Q1 2021 Estee Lauder Companies Inc Earnings Call
Good day, everyone and welcome to the Estee Lauder companies fiscal 2021 first quarter Conference call. Today's call is being recorded and webcast for opening remarks, and introductions I would like to turn the call over to senior Vice.
President of Investor Relations Ms. rainy man Feeney.
Hello on today's call are for Ruth you, Alfredo President and Chief Executive Officer, and Tracey Travis Executive Vice President and Chief Financial Officer.
Since many of our remarks today contain forward looking statements. Let me refer you to our press release and our reports filed with the FCC, where you'll find factors that could cause actual results to differ materially from those forward looking statements.
To facilitate the discussion of our underlying business the commentary on our financial results and expectations is before restructuring and other charges disclosed in our press release.
On that sales growth numbers are in constant currency, you can find reconciliations between GAAP and non-GAAP measures in our press release and on the Investor section of our website.
As a reminder, references to online sales include sales, we make directly to our consumers through our Brenda onsite and through third party platforms.
It also includes estimated sales of our products through our retailers' website.
During the Q and a session. We ask that you. Please limit yourself to one question. So we can respond to all of you within the time scheduled for this call and now I'll turn the call over to Sabrina.
Thank you rainy and Hello, everyone.
I hope that each of you in good health as the World continues to come from COVID-19.
Uh huh.
It was impacted and our focus remains first and foremost.
The safety and well being of our employees their families and I wasn't sure.
I continue to be in karate buddies pioneered by our employees enduring passion CNET TV <unk> every season.
When you are making a better company and I stand my deepest gratitude.
Our diversified prestige beauty portfolio categories channels, and geographies brands consumer segments and price points.
So many levers to fuel the business both in times, where prosperity as well as you are even more challenging times.
India's most difficult moment, our multiple engines of growth strategy is invaluable.
For the first quarter fiscal year 2021 seats declined only 9% significant sequential improvement driven by every category.
Grants in healthcare in particular had striking progress.
Our hero products and innovations strives and contributed meaningfully to sales we.
We successfully adjusted our cost structure to minimize the leveraging effect open door sales.
Resulting in an operating margin of 22% very close to the first quarter of last year, when we had double digit sales growth.
In different impedance over the last decade, we went through even by different engines lead into prestige beauty share gains each year.
And with that easier to be no different.
Since the pandemic the gun, we estimate that we have grown prestige beauty ship nobody.
We're not we're last earning calls we explained the growth engines of the moment odd the skin care category, you online channel <unk> Asia, Pos <unk> Asia Pacific region.
<unk> delivered terrific performance to begin our new fiscal year.
<unk>, if they lose their brand performed exceptionally well returning to growth in the quarter.
I would buy eats hero franchises in skin care.
Its advanced night repair franchise delivered very strong double digit sales growth.
Encouragingly the brand's success in skin care was broad based as.
Each of the brand new treatment of utilizing Supremes perfection. He mountain I sense nutritious franchises also grew double digits disease, a remarkable achievement when compared to the brands very strong skincare performance in the prior year.
Lemaire had a super quarter with double digit sales growth globally did he then by its continued outperformance of luxury skincare growth in mainland China.
Okay launch obese and you took on Centriq delivered especially strong double digit sales growth even easier in Asia Pacific and consumer so the suit empower. These battery assume we didn't you put that deep on oxi them benefits.
Even amidst dependent make limited he's welcoming many new consumers find the demonstrating that you receive the bullet piece or the brands. So Peter quoted.
At our last Investor day, we discussed growth strategies for each of our large scaling and developing brands and even in these challenging times, we had Richard as you know with focus on old Treaty years did.
That's spent Brent is a beautiful example into developing Ti Brent.
Brent succeed him through these Tata that's times.
A friend contributed to the skin care category growth and of course as the successful launch of installed rescue Super concentrate serum amplified the strength of the brand hero products.
Our acquisition of Dr., Josh we did terrific entry prestige data my brand positioning and desirable hero products enhanced.
Panic sales growth of skin care.
Momentum in the serum watery lotion, and Ikea subcategories carried into the quarter diving skincare growth.
Oh listen launch of its below the new advanced night repair serum total for extraordinary across geographies and channels aided by compelling activation and in over 40% surge in consumers reviews since launch when comparing to the entire lifespan audits.
We've used indoors.
Impressively clinique, even better clean it got interactive serum continues to perform strongly you need sort of course since launch.
We the lever outstanding double digit sales growth online, we'd skincare makeup fragrance and hair care old prosperity.
Once again each of our online channels contributed meaningfully.
We continue to strategically invest you know what brand sites globally, bringing our classic high touch services to consumers online.
The response has been phenomenal we are seeing tremendous growth.
Hi spent on for Chuck do you have trucks right on and Shoppable light streams either.
Even when most retail doors reopened around award sales rose, 60% organically or not what brand sites.
We now have via truck triphone across more brands and categories in more markets.
In the first quarter a loon.
We hosted over 1 million via truck trailer on sessions globally, we've consumer spending more than 30 minutes on average in a session.
In North America, you should know that brand launched AI driven product recommendation based on real time consumer behaviors and past preferences. This dynamic merchandising holds great promise across our brands and regions.
Clinique global sales growth on brine dot com in the quarter was exceptional.
Among the strongest across the portfolio.
Clinique seeking school on demand like three me was a great success, leading to new daily programming that combines top consultants, we didnt lenses to future Holly this sets in favor at the clinic products.
Clinique is our first brand to launch new technology, the peers most people false.
Shoppable lifestream.
Bobby Brown continued to scale eat out these three like never before program.
Standing via truck asked is three to include like shot three boot video consumes patients master classes and live streaming by rapidly converting some of its global makeup asked this into a network via short sellers most of the brands mask is now offered these consultations on Brian.
<unk> com on local social platform, such as what stopped we chat and Instagram. This.
It's a beautiful services had a higher conversion rate up to 10 times, the average and a higher average order value.
We didn't tizing innovation and engaging new services and tools come that's true conversion grew strong double digits across our brand sites. Most compelling is the significant conversion growth in markets that are under penetrated online such as Continental Europe.
In the quarter conversion there grew over 75% Watney Latin America conversion growth fat exceeded 100%.
This positions us well for suitable profitable growth online.
We invested in online fulfillment during the course to strengthening our capacity globally, and we are addressing seasonal fulfillment locations in our largest markets in anticipation of a robust consumer demand for holiday.
Leveraging our investment in technology, we deployed more omni channel capabilities in several markets.
In the U.S., we have seen dramatic EPS steep.
Buy online pickup in store for Mac. The brands also patented it we toss needs domestically to launched same day delivery and open a new spit Entcho store in New York.
The store features extensive personalization options for consumers and interactive digital experiences.
In these initiatives and more we are meeting the desire so consumers who are craving convenience and choice offering then you ways to shop in today's environment.
The third Ngs, so growth Asia Pacific also except several markets contributed to the region high single digit sales growth.
Which is most notable in some markets, Indonesia dealt with new waves of COVID-19.
[noise] mainland, China Korea, and several smaller markets grew organically.
Mainland China, we continue to invest in that vibrant opportunity of our second home market, we expanded into more cities in the course, reaching over 130, we.
We increased our advertising investments across social and digital platforms showcasing exciting innovation building brand awareness as we reach new consumers.
We continue to expanding our talent in anticipation of our new state of our innovation Center, which we opened in Shanghai.
As we aim to best meet the needs of Chinese and Asian consumers with local relevancy in local trends through increased capabilities Im proud to design formulation consumer insights and trend analytics.
In mainland China, the bricks and mortar channel returning to double digit growth side.
Such that both offline and online web powerful growth drivers.
The travel retail channel side of that contribute did even by tremendous growth in heinen passed to lead reflecting increased UTI threep patches limits.
The opening of summer travel card readers in Asia, and online three key growth facilitating higher conversion.
Manufacturing Chinese consumer strides indeed demand from the Chinese consumers was very strong across these channels, most especially in skin care and we estimate we grew our prestige beauty share.
The fragrance category sales growth accelerated in Asia Pacific in the course that we introduced tdm parties and Frederick mouth in mainland China in very.
Very select distribution in June.
These unique like studious brands, proving highly desirable, which coupled with the ongoing trends or the Jo Malone, London, and Tom Ford drove significant double digit sales growth of fragrances.
In Korea fragrance is also soared lit up do you see from 28 sales frightened drove meaningful upside demonstrating the strength of our locally relevant innovation.
Around the World, we continue to closely monitor devolution of consumer attitudes and purchase behavior related to carbon 19th.
We combine sophisticated social media listening capabilities with machine learning and proprietary consumer research techniques to developing sites and adapt our marketing and product offering we speed and agility to capture change in trends.
Looking ahead, we are confident in the return of growth in the challenged makeup category as the recovery will unfold.
In the meantime, we continue to focus on Sept categories, you make up that that fever. It indeed era of masks for Carbonite team in fact, even the leap, we cheeseburger old pressured the liquid leaps up category is growing nicely driven by Max launch pilot keys leak, we leap.
As consumers seek must finish formulas that last.
Our innovation represented over 30% of sales in the first quarter, we have an exciting pipeline of new product launches for the remainder of fiscal year 2021 for both the engine so moment and what we expect to be engines of the future.
You know took clinique launched at most so serge intense replenishing I'd rate or a new formula that hydrates Keane 44, 72 hours in a clean gel formula that drives for dry skin types. These.
Ladies and men's line that will introduce its new Janus sense, delamere concentrate and $9.
And strengths dog low crafted week three stone miracle brought that promotes keen natural rebuilding of college and to help transform the loop upscale during sleep.
Continuing our progress on sustainability outages in tend to be the first prestige beauty brand to bring in advanced cycle to package to market. We did see clear improvement active Chuck cool mask in 2021 deal.
These expands upon clinique. The recent launch of all about clean in packaging with most consumer recycled material and plan the right plastic 42 in most consumer recycled materials for its cap.
For fiscal year 2021, we continue to expect sequential improvement in sales growth each quarter and to be the low vote share while prestige beauty progressively return to growth.
We are mindful of the ongoing impacts of coffee 90, most especially the very limited traffic in retail doors story open and the second waves occurring in certain markets.
We are investing in several strategic priorities intended to drive our long term sustainable growth that progressive in the war Pos called the business acceleration program.
For the second quarter, we have managed he can plan for holiday and 11 11 Global shopping festival.
[noise] holiday merchandising began a few weeks ago and now what brands created to reach Activations with engaging say style projects. If they lose the LMS have Keith that include selling euro projects to drive recruitment origin is making holiday gifting easy offering consumers the ability to text.
Or E mail, a gift, allowing the recipients to either accept but exchange that product before it gets wrapped and send to them.
Bobby Brown holiday wish list. The Luxe collection includes old exploration goods and tools to create ultimate holiday looks and Mac recently that boosted its frosted fire work collection topped ending with a diverse range of beauty influencers, who generated over six.
80 million media impressions in the first 10 days after launching.
To date, we will release, our fiscal 2000 or 26 inches and sustainability report entitled Beauty inspired value driven we are incredibly proud of the contribution of our employees around the world in accelerating our citizenship and sustainability efforts.
And featured their successes in DC as report Derrick.
The report highlights the achievement of our 2020, <unk> as goats, as well as meaningful progress toward our 2025 goals.
These milestones were reached across seat dishes sheep and sustainability priority focus areas. Despite the challenges of dependent.
Im pleased to announce the company has achieved net zero carbon emissions at 100% renewal would have literally sit globally for our own operations building. Upon these achievements. We also met our goal to set science based emissions reduction targets addressing scope, one and two for our data.
Oh variation in school treat for our value chain.
Today announcement signups in new level of ambition and dedication to climate action for just a little bit companies setting targets in line with the latest climate Science Testament to our values and our commitment to managing our business for the long term.
Yes also proud to have reached zero industrial waste to landfill for our manufacturing distribution and innovation sites. We are on track to provide access to training on basic sustainability and corporate social impact programs for our employees worldwide. This month.
In addition over the past two years, our programs that grants focuses on health education and the environment to have positively impacted the lives of more than 20 million individuals worldwide.
Our collective vision is to be the most inclusive and diverse prestige beauty company in the world and to be the employer of choice for diverse talent at the brand of choice for diverse consumers.
Our commitments to racial equality, especially our focus on driving racial equity across our business essential to achieving our vision.
In today's report will be publicly disclosing enhanced employee diversity metrics any information pay equity.
We believe these transparency to all our stakeholders is important to holding our self accountable to our vision, while importantly, setting the stage to share our progress.
In closing there is no doubt that we are leaving and working in a moment like any other and yet we are confident thanks to our passionate employees.
Cherished company values improve and strategy build a multiple engines of growth.
We are well equipped to face the challenges of today and even better positioned to embrace the opportunities up tomorrow and continue growing global prestige beauty share.
I will now turn the call over to Tracy.
Thank you for Brito and Hello, everyone.
As a reminder, my commentary today is adjusted for the items that Randy mentioned at the beginning of the call and net sales growth numbers are in constant currency.
So starting with the first quarter results net sales declined 9% driven by the ongoing effects of the COVID-19 pandemic on our brick and mortar distribution throughout the world.
We achieved strong growth in our global online channel mainland, China, and the skin care category and delivered better than expected results in the travel retail channel and in North America.
Other areas Progressive Lee improved compared to last quarter as retail doors reopened.
In December 2019 acquisition of Dr. chart contributed approximately three points of net sales growth.
From a geographic standpoint, our Asia Pacific region Rose, 7%, driven primarily by strong double digit growth in skincare and the addition of Dr. chart.
Sales in mainland China rose double digits as sales in brick and mortar retail continued to improve.
The pace of online sales growth in China was slower this quarter. Following the highly successful 618 midyear shopping festival programs last quarter.
Most brands and channels rose double digits in China.
Korea Rose high single digits, excluding Dr. chart, and several smaller markets return to growth as well.
Sales in Japan declined due to a tough comparison to the prior year in which sales grew nearly 20% as consumers bought ahead of in October 2019, VAT increase.
The market has also suffered from softer in store traffic due to a second wave of COVID-19.
Sales in Hong Kong continued to be depressed as well due to the pandemic.
Net sales in our Europe, the Middle East and Africa region declined 9% with virtually every market continuing to feel the effects of the pandemic.
Well online growth continued to be quite strong brick and mortar traffic remained soft heavily impacted by COVID-19, which also resulted in significantly lower tourism in key markets.
Skin care sales in the region grew double digits, driven by travel retail, but were more than offset by declines in makeup and fragrance.
The major western markets of France, Spain, and the UK contributed the most to the decline in sales as did the middle East.
Our global travel retail business was essentially flat as outstanding results in greater China, particularly Hainan Island, and Hong Kong and sequential improvement in Korea, offset the effects of the significant reduction in international travel.
Additionally, the growth of pre tail and the increase in duty free purchase limits in Heineken drove higher conversion rates.
Net sales in the Americas declined 24% as virtually all markets in the region continued to be impacted by cold at 19.
Online sales growth continued to be a bright spot rising over 40%.
However, brick and mortar retail remain difficult, especially in department stores and in freestanding stores.
From a category standpoint skincare was the most resilient.
Net sales grew 10% driven by continued strong performance from the Estee Lauder and Lemaire brands in Asia, including travel retail as well as incremental sales from the acquisition of Dr. chart.
Net sales in makeup sales, 32% a significant sequential improvement from last quarter.
Makeup has seen the biggest impact from COVID-19, as many consumers continue to partially or fully work from home and forego social gatherings.
Fragrance net sales declined 13% a substantial improvement from last quarter.
The category grew strongly in Asia, reflecting double digit increases from both Tom Ford and Jo Malone, London as well as the recent launches of killing in Paris, and Fendrich mall in mainland China.
Bath <unk> body and home fragrance sales continued to perform very well.
Our hair care net sales were essentially flat declining only 1% while.
While stores and salons were not operating at full capacity during the quarter. The category benefited from exceptional innovation from a data, including the recent launch of botanical repair as well as strong online sales.
Our gross margin increased 20 basis points compared to the first quarter last year.
Favorable category mix and lower cost for in store testers were partially offset by negative currency impact.
Operating expenses decreased 7% and the deleveraging effect of the sales decline caused operating expenses as a percent of sales to increase 80 basis points.
Joe cost management, and lower selling cost, resulting from both channel mix and the impact of the COVID-19 related temporary furloughs and salary reductions on employee costs resulted in a 20% operating margin, which was just 60 basis points lower than the year ago quarter. Despite the lower sales.
Diluted EPS of $1.44 cents decreased 14% compared to the prior year.
EPS was higher than expected due to both improve sales performance as well as more prudent cost management as doors reopened throughout the quarter.
During the quarter, we generated 358 million and net cash flows from operating activities, which was above the prior year due primarily to timing of working capital items.
We invested $116 million in capital expenditures repaid the remaining 750 million outstanding on our bank revolver and paid 174 million in dividends.
We also announced this morning, a 10% increase in our quarterly dividend to 53 cents per share.
Our plans under the coat the post Covance business acceleration plans are on track with approvals expected to accelerate in the second quarter and benefits beginning to flow later in our fiscal year.
So now, let's turn to our outlook.
We are pleased with the sequential improvement we saw in nearly every market as the world continues to manage the effects of the pandemic.
The path to recovery is not expected to be smooth as cases of COVID-19 have begun to search again in many markets, creating renewed restrictions on travel and social activities.
We are mindful of the risk of a global recession.
Or a slow economic recovery as government support measures in certain markets taper off.
We also recognize macro risks such as ongoing trade tensions and political uncertainty.
Nonetheless, prestige beauty remains a highly desirable product category as evidenced by the sequential improvement in sales trends, we experienced this quarter and we believe our multiple engines of growth strategy positions us well to return to strong global results when the impacts from the pandemic subside.
With only one quarter of the year completed and the degree of uncertainty I. Just described we are not providing explicit sales and EPS guidance for the full year.
However, we will provide some underlying assumptions for the year.
We continued to expect sequential quarterly sales improvement as the global recovery unfolds, assuming no significant second wave, resulting in broad scale retail door closures again or other major disruptive events and we do expect to return to sales growth as of the end.
As of the third quarter.
Comparisons to our record performance in the prior year first half will be difficult.
Conversely, we expect sales and profit to grow significantly in the second half of the year against a period of considerable COVID-19 impacts with particularly strong growth in the fourth quarter.
The inclusion of six months of incremental sales from the acquisition of Dr. chart should add about one to two percentage points to sales growth for the fiscal year.
Remains slightly dilutive to profit for the year.
We expect to close a number of our less productive freestanding retail stores and exit certain wholesale doors, primarily in western markets.
While several of our retail customers are also reducing.
Our store footprint.
Many of the unproductive doors are expected to close later in the fiscal year.
Our gross margin is recovered from last quarter's inefficiencies related to the sudden COVID-19 impact.
Additionally, we continue to invest in increased capacity to support our strong skincare growth.
We will continue to leverage a portion of the savings generated from our cost programs to support advertising and expanding services and capabilities to enable strong growth in our online channel.
As I mentioned before.
We increased our quarterly dividend rate by 10% to 53 cents per share.
We also expect to reinstate share repurchases as we gain comfort that the recovery is more sustained.
So while the environment remains quite uncertain, we are providing guidance for the second quarter.
For the quarter, we expect sales to decline between four and 6% in constant currency.
As a reminder, we're comparing against a record prior year quarter, where we delivered 16% sales growth and 21% EPS growth last year.
We have a robust lineup of holiday offerings at a variety of attractive price points that are carefully targeted to relevant consumer trends. We are seeing during this pandemic.
And we expect continued strong online sales at our retailers and on our own brand sites.
The incremental sales from Dr. jar are expected to add about two points to growth and currency is expected to be accretive by approximately one point.
We expect second quarter EPS of $1.45 to $1.60, reflecting the sales outlook continued cost containment measures and investment in key growth areas like online innovation in China.
Currency is expected to add two cents to E. P S and Dr. John is forecast to dilute yes by three cents.
We will continue to leverage our multiple engines of growth to invest behind a strong recovery in the context of the macro environment.
We are taking strategic actions to support long term sustainable growth by investing appropriately for the long term, while supporting the recovery in the near term.
With a more solid start to the fiscal year and mindful of continued macro volatility over the next several months, we look forward to leveraging the tremendous strength of our brands and driving a strong recovery as the market accommodates.
And that concludes our prepared remarks, we'll be happy to take your questions now.
The floor is now open for questions. If you have a question simply press on the Star key followed by the digit one on your Touchtone telephone to ensure that everyone can ask their questions. We will limit each person to one question time permitting we will return to you for additional question.
It's just queue up again by pressing the star key and the debt you want.
And our first question is going to come from the line of Lauren Lieberman with Barclays.
Great. Thank you good morning, everyone.
Oh my.
My question was about about channel makeshift both longer term and and in the quarter itself and for for fiscal 2001. So first piece of it is just over the longer term with the things Youve already talked with an acceleration of ecommerce growth.
Curious if you think it's fair to say that half of your margin expansion over the next several years come from that that channel mix dynamic.
The second was that as we look into fiscal 2001, and how we should be thinking about the benefits of channel mix on one hand, but then the drags that you will experience as less productive doors get close to the degree that there is stranded costs that come with that or what you know what the impact of a door closures on.
Your own doors, and also wholesale doors or customers choosing to close doors. The at what impact that has on the PML in the in the short term. Thanks.
Yeah, I'll start with increasing will join me and you answer but basically.
Uhhuh law, we're accelerating Penguin grows by channel.
Our.
More profitable and Thats the good news.
On the other side, we have to delever, our brick and mortar.
TBD back to normal and these obviously would be influenced by how fast caused it.
Tai and how fast they consume I get the confidence gained two going become more stuff and as you as you said by managing some closures.
And then we need to turn the total company into growth. This three as he said we believe this would be possible as of course the tree and.
And so the combination of the.
Improved accelerating end user growth, which are more profitable and the reestablishment of booties your brick and mortar will determine when we can go back to our long term written growing about half emerging point.
Per year.
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Yeah, and and Lauren as you indicated I mean timing is will really impact that so in terms of you know when we expect door closures to occur you know we've already had a number of wholesale door closures in freestanding door closures over the last few years. When you think about the number of retailers.
Is that have have gone out of business. Unfortunately in the last couple of years and Ah and certain retailers have also indicated their intent to close doors over over the next couple.
A couple of quarters with our post covet acceleration program, we too will be closing doors over the next.
A couple of quarters more towards the end of the year as well as some freestanding stores.
So there will be a timing issue, where we do see pressure from underproductive brick and mortar doors, while we see the uplift that separates you spoke about from our online acceleration.
And that's all embedded within the guidance that Weve given certainly for you know for the second quarter and a and we'll see how the second half of the year plays out, but that's certainly a dynamic that we will be managing in fiscal 21 as a as the.
The foreclosures are staged throughout the balance of the year and into fiscal 22.
Thank you. Our next question will come from the line of Dara Mohsenian Morgan Stanley.
Hey, good morning, guys.
Good morning.
So for Brito I was hoping maybe you could give us some perspective on how much of the increase E commerce demand you've seen since the beginning of the pandemic is sustainable in your mind as you look out longer term and perhaps within that can you detail with the E. Commerce sales increase you've seen during the pandemic how much of that.
Do you think is driven by new customers what level of repeat rates, you're seeing among those new customers.
Yeah. So first of all these degrees over line is a store identity. During this quarter in total we were growing about 40% but.
But our brand or calm and others and other sundry datacom green much stronger brand or call it 60%.
So the.
The growth is consistent in and I believe personally is here to stay.
Sorry, and the reason why you have to stay because the lot of these growth is about to new consumers that we see we see online and many of these new consumer mature consumers and be before or line was mainly the destination of younger people millennials et cetera. Now is the communities for everyone everyone is online.
Also the people that before we're not the cost of the go there I go in their models. So what we see is that.
People buy online maybe in the future. When this store will be open we believe that omni channel, we will be very strong and so people will use both brick and mortar and online obviously, but the amount of postures on line, we'll see higher and particularly we see higher in now.
In the mature group of consumers, which are very important for us is very important for viewed so this is a sustainable trend and it's sustainable acceleration. The second thing, which is which is very important is that historically, how a high touch services of.
Advice.
Certainly so customization of the city or trying to products.
Was exclusively done.
In the in stores and online at the beginning was mainly a convenience buying opportunity deal what you review.
Shelf was in brick and mortar buying was online. This is changed forever now that he's shopping in brick and mortar entities shopping online what I mean would that is that the high touch services of customization of the advice recommendation on now Super price until line and the consumer is really a kit.
So the service like never before so we spoke in our prepared remarks about the video chats with consultancy, but it'd be too beautiful trying on the better because you live streaming opportunities. All these is increasing and the engagement of consumer aligned is increasing we mentioned that.
We have 30 minutes price until mutual trying on this is only a few minutes in the past so the combination of new consumers, particularly more mature consumer vector services online. We just try one more time and more engagement and the development of these opportunity for everyone.
He is going to be it's sustainable and growing segment for many years to come.
But obviously, we absolutely believe that omni channel beyond simple its own diffusion and the brick and mortar. We go back to the right level of TV due to the right level of traffic.
And that would be a combination of the two there will be an even better combination data in the past.
Thank you. Our next question will come from the line of Dana Telsey with Telsey Advisory group.
Good morning, everyone and nice to see the progress as you think about the makeup category. How are you planning for innovation going forward what does the timeline look like and also for beat so when you talk about channels. What are your thoughts on the specialty multi channel going forward. Thank you.
So.
I will talk to you in makeup we got back to be a very attractive and very fast growing category once called it.
And is.
The mix is very much linked to use educations for makeup and the usage occasion for makeup include business obviously meetings.
Into the office includes a social gathering of any kind and include those policies the mood of recovery in the <unk>.
Interest of expressing over sales and so the.
All these we've come back that we come back strongly in makeup we come back we did.
As we said in the prepared remarks.
Certain categories, and the cap, which has already coming back or maybe growing he's VZ bold and makeup is much stronger where coffee the bait like in Asia.
And so he is obviously going to come back.
And we will be ready for that we are preparing stocking from the categories that you now will opinion, we come back first and and we are investing today in radio to sustain the recovery, but also investing in innovation into categories that will be the first one to come back if you dig today's reality for example, I mean cap.
Stronger than other categories, just because you know Peter Demosky, Hi makeup is more relevant than out of the leaps.
And so is it that there is a very positive trend in I will if you know just a matter of time into time will depend on the calls.
In terms of your second part to your question of specialty mostly around the award we remain a very strong channel they switch on that for us.
Strong channel of growth and specialty moves to the strength.
Those would be the defended the retail the Oklahoma just channel should continue to increase as we get out to be very very strong is the specialty multi.
A key opportunity is to continue to be strong.
Stuart, obviously, but particularly.
To become equally strong into retail comp and to bring the services and experiences that being so strong in brick and mortar to David calling into long term everywhere in the world.
Thank you.
And our next question will come from the line of Steve powers with Deutsche Bank.
Yes, Hey, good morning. Thanks.
Can we just talk a little bit more about the exit rates and consumption coming out of the first quarter and what you're seeing in terms of momentum with a little bit more granularity whether by geography or category channel. How do you think is most constructive.
And if you're able to share a little bit of data around October results that would be great. Because we clearly saw volatility in shipments shipment timing over the course of the September quarter. So I'm, just curious as to how you're thinking about that month to month Lumpiness as we look through and out towards the end of the calendar year as well. Thank you.
Yeah, I'll start and plus trees, yet any perspective is you understand correctly. Your question. So D. D. The strength by category is consumption is clearly in skin care and DC remains very strong and in certain region fraud, and accelerating and we didnt skin care.
Certain subcategories like most rise of serum masks, which really flying or I products targets for the two.
Et cetera, so the skincare and certain skin care categories is clearly the fastest growing consumption mid cap I just answer one question to me caps dependent by category I'm Macaca strong consumption for simple leap midcap is under pressure in this moment.
But even with these we didn't cover these allow us to focus more on the gross consumption. They just got flagged.
Surprisingly back faster than what we originally thought and this is great news for the holidays. In fact, we have we are ready to try to push fragrance is feeling the best possible way during the holidays that we believe is a big opportunity, particularly our high end fragrances in our seasonal sciences lightroom alone.
For keeping.
Keeping the lid up boys doing this through.
So.
Then hair care as I think three is explained in her prepared remarks that veeva is doing exceptionally well for us.
He is.
Heading great innovation, a great program great work online in support of also do some loans, we davita and and these brand. He's also heating old years, because it's obviously these about Nashville and.
Is about taking care of the award and so he is also very much into the consumer space of sustainability and disease, South deep deep big dividends. So hair care also strong consumption. So Nick bike category is a skin care strong healthcare strong fragrance recovery in Macau is the most.
Good idea of recovery that we assume for the for the long term.
Intermodal the dynamic of the regions. Obviously, you have a consumption recall that in Asia, which is much faster than anyone else and the commentary in the U.S. and in Europe.
The impact of call. If you recall that is being is being much weaker.
But we see progress everywhere that's important I think the important thing is that the level of progress. These recoveries consistent every part of the world. Despite the Asia is ahead in the trend of the call.
And that internal consumer groups.
Consumption.
I found particularly interesting that it consumption has been extraordinary in the more mature consumers and that's what we see that use a long term benefit I mean, the younger consumers being the driver of many Catholic particularly makeup.
And in just a moment, that's less the case, but the mattoon consumer being and be more fully in the younger consumer in the last probably five years. So I think this is changing and the mature consumer getting a much more active even in this duty mentoring and try new innovation and again. This is for US is a very positive sign for the long term so consumption.
Overall is gradually recovering and he's a good idea and recovery across every segment with very different victim speed by segment.
And then in terms of the the the amount for the second quarter October came in is coming in as as we expected so and a and it is reflected in our guidance. So I know we had starting in July a little bit.
Oh, they shipment to a you know to 'em, we start the business given the fact that some of our inventory levels were low, particularly in North America, and we don't see anything like that in the second quarter on and as you probably know Steve October is the smaller of the three months in the second.
Quarter, Obviously November and December with for US those singles day in China and in Asia as well as holiday November and December are by far the two bigger months.
Yes, thanks, so much.
And our next question will come from the line of Erinn Murphy Piper Sandler.
My question is around travel retail it improve very nicely in the quarter can you just share a little bit about how much was driven from the higher duty free allowances and her non island and then how are you thinking about travel retail for the balance of the year. Thank you.
Travel retail at an exceptional performance and clearly the the way many Europe and the Americas.
They vary basically close very very smooth committees booze traveler. So the first thing is that the recovery has been driven by Asia and within Asia. There are three elements, which are driving these recoveries. The first as we discussed.
The acceleration of domestic travel within China, we time at the center of that and.
Hi, Anna is been seen both in increased traffic many domestic too.
That came back at a very high percentage of team to the numbers published they are reading about 80% today started getting into trouble and and internal try something and then decrease a possibility to bind to consumers that together have generated a very big growth.
We have seen and we believe disease. So sustainable then there is the opening on certain Catarina, usually we just started a studio Kong.
Macau and did we see and Korea is also starting to be more and more solid so and that is the three key community on line the ability to reserve.
A broader which is accelerating that I'm asking.
No matter, where the consumer a still a concern to go in stores with a lot of people.
The ability to do pretty easy serving their pools.