Key Points
Estee Lauder reported fiscal second quarter earnings above expectations, though revenue came up short.
Management's outlook for the rest of the fiscal year implies a deceleration in growth.
The good news is management appears to be executing on its turnaround plan, the bad news is that the stock ran well ahead of the reality.
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Shares of makeup giant Estée Lauder (NYSE: EL) fell 18.4% on Thursday, as of 3:56 p.m. EDT.
The makeup giant reported earnings this morning, and at first glance, the results were pretty good. Still, Estée Lauder is attempting a slow turnaround, and its stock had already more than doubled off of last April's "Liberation Day" bottom. Therefore, while the December quarter's results showed some progress, it wasn't enough to satisfy investors after a strong run.
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Estee Lauder accelerates growth, but not enough
In the quarter, Estée Lauder grew revenue 5.8% to $4.23 billion, with adjusted earnings per share up 43% to $0.89.
Those earnings figures handily beat expectations, yet while the 5.8% revenue growth figure marked an acceleration over the prior quarter's 3.5%, it still fell a bit short of expectations.
Estée Lauder has been doing an impressive job of clawing back market share while also cutting costs. A recovery in China has also been a key factor, with the Country growing 13% last quarter. That being said, all geographies were in positive territory, with Europe and the Middle East up 9%, and the U.S. and Asia Pacific ex-China each up 1%.
Forward guidance also appeared somewhat disappointing, with management pointing to just 3% to 5% growth for the fiscal year ending in June 2026, a deceleration from the prior quarter, and $2.05 to $2.25 in adjusted EPS. The company has already made $1.21 in adjusted EPS through the first two quarters of fiscal 2026, so investors might have been anticipating even higher full-year guidance. Of note, management said it expects a $100 million negative impact from tariffs this fiscal year.
Image source: Getty Images.
Estée Lauder's stock had prematurely soared
Investors might have gotten a bit carried away with Estée Lauder's turnaround last year, as years of declines gave way to modest growth. Currently, shares trade at 44 times this year's adjusted EPS estimates, even after today's drop. That valuation already implies continued growth and a substantial profit recovery for the cosmetics giant.
While the past two quarters have seen some green shoots, it appears management isn't particularly confident that results will accelerate in the near term. Remember, Estée Lauder sells expensive makeup, which requires a strong global consumer willing to spend in order to drive significant growth.
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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.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
