The Estée Lauder Companies delivered substantial operating-margin improvement in fiscal 2026 as its Profit Recovery and Growth Plan began translating cost reductions and operational changes into higher profitability. Full-year adjusted operating income increased 47% to $1.69 billion from $1.15 billion.
Adjusted operating margin expanded 320 basis points to 11.2% from 8%, significantly outpacing the company’s 5% increase in reported sales and 3% organic sales growth.
Gross margin also improved, expanding 150 basis points to 75.5%.
Estée Lauder attributed the gross-margin improvement primarily to benefits from its Profit Recovery and Growth Plan, including more competitive procurement, expense optimization and lower excess and obsolete inventory. Sales leverage provided an additional benefit, partially offset by inflation and incremental tariffs net of refunds.
The company expects approximately $1.2 billion of annual gross benefits once the restructuring initiatives are fully implemented, reaching the high end of its previously announced target.
The restructuring is expected to result in a net reduction of approximately 10,000 positions and total cumulative charges slightly above the high end of the previously announced $1.5 billion to $1.7 billion range.
Estée Lauder said the program has allowed it to increase consumer-facing investment while reducing non-consumer-facing expenses. Consumer-facing investments increased 7% during fiscal 2026, or 4% excluding currency translation.
The company also said adjusted operating margin expanded by nearly 300 basis points or more in every quarter of fiscal 2026.
Most of the full run-rate benefits from the Profit Recovery and Growth Plan are still expected to be realized in fiscal 2027, even though approvals for specific restructuring initiatives were completed by June 30.
For fiscal 2027, Estée Lauder expects organic sales growth of 3% to 5% and has increased its adjusted operating-margin outlook to 12.7% to 13.5%, compared with its previous preliminary expectation of 12.5% to 13%.
KEY QUOTES:
“We reignited growth with organic sales rising 3%, driven by the breadth of growth across brands, and achieved significant operating margin expansion.”
Stéphane de La Faverie, President and CEO of The Estée Lauder Companies
