Estée Lauder Companies reported Q3 2025 results with revenue of USD 3.55 billion, marking a YoY decline of 9.9% and a QoQ decline of 11.3%. The gross margin remained robust at approximately 75%, delivering a gross profit of USD 2.661 billion, but operating leverage showed signs of pressure as selling, general and administrative (SG&A) expenses remained elevated, resulting in an operating income of USD 306 million and a net income of USD 159 million (EPS USD 0.44). Despite the top-line softness, cash flow generation remained solid, with operating cash flow of USD 284 million and free cash flow of USD 162 million for the quarter. The company finished the period with USD 2.631 billion of cash and cash equivalents and a total debt load of USD 9.382 billion, yielding a net debt of USD 6.751 billion and a net debt to EBITDA not materially distressed given the quarter’s EBITDA of USD 306 million.
Key takeaways include: (1) margin resilience on a high gross margin base, but continued marketing and SG&A intensity is constraining operating margin; (2) a leverage profile that remains elevated, with debt to capitalization around 0.68 and interest coverage near 3.5x, which warrants attention as macro conditions fluctuate; (3) cash generation remains positive, supporting dividends and buybacks, though a high payout ratio (~79%) reflects a capital allocation stance that prioritizes shareholder returns within a leveraged balance sheet; (4) a consumer environment that is improving in select premium categories but remains sensitive to discretionary spending and FX dynamics. This set-up implies a cautious but constructive long-term view contingent on stabilization of top-line growth and ongoing cost discipline.