Estée Lauder Companies, Inc. (EL) put up numbers Thursday that should have made investors happy. The beauty giant crushed earnings expectations, raised guidance, and showed strong momentum across its prestige portfolio. Instead, shares fell more than 12% in premarket trading. Welcome to tariff season.

The company reported second-quarter adjusted earnings of 89 cents per share, comfortably ahead of the 83-cent consensus estimate. Sales climbed 6% year over year to $4.229 billion, edging past the Street's expectation of $4.219 billion. Organic net sales grew 4%.

Where the Growth Is Coming From

Mainland China continues to be a bright spot, posting its second straight quarter of double-digit retail sales growth. The company gained share across categories there, with La Mer, TOM FORD, and Le Labo leading the charge. Japan and the U.S. also delivered market share gains. In Japan, makeup and fragrance categories performed particularly well, while in the U.S., skin care, hair care, and direct-to-consumer fragrance grew at mid-single-digit rates.

Western Europe saw fragrance share gains across France, Spain, and the U.K. By category, skin care revenue rose 7% to $2.054 billion, makeup increased 1% to $1.164 billion, and fragrance advanced 9% to $812 million.

Profitability metrics looked strong too. Adjusted gross profit jumped 6% to $3.235 billion, with gross margin expanding to 76.5% from 76.1%. Adjusted operating income surged 32% to $608 million, pushing operating margin up to 14.4% from 11.5%. The company closed the quarter with $3.082 billion in cash and equivalents.

The Restructuring Machine

"In this pivotal year, Beauty Reimagined has invigorated our business as we execute the biggest operational, leadership, and cultural transformation in our history," said Stéphane de La Faverie, President and CEO.

That transformation isn't subtle. The company is consolidating service providers, expanding outsourcing, and standardizing processes with advanced technology. The restructuring program is expected to generate between $1.2 billion and $1.6 billion in pre-tax charges but should deliver annual gross benefits of $800 million to $1 billion.

The human cost is significant. Estée Lauder expects to cut between 5,800 and 7,000 positions, with approvals set to be completed by the end of fiscal 2026. As of late January, initiatives covering more than 80% of expected benefits, charges, and job reductions have already been approved.

Dividend and Outlook

The company announced a quarterly dividend of 35 cents per share on its Class A and Class B common stock, payable March 16.

On the outlook front, Estée Lauder raised its fiscal 2026 adjusted earnings forecast to $2.03-$2.23 per share from $1.90-$2.10, compared with the analyst consensus of $2.15. The sales forecast also got a bump, now projected at $14.756 billion to $15.042 billion versus the prior range of $14.613 billion to $15.042 billion. Analysts had been expecting $14.934 billion.

Here's the rub: the company continues to expect tariff-related headwinds to impact fiscal 2026 profitability by approximately $100 million, with most of that pain concentrated in the second half of the year. That $100 million tariff alarm seems to be what spooked investors, overshadowing otherwise solid results.

Estée Lauder (EL) shares traded down 12.07% at $105.17 during premarket trading Thursday.