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01/11 11:07
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
The earnings call shows strong financial performance with significant EPS growth and margin expansion. The Q&A highlights positive volume trends and market share gains. While management maintains cautious guidance due to macroeconomic volatility, they emphasize strategic reinvestments and expansions into new channels. The company's proactive approach to margins, tax rate, and strategic growth initiatives indicates a positive outlook, despite some uncertainties. Overall, the sentiment leans towards a positive stock price movement, supported by robust financial metrics and strategic plans.
Organic Sales Growth 3% growth, a significant sequential acceleration from the 13% decline in the fourth quarter. Reasons include strong performance in Mainland China, high single-digit growth in priority emerging markets, and favorable comparisons in Travel Retail.
Operating Margin Expanded 300 basis points to 7.3% compared to 4.3% last year. Reasons include net benefits from PRGP, operational efficiencies, lower promotional activity, and reductions in excess and obsolescence.
Gross Margin Expanded 60 basis points to 73.3%. Reasons include sales growth, operational efficiencies, and lower promotional activity, offsetting inflation and foreign exchange headwinds.
Diluted EPS $0.32, more than doubled from $0.14 last year. Reasons include return to sales growth, strong cost efficiency, and leverage.
Net Cash Flows from Operating Activities Used $340 million, a significant improvement compared to $670 million used last year. Reasons include higher earnings and favorable changes in operating assets and liabilities.
CapEx $96 million, down 32% versus the prior year. Reasons include phasing of projects and prioritization of consumer-facing investments.
Fragrance: Double-digit growth driven by new launches from TOM FORD, KILIAN PARIS, Jo Malone London, and Aramis. Le Labo also showed outstanding growth. A new fragrance atelier was opened in Paris to innovate faster using AI and olfactory expertise.
Skin Care: Low single-digit growth with new launches targeting eye, acne, and longevity across all age groups. The Ordinary drove share gains in the U.S. market.
China: Retail sales increased double digits, outperforming the Prestige Beauty market. Seven brands grew double digits, with Le Labo nearly triple digits. Share gains in every category and channel.
U.S.: Retail sales growth accelerated, with 8% growth in skin care and share gains in hair care led by Aveda. The Estée Lauder brand gained share in skin care, makeup, and fragrance.
Western Europe: Mixed performance with slow or negative growth in some markets. Share gains in France and Spain, while the U.K. showed improvement with nearly 10% industry sales growth.
Travel Retail: Double-digit retail sales growth in fragrance in Europe and the Americas. Expanded consumer coverage through new retail activations and partnerships like Duty Free Americas.
Profitability: Operating margin expanded by 300 basis points to 7.3%, driven by operational efficiencies and reduced non-consumer-facing expenses under the PRGP.
Cash Flow: Net cash used in operating activities improved significantly to $340 million from $670 million last year. CapEx was reduced by 32%.
Digital Expansion: Launched Amazon storefronts in Mexico and the U.K. and expanded presence on TikTok Shop in multiple countries. Online organic sales growth accelerated to double digits.
Partnerships: Announced a partnership with Shopify to modernize and scale the direct-to-consumer business globally.
Sustainability: Introduced 2030 goals, including a $50 million commitment to support women and girls in health, education, leadership, and entrepreneurship.
Western European Market Challenges: Prestige Beauty in several Western European markets is experiencing slow or negative growth, particularly in France, which is the biggest category in the region.
Travel Retail Challenges in the East: Persistent challenges in the eastern Travel Retail business continue to pressure retail sales, with greater impact expected in the second half of the fiscal year.
Subdued Consumer Sentiment in Mainland China: Although there is improvement, consumer sentiment in Mainland China remains subdued and has not fully recovered from historical lows.
Decline in Makeup and Hair Care Sales: Sales from makeup and hair care categories declined, contributing to a low single-digit decrease in the Americas.
Tariff-Related Profitability Headwinds: Tariff-related headwinds are expected to impact profitability by approximately $100 million, despite planned mitigation actions.
Macroeconomic Volatility: The global macroeconomic environment remains dynamic with a variety of headwinds and tailwinds, creating uncertainty for the company's operations and strategic plans.
Fiscal 2026 Full Year Outlook: The company reaffirms its fiscal 2026 full year outlook, expecting flat to 3% organic net sales growth. Stronger performance is anticipated in the first half, driven by favorable comparisons in Asia Pacific and Mainland China. Challenges in the global Travel Retail business in the East are expected to impact the second half.
Operating Margin: The company aims to rebuild its operating margin to solid double digits over the next few years, supported by cost efficiency and leverage under its Profit Recovery and Growth Plan (PRGP).
Capital Expenditures: Capital expenditures are projected to be approximately 4% of projected sales for fiscal 2026, focusing on consumer-facing investments to drive long-term sustainable growth.
Mainland China and Asia Pacific: Improvement in consumer sentiment in Mainland China is observed, though it remains subdued. Stronger performance is expected in Asia Pacific in the first half of fiscal 2026.
Global Travel Retail Business: Momentum in the West is fueled by consumer-facing investments and distribution expansion. However, persistent challenges in the East are expected to pressure retail sales, particularly in the second half of fiscal 2026.
Tariff-Related Headwinds: Tariff-related headwinds are expected to impact profitability by approximately $100 million. Additional mitigation strategies, including PRGP initiatives and potential pricing actions, are being evaluated.
The selected topic was not discussed during the call.
The earnings call shows strong financial performance with significant EPS growth and margin expansion. The Q&A highlights positive volume trends and market share gains. While management maintains cautious guidance due to macroeconomic volatility, they emphasize strategic reinvestments and expansions into new channels. The company's proactive approach to margins, tax rate, and strategic growth initiatives indicates a positive outlook, despite some uncertainties. Overall, the sentiment leans towards a positive stock price movement, supported by robust financial metrics and strategic plans.
The earnings call indicates a mixed outlook: strong restructuring progress and optimism in key markets like China and North America are counterbalanced by weak guidance, particularly in Europe and travel retail. Positive factors include organizational streamlining and market share gains, but the expected decline in net sales and flat gross margins temper enthusiasm. The Q&A reveals cautious optimism with some risk factors, such as channel mix challenges and unclear growth timelines, which support a neutral sentiment for short-term stock price movement.
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