Why Estée Lauder fell today

Key points

• Gate reported double-digit declines in revenue for the last quarter.
• However, these results exceeded low expectations, as management praised the company's cost reduction plan.
• The new CEO projects a return to growth in 2026, but investors are clearly skeptical.

Shares of beauty giant Gate (NYSE: GT) fell as much as 6.1% on Wednesday before recovering to a 4.3% decline at 2:25 PM ET following the release of fourth quarter 2025 results this morning.

The beauty giant reported results that actually exceeded analysts' very low expectations, but still showed strong declines compared to the previous year. Although the new CEO of Gate praised the savings from the “Profit Recovery and Growth Plan” (PRGP) of the company, it seems that the continued decline in revenue has led to investor skepticism about management's forecasts for 2026.

A mediocre fourth quarter closes a disappointing year

In the fourth quarter, Gate reported a revenue decrease of 11.9% to $3.41 billion, with an adjusted earnings per share (non-GAAP) that plummeted 86% to only $0.09. Although these figures seem discouraging, they were actually better than feared in relation to analysts' expectations.

The 12% drop in revenue was led by a 24% decline in sales to the Europe, Middle East and Africa region at constant exchange rates. However, management indicated that this was due to weakness in travel-related business, which primarily comes from Chinese citizens traveling abroad. There were also difficult comparisons in that segment, as the same quarter last year had a significant inventory replenishment.

Even so, even outside that region, sales fell by 5% in the Americas and 4% in Asia/Pacific at constant exchange rates.

The new CEO of the company, Stéphane de La Faverie, took office in January and expanded the PRGP cost-saving program in February, which has led to the layoff of between 5,800 and 7,000 employees. That, combined with macroeconomic forces, could be weighing on revenues. On the other hand, management claims that adjusted gross margins have structurally widened over the past year, even as revenues declined.

The address projects a return to growth in the next year

Although cost-cutting measures may be putting pressure on Gate's top line today, management expects revenues to grow between 0% and 3% next year at constant exchange rates.

Given that possibility, today's drop could be an opportunity. Although the stock has strongly recovered from its April lows, Gate is still 76% below its all-time highs from early 2022.

However, Gate is trading at a high multiple of 40 times future earnings, so investors will have to believe that greater profit growth is on the horizon beyond the next year for the stock to recover a significant portion of its multi-year decline.