Estée Lauder: Beautiful Compounder in Recovery Mode

“I never dreamt of success. I worked for it.”

– Estée Lauder

China.

A curse and a blessing wrapped into one.

If you’re a global player and want to sit at the grown-ups’ table, you must conquer this market. It doesn’t matter what business you’re in — chips, fashion, cars, or, of course, my personal favourite — beauty.

At arvy, we love beauty. It’s one of the most fascinating industries to invest in. Why? Because the total addressable market is almost infinite — everyone on the planet is a potential customer. It fulfils a daily need, revolves around products that run out and must be replaced, and thrives on novelty. Consumers are constantly searching for “what’s next.” Even better — demand barely flinches when the economy does.

And then there’s China.

You probably know the rule of thumb: roughly one-fifth of beauty revenues come from China, and two-thirds of the sector’s growth originate there. That’s how pivotal it is.

But here’s the sting: China’s growth engine for beauty — and for much of luxury — has sputtered. Hard. Recent quarters have seen sharp slowdowns across the board.

The result?

A brutal -87% collapse in one of the highest-quality compounders in the market.

The market leader of premium beauty.

Estée Lauder.

Chart 1: Estée Lauder’s Acquisition Strategy and Beauty Empire

The Beauty of Estée Lauder’s Strategic Acquisitions

La Mer. Clinique. Origins. M·A·C. Bobbi Brown. Jo Malone London. Aveda.

And of course — Estée Lauder itself.

For the boys reading: that’s basically Ferrari, Porsche, Bentley, Aston Martin, and Rolls-Royce — all parked in one garage. Just swap the engines for eye cream and lipstick.

Those are only a handful of the 20+ category-leading brands sitting under the Estée Lauder umbrella — spanning skincare, cosmetics, and fragrance.

Founded in 1946 by Estée Lauder and her husband, Joseph, the company started humbly — just four products. But growth came quickly, and with it, ambition. Lauder’s genius wasn’t just in making people look good — it was in spotting what would make her company last.

So, she began to buy beauty (chart 1).

One of the most transformative moves came in 1998, when Estée Lauder acquired M·A·C Cosmetics — then a niche brand beloved by makeup artists. What happened next was textbook scale: M·A·C exploded into a global powerhouse, from backrooms to boardrooms, from studio mirrors to department store counters across the world.

The more recent shopping list?

Deciem, the “abnormal beauty company,” and Tom Ford, picked up for a cool $2.3 billion.

Each acquisition was more than a brand buy — it was a lesson in diversification. Estée Lauder didn’t just expand its portfolio; it expanded its universe. Every label spoke to a new audience, a new segment, a new mood. From high-end skincare to luxury fragrance, Lauder built a house so strong that the walls themselves sparkle.

And the results?

For the last decade, Estée Lauder has held the #1 global market share in prestige skincare and colour cosmetics. It is therefore the leader in a constantly growing high-end cosmetics market, with a compound annual growth rate of 6.3% for the next five years (chart 2).

According to Euromonitor (2024):

• Prestige Skincare: Estée Lauder leads with 16%, edging out L’Oréal (15%) and Shiseido (8%).
• Premium Makeup: Estée tops the list again with 22%, ahead of L’Oréal (16%) and LVMH (14%) — thanks to the enduring power of M·A·C, Bobbi Brown, and the ever-glowing Estée and Clinique brands.
• Fragrance & Hair Care: Smaller focus, smaller share — 6% and 4% respectively — but still ranking among the best. L’Oréal dominates here with 17% and 25%.

A portfolio this good should make any investor’s heart glow.

But mine?

Mine is bleeding.

Chart 2: Premium Cosmetics Market, size, by product, 2020 – 2030 ($, bn)

Collapse of Chinese Demand for Beauty Products

Three straight years of sales declines — from fiscal 2022 through 2025 (chart 3).

That’s the story of Estée Lauder. And yes, it happened in what was supposed to be one of the world’s most attractive growth markets.

How on earth did that happen?

You already know the answer.

China.

The weakness was almost entirely confined to the company’s most important region. And it hit like a freight train.

Why so hard?

Because Estée Lauder was over-indexed. Roughly 30% of its total sales come from China — in a market that accounts for only 18% of global premium beauty spending. When the macro picture turned south, the exposure became a liability. Analysts estimate that China alone contributed over 90% of Estée’s recent sales declines.

The hit was so severe that Estée Lauder actually reported losses (chart 3 again — it hurts).

To be honest, I never thought that was possible.

We held the stock for years. But on May 12, 2023, after a brutal earnings miss and a -17% single-day drop — the heaviest trading volume in years, signaling massive institutional selling — we sold at $199.15 per share.

What followed was a relentless slide: a high-to-low collapse of -87%. A company once trading at $374 found itself scraping $48.

The lesson?

There are no perfect businesses. Not even the beautiful ones. But that raises the question sitting in every investor’s mind: Is this beautiful business broken?

I don’t think so.

Here’s why.

Despite the downturn, Estée managed to hold its prestige skincare and makeup market shares in China within the high teens — losing only 40 basis points and 70 basis points, respectively, from 2021 to 2024. Even more telling, it gained share in premium fragrance.

That suggests the weakness was cyclical, not structural.

In other words, the “Good Story” isn’t over — it’s just between chapters.

And because the market is a forward-looking machine, your trained investor’s eye will have already noticed what’s happening in the data: revenue and profit estimates are ticking higher for the next three years (third time’s the charm — chart 3 again).

So where do we find the answer?

Let’s focus on the “Good Chart”.

Chart 3: Estée Lauder’s revenues, net income over the last ten years and 3yr estimatesation

From Stage 4 to Stage 1 … to Stage 2 Again?

Let’s bring back an old classic — Stan Weinstein’s “Stock Price Maturation Cycle.”

Four stages. Four moods of the market. And if you line them up next to Estée Lauder’s stock chart, you’ll notice something uncanny.

Pretty similar, isn’t it (chart 4)?

That’s why we always say: history doesn’t repeat, but it rhymes. Because while technology evolves, regulation shifts, and economies rise and fall — human psychology doesn’t change. And psychology drives markets. Always has. Always will.

After a long, powerful Stage 2 uptrend, Estée’s stock hit a blow-off top in Stage 3, only to endure a punishing Stage 4 decline — the kind that tests conviction and teaches us humility.

But now, something interesting is happening.

The stock appears to be bottoming, finalizing a potential Stage 1 base. Combine that with early signs of improving fundamentals and a possible rebound in China’s appetite for premium beauty, and we might just be witnessing the first brushstrokes of a new Stage 2 uptrend — in both price and business momentum.

It seems… my heart has stopped bleeding.

But like any heartbreak.

Healing takes time.

Chart 4: Estee Lauder over the last ten years (+ Stock Price Maturation Cycle by Stan Weinstein)