales edged down 1%, with declines from Clinique and Estée Lauder offset by strong growth from luxury brands like Le Labo. Hair care sales fell 10%, primarily driven by softness at Aveda’s salons and stores.
Regionally, net sales in the Americas decreased 5%, reflecting a mid-single-digit decline in North America. While retail sales in the region grew slightly, inventory destocking and operational challenges at department stores weighed on results. Specifically, ELC noted that its prestige beauty share saw gains for the fiscal 2025 third quarter in the US, driven by Clinique, The Ordinary, and Bumble and bumble.
ELC reported sequential improvement in organic sales trends outside travel retail and expanded its global footprint with new freestanding stores and e-commerce launches, including on TikTok Shop in Thailand and Amazon in Turkey. The company also highlighted its advancements in AI, citing recognition from Microsoft and a new partnership with Adobe to integrate generative AI into creative workflows.
Future outlook and brand expansion
Looking ahead, Estée Lauder said its travel retail reset is progressing and expressed confidence in returning to sales growth in fiscal 2026, provided tariffs are resolved. The company remains focused on rebuilding momentum, expanding product innovation, and adapting to market changes.
To further expand its global presence and reinforce its commitment to skincare innovation, ELC also announced last week that it has unveiled its first-ever Skin Longevity Institute at Hacienda AltaGracia within the Auberge Resorts Collection in Costa Rica. According to the company’s press release, the new institute offers “a uniquely immersive experience that fuses luxury Re-Nutriv skincare powered [by] cutting-edge Skin Longevity science.”
Justin Boxford, Global Brand President, said in a media statement that “through exclusive age reversal skin care treatments and holistic wellness activations, the Skin Longevity Institute will provide the ultimate elevated Estée Lauder experience for guests, all inspired by our expertise in skin longevity science.”
The partnership introduces new Re-Nutriv facial treatments exclusive to the resort, combining the brand’s “patented SIRTIVITY-LP age reversal technology with rare, precious ingredients and high-touch rituals,” along with advanced skin diagnostics and programming led by top wellness practitioners.