Adjusted EPS Up 66%, a Fourth Straight Beat — Estée Lauder Smiled in Hainan Before L'Oréal Did
Overview
Estée Lauder posted Q4 FY2026 net sales of $3.63B (+5%) and adjusted EPS of $0.39, beating consensus for a fourth straight quarter. Full-year adjusted EPS jumped 66% year over year to $2.51. The timing is the interesting part — right around when L'Oréal said its own China travel-retail business was 'not yet recovered' for the same quarter, Estée Lauder's Hainan business had already rebounded with double-digit growth.
On August 19, The Estée Lauder Companies reported results for the fourth quarter of fiscal 2026 (July 2025–June 2026). Net sales came in at $3.63B, above the $3.54B Wall Street expected, and adjusted EPS of $0.39 beat the $0.32 consensus by $0.07 — a fourth consecutive quarter of beating estimates. The stock jumped 16% on the day. As it happens, barely two weeks earlier, L'Oréal reported results for the very same quarter (April–June) and said the core China travel-retail channel for its Luxe division was "not yet recovered." Same market, same quarter — and the two companies are telling opposite stories.
Four Straight Beats — the Turnaround, by the Numbers
Start with Estée Lauder's fiscal 2026 scorecard.
| Metric | Q4 (Apr–Jun '26) | Full Year (FY2026) |
|---|---|---|
| Net sales | $3.63B | $15.0B (+5%) |
| Organic net sales growth | +5% | +3% |
| Adjusted EPS | $0.39 (+$0.07 vs. estimate) | $2.51 (+66% vs. prior year's $1.51) |
| Gross margin | — | +150bp |
| Adjusted operating margin | — | +320bp |
A year ago, this was a different company. In fiscal 2025, Estée Lauder booked $1.29B in combined goodwill and intangible impairment charges — $295M tied to Tom Ford and Too Faced, plus $375M tied to Dr.Jart+ in the fourth quarter alone — and operating margin collapsed from 6.2% to -5.5%. Because this quarter's 66% jump in adjusted EPS excludes those one-off impairments, it should be read as a genuine result of sales growth and cost-structure improvement, not an artifact of a low prior-year base. The engine behind that cost-structure improvement is the Profit Recovery and Growth Plan (PRGP), launched in November 2023: a net reduction of 9,000 to 10,000 roles — about 17.5% of the total workforce — as part of up to $1.75B in cumulative restructuring, targeting $350–500M in annual savings. This quarter is the first time that effort shows up clearly as margin expansion.
The Core Insight — Same Event, but Hainan Smiled While L'Oréal Luxe Hadn't Yet
Earlier in 2026, China's Beijing and Shanghai airport duty-free concessions both changed hands at once — both moved off incumbent Sunrise Duty Free, with CDFG/Wangfujing taking over in Beijing and CDFG/Avolta in Shanghai. That handover hit Estée Lauder and L'Oréal in exactly the same way. In this earnings release, Estée Lauder said "transitional pressure from the change in duty-free retailers servicing Beijing and Shanghai airports, including related online businesses," dragged down the rest of mainland China travel retail. L'Oréal, reporting in early August, cited the same event and described its travel-retail trend as "very negative in Q1, slightly negative in Q2."
But on the other pillar of travel retail — Hainan — the two companies' stories diverged completely. Estée Lauder said its Hainan travel-retail net sales grew by double digits this quarter; The Moodie Davitt Report called it "absolutely fantastic." L'Oréal, by contrast, said Hainan's offshore duty-free market had shrunk 30% over the first half, and that while it outperformed the market average, it still could not avoid a sales decline itself. Same country, same channel, same quarter — one company is talking about double-digit growth, the other is still talking about decline.
It's hard to pin down from disclosures alone why two companies facing the identical event landed in such different places. But there's a clue. Estée Lauder's Q4 rebound was led by skincare brands — La Mer, The Ordinary, the core Estée Lauder brand — and full-year skincare net sales rose 4%. L'Oréal Luxe, by contrast, carries a fragrance-heavy portfolio (Yves Saint Laurent, Armani, and others). Given that Hainan's duty-free market has traditionally skewed toward skincare and makeup purchases, this gap may reflect the category mix each company brought to Hainan more than any difference in execution — though without a category-level breakdown of Hainan sales from either company, this remains an estimate.
Looking at mainland China as a whole, Estée Lauder's net sales came to $3B, up 12% on a reported basis, and organic net sales across Asia Pacific grew in the mid-single digits. The company said it gained share across fragrance, skincare and makeup alike — this wasn't a Hainan-only story, but a broader improvement in mainland Chinese consumption.
Business Impact — the Cost of the Turnaround, and the Next Quarter's Test
This rebound wasn't free. PRGP is a large-scale restructuring cutting roughly 17.5% of the total workforce, and in June 2026 the company layered on top of it a multi-year Profit Recovery and Growth Plan worth up to $1.75B running through fiscal 2027. A meaningful share of the margin improvement came from cost cuts rather than sales growth, and it's an open question whether this pace of improvement continues once the layoffs are behind the company. The FY2027 guidance (adjusted EPS of $3.10–3.35, net sales growth of 3-5%) came in above the $3.18 consensus, as if to address that concern — but the growth range's low end still sits below this quarter's +5%, so it isn't unqualified optimism either.
Travel-retail risk hasn't fully cleared either. If the "transitional pressure" from Beijing and Shanghai is genuinely temporary, as the company itself framed it, it should ease from here — but as L'Oréal's case shows, the same disruption can recover at different speeds depending on brand portfolio. Estée Lauder getting ahead in Hainan this quarter doesn't yet mean China travel retail as a whole has stabilized.
Practical Implications
- Duty-free/travel-retail MDs: This case shows the same market shock (the Beijing/Shanghai concession handover) can land with very different force depending on the brand. Track individual brands' sales trends separately, on the assumption that Hainan exposure may recover at different speeds depending on category mix
- Beauty category buyers: That skincare brands like La Mer and The Ordinary led Estée Lauder's rebound is a useful signal for setting next-season ordering and promotion priorities
- Finance/IR teams: Behind the headline 66% jump in adjusted EPS sits a large-scale workforce reduction (17.5% of total headcount). Cost-cut-driven margin improvement and growth-driven margin improvement carry different sustainability, so track organic sales growth and margin expansion separately from next quarter on
- Competitive benchmarking teams: That L'Oréal and Estée Lauder landed such different results from the same event in the same quarter is itself a reminder not to treat "travel retail is recovering" as one uniform industry-wide trend. Whether L'Oréal's next quarter (particularly Q3) starts tracking Estée Lauder, or the gap keeps widening, will be the test of this hypothesis
Conclusion
On the numbers alone, Estée Lauder's fourth straight earnings beat reads like a clean turnaround story. Look underneath, though, and it sits alongside large-scale layoffs that funded the cost cuts, and a China travel-retail uncertainty that another beauty giant, L'Oréal, hasn't fully shaken off yet. That Estée Lauder rebounded in Hainan before L'Oréal did is a rare, concrete illustration that recovery speed from the same market shock can hinge on brand portfolio composition. That's reason enough to watch whether L'Oréal's Hainan numbers catch up next quarter.
The most striking thing about this quarter is that two companies facing the identical event — the Beijing/Shanghai concession handover — produced opposite Hainan results. When an industry-wide headline like "travel retail is recovering" or "Chinese consumption is coming back" appears, it's easy to miss how much the temperature varies brand by brand underneath it. The Estée Lauder–L'Oréal comparison puts a very clear number on that variance.
I'd also flag what fueled this rebound. A 66% jump in adjusted EPS is a flashy number, but a meaningful share of it came from a painful restructuring that cut 17.5% of the total workforce. Profit growth from rising sales and profit growth from headcount reduction land as the same number on the income statement, but their sustainability is entirely different. Once the layoff effect is fully baked into the base next quarter, further margin improvement will have to come purely from sales growth — that's when this turnaround's real strength gets tested.
Finally, Korean retail should keep an eye on Dr.Jart+. This Korean brand, owned by Estée Lauder, took a $375M impairment last quarter over "underperformance in Korea and mainland China." The parent company rebounded, but one Korean brand's struggles may be sitting in the shadow of that rebound. The only way to see how Korean brands acquired by global beauty conglomerates are actually doing, behind the parent's good headline numbers, is to keep tracking these brand-level impairment disclosures.