EL's North America Trends Improve but Asia Remains the Wild Card

The Estee Lauder Companies Inc.’s (EL) first-quarter fiscal 2026 results highlight a clear regional imbalance, raising questions about whether stabilization in North America can meaningfully offset persistent weakness across Asia. While the company posted 3% organic net sales growth overall, performance varied sharply by geography.

North America recorded a low-single-digit organic sales decline, reflecting pressure in department stores. These included store closures tied to a major retailer’s bankruptcy, weaker performance at select retail partners and higher inventory positions for certain brands that persisted throughout the quarter. These headwinds more than offset the benefits from expanded shipments to Amazon Premium Beauty stores in the United States and Canada.

Still, management pointed to improving underlying trends, noting accelerating U.S. prestige beauty retail sales and market share gains in skincare and hair care, suggesting the region may be nearing stabilization. We note that the organic sales decline in the Americas segment moderated to 2% in the first quarter of fiscal 2026, improving from a 4% decline in the final quarter of fiscal 2025.

Asia’s performance remains mixed, with reported growth masking underlying demand challenges. Asia/Pacific delivered high-single-digit organic growth, largely driven by global travel retail and an easy comparison against a weak prior-year base. Mainland China returned to growth, supported by online momentum, targeted promotions and brand activations rather than a broad-based consumer recovery. Management emphasized that consumer sentiment in China remains subdued. In travel retail, foot traffic has begun to recover in select locations, but conversion rates remain below normal levels.

Management cautioned that volatility in Asian travel retail, particularly in eastern markets, is likely to persist. Against this backdrop, North America’s modest decline reflects stabilization rather than growth, limiting its ability to fully counterbalance Asia’s uneven recovery.

EL and Peers Show Diverging Regional Performance

Coty Inc.’s (COTY) first-quarter fiscal 2026 results highlight uneven regional trends, with North America continuing to face top-line pressure. In the Americas, Coty reported a 6% year-over-year decline in net revenues, due to lower Prestige net revenues as retailers continued to rightsize inventories to better align with demand trends. Coty’s performance reflects persistent regional headwinds weighing on near-term results.

e.l.f. Beauty, Inc. (ELF) continues to be driven primarily by North America, where U.S. net sales grew 18% year over year in the second quarter of fiscal 2026, significantly outpacing category growth. Management at e.l.f. Beauty cited continued consumer demand across U.S. retail channels as a key contributor to performance. e.l.f. Beauty’s International sales rose 2%, reflecting tougher comparisons tied to prior European launches, resulting in a clear divergence between U.S. and international growth rates.

EL’s Price Performance, Valuation & Estimates

Shares of Estee Lauder have gained 5.2% in the past month compared with the industry growth of 2.5%.

From a valuation standpoint, Estee Lauder trades at a forward price-to-earnings ratio of 42.35X, up from the industry average of 28.48X.

The Zacks Consensus Estimate for Estee Lauder’s fiscal 2026 and 2027 EPS has moved up 1 cent to $2.15 and 2 cents to $2.93, respectively, over the past 30 days.

Estee Lauder currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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