Why Estée Lauder Dropped Today

Key Points

• Estée Lauder reported double-digit declines in revenue last quarter.

• However, those results beat low expectations, as management touted the company's cost-cutting plan.

• The new CEO projects a return to growth in 2026, but investors are clearly skeptical.

• 10 stocks we like better than Estée Lauder Companies ›

Shares of beauty giant Estée Lauder (NYSE: EL) fell as much as 6.1% on Wednesday before recovering to a 4.3% decline as of 2:25 PM ET following this morning's Q4 2025 earnings release.

The beauty giant reported results that actually beat analysts' very low expectations but still showed stark declines from the prior year. While Estée Lauder's new CEO touted savings from the company's "Profit Recovery and Growth Plan," or PRGP, it appears continued revenue declines have led to investor skepticism over management's 2026 guidance.

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A lackluster fourth quarter closes out a disappointing year

In the fourth quarter, Estée Lauder showed a revenue decline of 11.9% to $3.41 billion, with adjusted (non-GAAP) earnings per share plunging 86% to just $0.09. While those numbers seem dire, they were actually better than feared relative to analyst expectations.

The 12% revenue decline was led by a 24% decline in sales to the Europe, Middle East, and Africa region on a constant currency basis. However, management noted this was due to a weak travel-related business that mostly comes from Chinese citizens traveling abroad. There were also difficult comparisons in that segment, as the year-ago quarter had a big inventory replenishment.

Still, even outside of that region, sales fell 5% in the Americas and 4% in Asia/Pacific on a constant currency basis.

The company's new CEO, Stéphane de La Faverie, took over in January and expanded the PRGP cost-saving program in February, which has led to the cutting of 5,800 to 7,000 employees. That, combined with macroeconomic forces, could be weighing on revenue. On the other hand, management claims adjusted gross margins have structurally expanded over the past year, even as revenue declined.

Image source: Getty Images.

Management projects a return to growth in the year ahead

While the cost cuts may be pressuring Estée Lauder's top line today, management expects revenue to grow 0% to 3% in the year ahead on a constant currency basis.

Given that possibility, today's sell-off could be an opportunity. While the stock has recovered strongly off its April lows, Estée Lauder remains a whopping 76% below its all-time highs of early 2022.

Still, Estée Lauder trades at a lofty 40 times forward earnings, so investors will need to believe that more profit growth is at hand beyond next year in order for the stock to regain a meaningful portion of its multiyear decline.

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Billy Duberstein and/or his clients have no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.