The news: Estée Lauder is carrying $2 billion of inventory, down from a $3 billion peak in fiscal 2023, and the write-downs that came with the excess have shrunk every year since.
Lower obsolescence charges, the write-downs a company takes on inventory it can no longer sell, added 250 basis points of gross margin over three years, according to its 10-Ks. That is most of the 420 basis points the company has recovered since fiscal 2023, and an audited measure of what a cleaner inventory position is worth on a $15 billion revenue base.
In fiscal 2026, the obsolescence line added 80 basis points, and lower manufacturing costs added 55, per the 10-K. Together, they account for 135 of the 150 basis points of gross-margin gain in the year.
Gross margin reached 75.5%, up from 71.3% in fiscal 2023. Net sales rose 5% to $15 billion, the first annual increase in four years, per the release.
The results reflect “structural improvements we have made,” CFO Akhil Shrivastava said on the call, “reducing excess and bringing gross margin back to near historical levels.”
What changed: The cuts were concentrated upstream. Raw materials fell 8% and work in process fell 15% in fiscal 2026, while finished goods edged up 2%. The reduction came out of what the company buys and builds ahead of demand rather than what sits ready to ship.
Promotional merchandise, the samples and gifts-with-purchase that the company expenses when it ships them, is down 40% from fiscal 2024, per the 10-K.
The physical network shrank with the inventory. The 10-K lists 30 facilities, down from 34 a year earlier:
One manufacturing site came out of the count, leaving 12 plants. The site was a leased skin care and makeup plant in the Americas, per the filing’s property table.
Three distribution centers came out, leaving 11.
Asset-related restructuring charges rose to $64 million from $11 million the year before. That line covers write-offs and accelerated depreciation on assets taken out of service before the end of their useful life.
Net property, plant and equipment fell $367 million to $2.8 billion.
Procurement is the other named lever. The company calls a “more competitive approach to procurement” a “key pillar of savings,” achieved by “further consolidating spending and strategically re-evaluating key supplier relationships.”
The moves are part of the Profit Recovery and Growth Plan, which the company said is now fully approved. It targets $1.2 billion in annual gross benefits from a net reduction of about 10,000 positions, against $1.75 billion in total charges. That is roughly $1.50 of charge for every $1 of yearly benefit.
By the numbers: The obsolescence benefit has already peaked. The line added 125 basis points in fiscal 2025, its high point, and 80 in fiscal 2026, per the company’s 10-Ks:
Fiscal 2024: 45 basis points of benefit.
Fiscal 2025: 125 basis points.
Fiscal 2026: 80 basis points.
Cost of sales fell 1% in fiscal 2026 while sales rose 5%. Shipping and handling, which covers distribution centers, third-party logistics and outbound freight, held flat at $731 million and fell to 4.9% of sales from 5.1%, per the 10-K.
Based on the filed balance sheet, inventory equals about 198 days of cost of sales, down from 203 a year ago and 238 at the fiscal 2023 peak.
Inventory rose $82 million in the fourth quarter from the March level reported in its 10-Q. The company said it is building stock for a front-loaded fiscal 2027 launch calendar.
What’s unclear: The company has said little about how it cut the write-downs. The 10-K describes “a zero-waste approach, aiming to improve demand forecasting and innovation planning to minimize excess inventory and product destruction.” The same sentence appears word for word in last year’s filing.
There is no forecast-accuracy figure, no SKU count, no destruction volume, and no planning system named anywhere in the filing or on the call. The only technology vendors mentioned are in marketing and the Shopify storefront that M·A·C moved to this summer.
The plant and the three distribution centers that came out of the count are not named.
The competition: Coty reported the same morning. Its fiscal 2026 gross margin fell 190 basis points to 62.9%, per its release. Coty blamed “supply chain cost under-absorption due to lower sales,” tariffs, and “elevated excess and obsolescence charges” in both divisions. Its sales fell 2% on a reported basis.
Coty expects gross margin to fall another 50 to 100 basis points in its first quarter, as lower shipments leave fixed plant costs unabsorbed. It said “productivity initiatives and procurement actions” will partly offset that.
Both companies paid new tariffs in the year. Estée Lauder put the gross cost at $102 million and booked a $38 million refund of duties collected under the emergency-powers trade law, per the release. The Supreme Court struck that law down earlier this year.
What’s next: Estée Lauder guided fiscal 2027 adjusted operating margin to 12.7% to 13.5%, up from 11.2%, on organic sales growth of 3% to 5%. But “gross margin would be a modest driver” next year, Shrivastava said, with most of the gain coming from SG&A.
About $314 million of approved restructuring charges remain to be booked, and the company expects the actions to be substantially complete by the end of the fiscal year.
Capital spending rises to about 4% of sales from 3%, with more than three quarters of it consumer-facing. The company said tariffs could have a material effect on fiscal 2027 profit but gave no figure. It reports its first quarter this fall.
