By Teresa Rivas

Beauty may be in the eye of the beholder, but it is hard to see Estée Lauder stock's post-earnings plunge as anything but ugly.

The cosmetics company delivered a better-than-expected fiscal second quarter on Thursday, with earnings per share of 87 cents, but that was on an adjusted basis. The number on an unadjusted basis, including restructuring costs, was roughly half that at 44 cents. In addition, Estée Lauder said that it anticipates tariffs will lower fiscal 2026 profits by $100 million.

The stock -- the worst performer in the S&P 500 -- plunged on Thursday morning. At one point, it was down more than 21% to $94.25, its largest percentage decrease on record, dating back more than 30 years. While Estée Lauder had a year-to-date gain in the low double digits before the report, it is now down 10%. The S&P 500 is roughly flat over the same period.

High expectations meeting with higher-than-expected costs are a recipe for a selloff for nearly any stock, but the reaction seems all the more understandable given Estée Lauder's history. The shares, which even at their 2026 peak of $120 were at just a third of their postpandemic 2021 highs, had soared some 80% over the past year.

Investors were clearly hopeful that Estée Lauder was finally turning a corner after years of underperformance. Continuing high costs cast significant doubt on that narrative.

That said, it does appear that the stock should be able to stabilize. It has typically found support in the mid $80-range recently, and there were some bright spots in the quarter showing that Estée Lauder is still making progress.

Raymond James analyst Olivia Tong is still upbeat. She argues that the second-quarter costs are relatively transitory, writing positively that "organic sales growth accelerated in three of four regions and three of four product categories, while the U.S. is stabilizing and China is accelerating, operating margins are back to double-digits."

China has been a major drag for the company in recent years, so the improvement is encouraging. Sales in mainland China were up 13% in the quarter, making the country the leading contributor to organic sales growth. Management expects a gain for the region in the mid single digits for the year.

Overall, Estée Lauder raised the low end of its range of forecasts for growth in organic sales. It now expects growth of 1% to 3%, after saying sales would be flat to up 3%.

Even analysts who rate the stock at Hold found aspects of the report encouraging. The results were consistent with "improving momentum across global luxury markets and early signs of a China inflection," wrote TD Cowen's Oliver Chen. "The print also reinforces early evidence that Estée Lauder's ecosystem strategy ( Amazon, TikTok Shop, and shoppable content)...are beginning to translate into both top-line growth and margin leverage."

It is true that it won't be easy for the company to beat the gains in sales it has achieved over the past year. Some investors will want to see more consistent results before believing that Estée Lauder's turnaround is on the right track.

Yet it seems likely that the shares will find some support not far from where they trade now. Earnings expectations are now clearly far lower than they were before Thursday.

The company's full-year forecast may ultimately prove conservative. While Estée Lauder may not be able to match its 2025 momentum, it seems likely that more consistent improvement in China sales and its travel retail division will help it recover some of Thursday's losses.

In short, Estée Lauder's makeover is still unfolding, if more slowly than some may have hoped.

Write to Teresa Rivas at teresa.rivas@barrons.com

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(END) Dow Jones Newswires

February 05, 2026 14:43 ET (19:43 GMT)

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