Inside Estée Lauder’s $14 billion reset: AI, brand trouble and a travel retail retreat

“Beauty Reimagined,” the transformation plan launched in May 2024 under CEO Stéphane de La Faverie, is beginning to show early momentum. “We are energized as we transform our company,” he said on the earnings call. “Together with all of our employees, I am excited for what we will accomplish.”

The reset is Estée Lauder’s most significant organizational shift in years. The company collapsed seven regions into four and handed full P&L control to geographic teams, moving away from a global brand-led model. “We are really pushing ambition and accountability across every pillar — brands, regions and functions,” said de La Faverie. “The culture is evolving, and the speed of execution we’re seeing is extremely encouraging.”

One of the biggest bright spots is e-commerce. Online sales hit a record 31% of total revenue during the year, up three points from last year. Growth came from expanded reach across Amazon and TikTok Shop. The company now has 11 brands on Amazon’s U.S. Premium Beauty store, up from just three in its fiscal 2024. The company also launched brands on Amazon in Canada and Mexico, and on Shopee and TikTok in Southeast Asia.

The Ordinary continues to lead the charge, with high single-digit retail sales growth in the fourth quarter and the launch of an AI-powered flagship store on Tmall in July. “The Ordinary continues to expand rapidly with targeted innovation and new digital experiences,” said de La Faverie.

While much of the AI buzz has focused on consumer tools, Estée Lauder is seeing results from back-end applications. The company reported a 31% improvement in ROI on North American media campaigns, thanks to AI-driven optimization. “Our investment in AI has begun to show meaningful impact,” de La Faverie said.

In North America, sales are stabilizing faster than expected — especially through Amazon, which leadership said now acts as a “megaphone” across the rest of the business. Clinique continues to outperform, even past the anniversary of its initial Amazon launch. The North American region gained market share in the second half of the year. Department stores now represent less than one-third of the region’s sales.

The company’s portfolio review could lead to bigger changes. Names were not mentioned, but the financials point to a few brands under pressure. Too Faced was hit with a $50 million impairment charge in the fourth quarter, while Dr.Jart+ took a $375 million hit tied to poor performance in China and Korea. Tom Ford Beauty was also impacted, with a $549 million charge related to slower-than-expected growth in its fragrance business, following Estée Lauder’s full acquisition of the brand in 2023. All three may be up for repositioning, or removal, as the company focuses on higher-return bets.

Another major shift: a strategic pullback from travel retail. The channel declined 28% during the year and now represents 15% of total sales — down from nearly 30% at its pandemic-era peak. “We ended fiscal 2025 in a much better position than fiscal 2024, with healthier trade inventory, especially in travel retail Asia,” said de La Faverie.

Product innovation is also central to the reset. In fiscal 2026, 16% of product launches are expected to be developed and brought to market within one year, with a goal of reaching 30% in the long term. Recent launches include Clinique’s SPF-infused DDML moisturizer, MAC’s Lipglass Air and La Mer’s Balancing Treatment Lotion.

Clinique, in particular, has become a quiet hero brand. It gained share across regions, built on the viral success of its Almost Lipstick line, and expanded on Amazon. Estée Lauder also called out Le Labo, Jo Malone London, La Mer and MAC as outperformers, each gaining share in their respective categories and fueling growth across key regions. “Clinique’s performance showcases how our brands can connect across price tiers, platforms and global regions,” said CFO Akhil Srivastava.

Funding all this is the company’s Profit Recovery and Growth Plan, or PRGP, introduced in November 2023. Now in its second year, the initiative helped Estée Lauder expand its gross margin to 74% — up 230 basis points year over year — despite the top-line decline. “We could have dropped those savings straight to margin, but we’re choosing to fuel consumer-facing innovation instead,” Srivastava said. Fourth-quarter operating margin landed at 4%, ahead of expectations.

Still, fiscal 2026 guidance fell short of analyst targets. The company expects organic sales to grow 0–3%, with adjusted EPS between $1.90-$2.10, below the $2.20 analysts were anticipating. Tariff-related headwinds are expected to cost $100 million. “The below-consensus FY26 EPS guide reflects ongoing challenges, including weak conversion in the volatile Asia travel retail segment,” wrote Dana Telsey, CEO of Telsey Advisory Group.

Despite the soft outlook, executives remain confident. “In the second half of FY2025, we gained prestige beauty share in China, Japan and the U.S.,” said de La Faverie. “We’re demonstrating not only our ability to recover share, but also the power of innovation and consumer engagement to accelerate growth.”