Q4 2021 Estee Lauder Companies Inc Earnings Call
Good day, everyone and welcome to the Este Lauder companies fiscal 2021 fourth quarter and full year 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.
This range of them and see me.
Hello on today's call are Fabricio, Freda, 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 SEC, where you'll find factors that could cause actual results to differ materially from these.
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 and adjustments disclosed in our press release, unless otherwise stated all net sales growth numbers are in constant currency and all organic results exclude the impact of acquisitions divestitures and branch closures and the.
<unk> of currency translation.
You can find reconciliations between GAAP and non-GAAP measures in our press release and on the investors section of our website. As a reminder, references to online sales include sales may make directly to our consumers to our brand dotcom sites and through third party platforms and also includes estimated sales of our products. The retailers' websites during the Q&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 Fabrizio.
Thank you Randy and I don't have anyone I hope you and your families. Good health and our Hearts continue to be with those impacted by COVID-19.
We delivered outstanding performance, Amit attaining in fiscal year 2020 were capped with an exceptional fourth quarter empowered by our dynamic multiple engines of growth strategy as well as timeless desirability of prestige beauty.
Pain in total our employees Kid 40 charter their families and our company with compassion creativity and results.
The challenges of COVID-19 persist.
We confidently begin fiscal year 2022, as a stronger company full of aspiration for the opportunities of tomorrow.
For fiscal year, 2021 sales rose, 11% as we pivoted, our energy and resources to the growth engines of skincare fragrance Asia Pacific travel retail in Asia Pacific and global online impressively eight brands grew double digit.
It's led by Este, Lauder, La Mer, and Jo Malone London.
Most people in the waves and variance of <unk> 19 to extent, your central which ware and expected a year ago drove volatility and variability throughout the year, we saw reopening reserved to closing and reopening as even when market matched with renewed lockdowns in other markets. Despite the.
We delivered on the goals, we set last August for sales growth to improve sequentially each quarter.
Our sales exceeded $16 billion, that's for the first time ever after 9% from fiscal year 2019 on a reported basis fueled by skincare and fragrance.
Adjusted operating margin expanded to 18, 9%, which is went ended and 40 basis points above fiscal year 2019, as we invested into these strongest growth engines manage cost with discipline and funded long term goal.
With opportunities.
Adjusted diluted earnings per share rose, 21% relative to two years ago.
We believe these excellent results, while pushing our social impact and sustainability goals and commitments.
First and foremost we remain focused on employee and consumer safety and wellbeing.
We achieved important milestones for our 2025 sustainability goals.
Standard, our inclusion and diversity and equity programs defined strategy for women's advancement and gender equality and advanced work toward our racial equity commitments here.
Among the many areas of our progress.
We achieved net zero carbon emissions and went under percent renewable electricity globally for our own operations.
We also set science based emissions reductions targets addressing scope, one and two for our data integration and certain elements of scope three for our value chain signaling our new level of ambition for climate actions.
We launched ingredient blast series four seven additional brands such a debt 11 brands now offer these insightful content.
We transformed our traditional inclusion diversity and equity week into a blockbuster directorial experience with 35 events involving thousands of participants from 25 countries. We also introduced new educational offerings, including <unk>.
For anti racism and inclusive leadership.
We expanded our gross root led employee resource groups, which served as a source of support and comfort to out the two moved all the last year.
The women's leadership network is our largest group and he is now global with its expansion into Latin America and Asia Pacific.
We created two new leadership programs for women and black employees.
And our women's leadership program is a unique intensive course to develop our next generation of women leaders.
Building on its success, we designed the open doors collection self guided program to bring these leadership skills to all our employees around the world.
The photo every chair of leadership and development program and successfully helped to ensure the black employees, an equitable access to leadership training mentor ships can read the development and advancement opportunities as well as to build a stronger more inclusive network of talent.
Across the organization by promoting visibility and facilitating leadership connection points with participants.
Our new partnership with <unk> University focused on eats illuminate.
Hosted 12, engaging events and launched and accelerate a program to help increase the pipeline for black talent with Korea coaching professional training says empowering network.
Let me now turn to product innovation, which serves as an impactful catalysts for growth in fiscal year 2021 innovation represented over 30% of sales exceeding our expectations, we combine data analytics with our creative talent and air.
N D to successfully anticipate scale and set trends across the categories. The.
The Este Lauder brand achieved its fourth consecutive year with double digit sales growth in fiscal year 2021, she will buy strengths across its many hero franchises in skincare.
Trusted products, along with innovation, we're highly suite from Shanghai to New York, Paris, and now Sao Paolo.
The brands well received launch in Brazil.
Advanced night repair a newly reformulated season pocket excellent sales growth. It is analyzing supremes, new Supreme Bride and most of that is it farther bolstered the accelerating franchise.
The new trade, new ICU surged and created a halo effect on demand.
In makeup the brand's dabbled with Kyushu, These and pure Florida franchises produced significant double digit sales growth in the fourth quarter and exciting early signs on makeup Renaissance.
La Mer delivered outstanding double digit sales growth in the fiscal year as innovation soared and engaging campaigns with a colony ingredient based narratives drove demand 40, Kilo province, the new Genesis sense did I may have concentrates at night bulb proved highly.
So after an expanded the brand's ultra luxury franchise is it both welcome new consumers and captivated nordea consumers globally.
Clinique skincare extended in fiscal year, 2021 sales rose double digits empowered the brands to high single digit safe schools.
The brand successfully met consumer needs through the launch of most of their surged 100 hour.
We did unique hydration benefits and Todd a good solution for hard to solve skincare probe like even better clinical interrupted.
Clinique showcased its promise for makeup in our songs, we stay low double digit category growth in the fourth quarter with the new even better our clinical serum foundation, and even better concealer, capitalizing who need skincare authority.
All told our robust skincare portfolio from entry prestige to luxury and across subcategories fulfilling this surely needs around the world.
Doctor Josh we.
With its absolute debt in my brand positioning and hero products delivered strong double digit organic sales growth in the second half of fiscal year 2021 in Mi we amplified the strengths of our skincare portfolio as we became majority owner of DCM with its cognizant.
Ingredient based brand the ordinary and emerging science, driven meal brand as part of its portfolio.
Complementing skincare strengths fragrance delivered striking sequential sales growth acceleration throughout the year each of our luxury and artisanal fragrance brands contributed meaningfully from Jo Malone, London, Tom Ford Beauty Liberal Kilim parties and free to read model in both the.
Stablish fragrance markets of the west and emerging fragrance market of the East Tom Ford Beauty private blend franchise is both recruiting new consumers and driving strong repeat in markets newly embracing the category with the brand's dragon saved more than doubling in mainland China.
During the year.
The Asia Pacific region was another dynamic growth engine in fiscal year 2021, as annual sales growth accelerated from 18% to 22% led by mainland China, where sales rose strong double digits Korea grew.
Italy seven it was molded markets also contributed to Asia Pacific strengths there.
The region, however experienced increasing pressure from the pandemic as the year evolved with Japan, and many markets in southeast Asia, particularly impacted from renewed lockdowns in the second half.
Mainland China prospered as we invested in its vibrancy of today, an opportunity of Tomorrow. We entered most cities, reaching 145 expanded our presence in specialty multi opened freestanding doors and increase our advertising spending skincare Friday.
<unk> sales grew strong double digits for the fiscal year, we are encouraged that the Macau accelerated to double digit sales growth in the second half hour.
Our brands deliver excellent results for the key events of T. Mobile's 11, 11 Global shopping festival and seeks 18 media shopping festival is engaging live streaming generated provost discovery for many new consumers.
The recent 618, among Tmall beauty flagship stores, the Este Lauder brand ranking number one in total duty Y La Mer ranked first in luxury beauty and Jo Malone, London led the fragrance category.
To further capture the market to receive online growth opportunity, we are continuing to invest in T Mo and brand dot com to expand our capabilities. Most recently some brands increased coverage of the different demographic by launching on J D E July.
With international travel largely curtailed we expanded our investment in the dynamic travel retail development of Hainan Island to serve the Chinese consumers in the best possible way, even the island tremendous traffic growth and higher duty free pouches and the unions.
Our brands further elevated the in store and prepaid shopping experiences delivered ideal merchandising and leveraged with live streaming to drive strong sales growth.
Looking at channels.
Line stride globally in fiscal year 2021 characterized by strong double digit sales gain and step change in its power as a growth engine.
We accelerated our consumer facing digital infrastructure and fulfillment investments to <unk>.
<unk> is now more than twice as big as it was two years ago and greatly benefits from its diversification at each brand comp third party platforms retail dot com and pure play retailers delivered outstanding performance.
During the year brand dotcom came to epitomise their new luxury flagship store for each brand's localized by market and re imagine with our classic high touch services, we expanded <unk> triangle life streaming omnichannel capabilities and consultations.
With our expert beauty advisors.
Consumers are all ages explored replenished and engaged in an immersive environment of entertainment and community.
Our brands increasingly leverage the exciting trends in social commerce by integrating with Instagram Wechat, Snapchat and others.
The Lauder launched on Tictoc with the night done right.
Back driving nearly 2 billion views and the creation of almost 2 million videos each challenge us diverse creators to educate the younger audience on how important is to take care of your scheme at night showcasing advanced night repair.
Clinique ZIP happens campaign, so it ticked up became a viral sensation highlighting the brand academic solution and supporting the creation of nearly seven and the housing devious on yet.
Together these and other strategic actions deliver exceptional results for Brenda com as new consumers conversion basket size repeat and loyalty members grew considerably beyond the favorable growth rates. The direct relationship we fostered with consumers enabled us to better optimize.
Engagement in store and online offering exciting future growth opportunities.
We are investing across all channels online collaborating with traditional and pure play retailers on initiatives to actualize prestige beauty online potentially.
We spoke on the last call about having expanded our presence with pure play retailers, which continued into the fourth quarter, most especially in EMEA.
And as I discussed a few minutes ago, we are expanding our consumer called <unk> in mainland China.
For fiscal year 2022, we expect these growth engines of skincare fragrance Asia Pacific travel retail Asia Pacific and global online to continue to try.
Moving to our strong repeat purchase rates sophisticated data analytics to drive consumer acquisition and retention high touch online services and robust innovation pipeline.
Three compelling skincare innovation recently launched Este Lauder, New advanced night repair eye matrix is focused on lines in every <unk> y la Mer.
Rating infused emotions is designed to replenish strengthen stabilize scheme.
Healy moisture and has already proven to attract new consumers Clinique smart clinical repeated wrinkle, Quebec and see room is designed to visibly reduce stockburger lines.
Our Shanghai Innovation Center is expected to open in the second half of this fiscal year and reaching our capability in product design formulation consumer insight and trend analytics for Chinese and Asian consumers.
So with the New center, our east to West innovation will benefit, enabling us to create more successes like Este Lauder futures, IBRA or Supreme bright and la Mer treatment lotion.
As the war the nerves from the pandemic, we will be the best diversified pure play in prestige beauty is more engines of growth contribute across categories geographies and channels.
Makeup and hair care poised to gradually re night as growth engines, and our developed markets in the west and brick and mortar retail growth in emerging markets is expected to the shoe boogers time as vaccination rates increase.
We anticipate the momentum in the cap will build around the world driven by local reopening and increasing social and professional usage occasion.
Just as we saw in the fourth quarter.
Indeed makeup started to improve to the end of fiscal year 2021, driven by our hero sub categories of foundation in Muscat newness in the category was highly sought evidenced by the success of Max Magic extension, the scatter to face lip plumper.
Smashbox hollow tinted moisturizers and Bobbi Brown, she impressive power co.
Contributing to make up emerging Renaissance Mac launched Mark the moment a campaign linking each makeup products in artistry inspire trends two key experiences such as they denied parties weddings and better schools shopping.
<unk> expanded into browse in July with a collection that includes an innovative but I would just add color and texture.
Similar to Macau have cap is set to benefit from the rise of social and professional use education as well as some of them are reopening.
Aveda, which is now 100% vegan.
And bumble and bumble enter fiscal year 2022 with momentum owing to desirable innovation and reached consumer engagements from strong online performance globally over the past year.
As makeup and hair care and yet.
We expect our engines of growth, we gradually diversify by geography in China initially driven by developed markets in the West and August time by emerging markets.
In the United States, the fourth quarter, we aligned the innovation advertised spending any stood up divisions as consumer returned to stores eager to explore beauty and speed and high touch services across brick and mortar from regional and National Department stores specialty multi and.
Freestanding stores, our business in the United States prospered, most especially in makeup and fragrance and exceeded our expectations as we start our new fiscal year Bobbi Brown recently debuted in Ulta beauty several of our brands launched online and in store with Sephora.
At Kohl's and Ulta beauty target.
In closing.
We leveraged the power of our multiple engines of growth strategy to elevate the company to new Heights in fiscal year 2021, we did this while leaving our values with the health and wellbeing of our employees is primarily focused in making posts on progress on our social impact.
Commitment and sustainability goals, our success and agility in operating Ami the challenges of the past year give us confidence for fiscal year 2022, as we expect volatility and variability from the pandemic to persist for some time to come.
This year, we are celebrating our 70 <unk> anniversary as a company and beginning our next 75 years incredibly inspired by the opportunities of tomorrow as the leading global house of prestige beauty with the most talented employees to whom.
I stand my deepest gratitude.
I will now turn the call over to Tracy.
Thank you Fabrizio and Hello, everyone.
Concur with Fabrizio and thanking our incredible team who have demonstrated great resilience during the pandemic.
Now the gating through the highly uneven recovery. This past year has certainly required greater agility and flexibility and our teams across the globe rose to the occasion delivering superb results for the fiscal year, while also establishing a stronger foundation for future growth and profitability.
We delivered exceptional net sales growth of 56% and our fourth quarter as we anniversary pandemic related store closures in the prior year period.
The inclusion of six weeks of sales from does Sam added approximately three points to growth in the quarter.
Our performance also exceeded the pre pandemic levels of the fiscal 2019 fourth quarter by 9% driven by significant sales increases in mainland China.
Skincare and fragrance categories global online and travel retail in Asia.
All three regions grew in all product categories within each region grew during the quarter.
Net sales in the Americas region rose, 86% against the prior year period with almost no brick and mortar retail opened.
Throughout the quarter consumer confidence in the U S grew as Covid restrictions abated and people resume shopping in stores again.
Our brands responded with strong program supporting recovery, new product launches and animating key brand shopping events like mother's day.
Sales in the region remain below fiscal 19 levels for the quarter, reflecting in part the loss of over 900 retail locations that represented nearly 170 million in annual sales.
Additionally makeup has historically been the largest category in the region and the category has yet to fully recoup sales lost during the pandemic. Nevertheless, we are encouraged by the sequential acceleration in North American sales, which has been better than we expected.
Net sales in our Europe, the Middle East and Africa region increased 65% with all markets contributing to growth as COVID-19 restrictions eased throughout the quarter.
Global travel retail, which is primarily reported in this region continued to suffer from a significant drop in international passenger traffic, but grew strong double digits in the quarter as comparisons ease and local tourism in China, especially the Hainan remained robust.
Across developed markets in the region store traffic has begun to pick up and retailers have become more comfortable with restocking.
Emerging markets in the region saw strong retail in the quarter driven by locally relevant holiday activation retailer events and online performance.
Sales in the region were slightly above fiscal 19 levels for the quarter, primarily due to the resilience of travel retail.
Net sales in the Asia Pacific Region Rose, 30% virtually every country contributed to grow although the pace of improvement varied widely among the markets and a resurgence of Covid has slowed a full recovery.
Sales of our products online continued to rise strong double digits in the region driven by the successful 618 shopping festival campaign in China.
And including the continued strength of social ecommerce.
Mainland China continued to experience robust double digit growth with broad based improvement across product categories brands and channels.
Other markets in the region, including Korea, Hong Kong, and Japan grew exceptionally against prior year brick and mortar locked down.
Sales in the region were 50% above 2019 level.
Largely reflecting China's rapid emergence from the pandemic last year.
Net sales in all product categories grew sharply this quarter and skincare fragrance and hair care drove higher sales in fiscal 2019.
Fragrance led growth with net sales rising 150% versus prior year.
Luxury fragrances resonated with consumers looking for self care and indulgence and among Chinese consumers increasingly attracted to the category.
Home Bath and body products have also gained traction during the pandemic and help to attract new consumers.
Jo Malone, London saw recovery to pre pandemic levels in brick and mortar and the brands Blossom and Brit collections were popular in Asia.
Standouts from Tom Ford Beauty include the recent launch of Tuberose Nu.
And the continued strength of better Peach and rose prick.
Net sales in makeup jumped 70% against the prior year that reflected the greatest beauty category impact of COVID-19, particularly in Western markets, where makeup is the largest category.
The makeup category in prestige beauty has proven to be especially sensitive to brick and mortar recovery due to the use of testers and in store services by consumers.
Este Lauder saw strong growth, a futurist and double wear foundation in Asia, and Mac liquid lip color and eye products, especially mascara outperformed.
<unk> net sales grew 52% and salons and stores reopened the launch of the Vedas Blonde Revival shampoo and conditioner also contributed to category growth, adding to other strong innovation programs over the past several months from Aveda.
Net sales in skincare continued to thrive.
They rose 42% in the quarter driven by strong increases from the La Mer Este Lauder, Clinique and Doctor chart brands, particularly in Asia.
Skincare sales growth also benefited from the addition of deathly them in the quarter by approximately four percentage points.
Our gross margin improved 650 basis points compared to the fourth quarter last year. This favorability reflected significant improvements in obsolescence and manufacturing efficiencies compared to the prior year impact of COVID-19 on our sales and on our manufacturing locations.
Operating expenses rose, 36% driven by the planned increase in advertising and selling cost to support the reopening of retail and the recovery. Additionally, we sharply curtailed spending last year in response to the onset of the pandemic and some of these costs were reinstated primarily compensation.
We delivered operating income of 385 million for the quarter compared to a $228 million operating loss in the prior year quarter.
Diluted earnings per share of <unk> 78 cents included two cents of favorable currency translation and two cents dilution from the acquisition of death him.
Our full year results reflect the benefits of our strategic focus as we leaned into current growth drivers and invested behind future areas of growth, while effectively managing both cost and cash.
The sequential acceleration of our business throughout the year culminated and net sales growth of 11%.
The strength of Chinese consumer demand, both at home and in travel retail the resilience of the skincare and fragrance categories and the momentum we drove in our online channels all supported our growth.
Our distribution mix continue to evolve even as brick and mortar reopened.
Sales of our products through all online channels continued to thrive as they rose 34% for the year and represented 28% of sales.
Despite the continued curtailment of international travel our business in the travel retail channel grow ending fiscal 2021 at 29% of sales.
Among brick and mortar retail specialty multi and perfume Reis grew while department stores and freestanding stores experienced the greatest impact from the ongoing pandemic and declined for the year.
Our gross margin rose 120 basis points to 76, 4% driven by favorable pricing lower obsolescence increased manufacturing efficiencies and lower costs for testers in stores and partially offset by currency due to the weakening of the U S. Dollar.
Operating expenses declined 300 basis points to 57, 5% of sales.
Selling and store operating costs decreased as high service stores were either closed for part of the year or are they reopened with reduced traffic and staffing levels.
Additionally, in store merchandising cost decreased while advertising investments, primarily digital music media rose faster than sales to support our brands in the recovery we achieved.
Significant savings from our cost initiatives, including leading beauty forward and the preliminary benefits from the post Covid business acceleration program and this gave us the flexibility to reinvest and necessary capabilities absorbs some of the inflation in media and logistics costs as well as support the reinstatement of certain compensation.
<unk> elements that were reduced our frozen due to the onset of the pandemic.
Our full year operating margin was 18, 9%, representing a 420 basis point improvement over last year, and 140 basis points above fiscal 2019.
This year also includes 50 basis points of dilution from the inclusion of Doctor chart and Duffy them.
Our effective tax rate for the year was 18, 7% a decrease of 450 basis points over the prior year, primarily driven by the geographic mix of earnings which included a favorable one time adjustment for fiscal years 2019, and 2020 related to recently issued guilty.
Tax regulations.
Net earnings Rose, 57% to $2.4 billion and diluted EPS increased 57% to $6.45.
Earnings per share includes 11 cents accretion from currency translation and eight cents dilution from the acquisitions of Doctor chart, and I see them.
In fiscal 2021, we recorded 148 million after tax or <unk> 40 per share of impairment charges related to our smashbox and glam blow brand as well as certain freestanding retail stores.
Restructuring and other charges related primarily to the post Covid business acceleration program were 176 million after tax or <unk> 48 per share.
These charges were more than offset by the onetime gain on our minority interest in <unk> of 847 million after tax or $2.30 per share.
We have closed nearly 500 doors or counters, including about 50 freestanding stores under the program in fiscal 2021. We also closed approximately 100 additional freestanding stores outside of the program and upon lease exploration, primarily in North America and in Europe.
We realigned our go to market organizations to better reflect our evolving channel mix. We are also winding down certain brands, such as Becker and Rodin.
These actions are expected to continue into fiscal 2022.
For the total program, we continue to expect to take charges of between 400, and 500 million through fiscal 2022, and generate savings of $300 million to $400 million before tax by fiscal 2023, a portion of which will be reinvested.
We continue to focus on maintaining strong liquidity, while also investing for future growth during the year.
Cash generated from operations rose, 59% to $3.6 billion, primarily reflecting the higher net earnings.
We utilized 637 million for capital improvements supporting increased capacity and other supply chain improvements further E Commerce development and information technology.
We repaid $750 million of debt outstanding from our revolving credit facility.
Issued 600 million of new long term debt and retired $450 million of debt.
We used $1.1 billion net of cash required to increase our ownership interest in D. C. M and we returned $1.5 billion in cash to stockholders during the year via increased dividends and the reinstatement of share repurchase activities in the second half of the fiscal year.
So looking ahead to fiscal 2022, we are encouraged by the increasing vaccination rates and reopening of markets around the world.
We look forward to the resumption of international travel increasing foot traffic in brick and mortar retail and the development of our recent acquisitions. We are still mindful. However that the recovery has involved unevenly and some markets are seeing their third or fourth waves of COVID-19, including increasing effects of.
New more contagious strains of the virus hindering a return to normal life.
This has been particularly evident in the U S over the past several weeks Additionally, increasing climate and geopolitical events make it difficult to predict the corresponding impact on our business.
Nevertheless, given the strength of our programs, we are cautiously optimistic and therefore, providing a range of sales and EPS expectations for the fiscal year caveat it with the following underlying assumptions.
Progressive recovery in the makeup category as full vaccination rates increase.
And mask wearing abates in western markets during the first half of the fiscal year.
Beginning of the resumption of international travel in the second half of the fiscal year.
The addition of new retail accounts for some of our brands should provide broader access to new consumers, notably through Sephora at Kohl's and ultra at target in North America.
And the addition of J D Dot com in China online.
The inclusion of incremental sales from Duffy I'm benefiting sales growth for the fiscal year.
Primarily in the Americas, and EMEA region and in the skincare category.
Pricing is expected to add approximately three points of growth, helping to offset inflation risk and freight media labor and commodities.
Increased advertising support as markets reopen and further investment behind select capabilities, including data analytics innovation technology and sustainability initiatives, while maintaining good cost discipline elsewhere, we forecast increasing benefits from our post COVID-19 business acceleration.
Program as it ramps up this year.
Approximately $200 million of the cost we cut during the pandemic are expected to be reinstated.
These primarily include hiring travel and meeting expenses furloughs and other leaves of absence and compensation.
In addition to these assumptions there are a few non operating items you should be aware of as you adjust your models.
Our full year effective tax rate is expected to return to a more normalized level of approximately 23% from 18, 7% in fiscal 2021.
Net interest and investment expense is expected to be around $150 million. The increase is primarily due to the comparison to last year. When we recorded the benefit of our minority interest in does see him through may 18th 2021.
At that time, we acquired a majority ownership and does see them and we began to fully consolidate the entire business and deduct a portion of the income we don't own as a charge to net earnings attributable to Noncontrolling interests.
This charge is expected to be less than $5 million in fiscal 2022.
Net cash flows from operating activities are forecast between three 2% and $3.4 billion.
Capital expenditures are planned at approximately 5% of projected sales as we develop additional manufacturing and distribution capacity, notably for the building of our new facility in Japan.
We also expect to fund more robust research and development capabilities in China, and North America increase.
Increased investment in technology, and support new distribution and e-commerce for our brands.
Our Capex plan for the year also includes some spending deferred from last year.
Also beginning in fiscal 2022, we plan to entry introduce the concept of organic sales growth in our earnings materials and investor presentations.
Organic growth adjusts reported sales growth for both currency and changes in structure, such as acquisitions divestitures and brand closures. This.
This should help provide a more meaningful understanding of the performance of our comparable business. Additionally, reflecting the level of volatility is still in the environment. We are at this point widening our guidance ranges for the year.
For the full fiscal year organic net sales are forecasted to grow 9% to 12%.
Based on August 13th spot rates of $1.17 for the Euro.
1381 for the pound.
164 for the Korean won and $6.479 for the Chinese one we expect currency translation to add one point to reported sales growth for the full fiscal year.
As I mentioned earlier this range excludes approximately three points from acquisitions divestitures and brand closures, primarily the inclusion of Duffy them.
Diluted EPS is expected to range between $7.23 and.
$7.38 before restructuring and other charges. This includes approximately 19 cents of accretion from currency translation.
In constant currency, we expect EPS to rise by 9% to 12%.
This also includes approximately <unk> <unk> accretion from Duffy them.
At this time, we expect organic sales for our first quarter to rise 11% to 13% the.
The incremental sales from acquisitions divestitures and brand closures are expected to add about three points to reported growth and currency is expected to be accretive by approximately three points.
Operating expenses are expected to rise in the first quarter as we invest in the reopening and recovery of brick and mortar retail around the world and some of the temporary cost measures start to ease.
We expect first quarter EPS of $1.55 to $1.65 currency is expected to be accretive to EPS by five cents and Dusty M is forecast to have no impact.
In closing, while we are cautious about the uneven recovery to date, we remain confident about the strategic actions, we continue to take to support sustainable profitable growth post pandemic and the agility, we have demonstrated this past year.
On behalf of the entire Este Lauder companies leadership team, we give thanks to our incredible teams around the world for their extraordinary efforts to manage during this unprecedented period.
And that concludes our prepared remarks.
Take your questions at this time.
The Florida is now open for questions. If you have a question you simply press the star key followed by one on your Touchtone telephone.
To ensure everyone can ask their questions, we will limit each person to one question time permitting we will return to you for additional questions just queue up again by pressing the star keyed in on the digital one.
Our first question today will come from the line of Dara <unk> with Morgan Stanley.
Hey, good morning, guys.
Hi, Dara good morning.
Can you give us an update on how much of the incremental e-commerce business and new customers you obtained during COVID-19 are proving sticky now that we've fully cycled COVID-19.
Perhaps also just give us a sense for expectations for ecommerce sales growth in fiscal 'twenty, two with how you sort of think about that versus.
Covid boost.
And then longer term can you also spent some time just discussing how you're better using or upgrading technology to drive e-commerce sales longer term.
Thanks.
Okay.
So let me let me start is first of all I would say the large majority of our online progress during COVID-19 is very sticky.
And keep in mind that we have charted on so many new consumer the new consumer were also among the older consumers and they really liked it and so we see that coming back in this thing even with still reopens, obviously with a different balance.
But this is definitely happening, but then in total our online is continuing to grow and we expect this to continue to grow for many years to come and the trend will not stop after call. It also our online mix, which is <unk> in China for example, which as you heard from the prepared.
Flying hour lost 18 seeks event was really strong and then retail dotcom that for many retailers around the world is booming pure play, which is a very much growing and then brand dot com and obviously brand of calm in the moment the part of rental come in.
The moment that is the big reopening if people go back to store will temporarily stabilize or slightly decrease but then we'll start growing again, that's our expectation. So overall all in on our online business will continue to progress as a percentage of total business over the next years.
And keep in mind. There are you know we also explained in our prepared remarks that we do have some new customers. So retailer dotcom should should pick up as well with the with the U S.
Spansion of Alta and to target and and Sephora and the calls and the same with J D and in China. So again, we've got as Fabrizio said very strong plans for online again this year and.
And I expect that it will again increase as a percent of our penetration of sales.
As it relates to technology.
We are investing quite a bit.
In our e-commerce platform to enable capabilities, many of which are which we have spoken about whether it's virtual try on.
Our data analytics that are that certainly support our being able to more personalized experiences for consumers and many other many other capabilities and beyond.
Beyond online, where we continue to invest in the consumer experience in our stores.
And and in other areas as well so we do have a robust.
Technology investment plan that I would expect to continue over the next couple of years. We're also investing in new technology in our.
New facility and that is opening in a couple of years in Japan.
And it will be a state of the art manufacturing facility. So it will leverage quite a bit of technology also.
Yeah.
Great. Thanks.
Our next question will come from the line of Olivia Tong with Raymond James.
Great. Thank you and good morning.
I was wondering if you can talk a little bit more about Asia Pacific an improvement there and if you could talk about the drivers. There you mentioned the strength of <unk> 19, So should we expect more quarterly variability in Asia or whether it be <unk> or 11, 11, and how that could influence how the year develops and then if you could just talk a little bit about our current trends given another.
Pick and volatility associated with pandemic. Thank you.
No that is very very.
They're very big strengths in Asia Pacific's that will continue in the long term obviously as we said in the prepared remarks theres been some pandemic issues and Mcdonald's places like Japan, or some parts of southeast Asia, which should become an obstacle to these sort of temporary.
Obstacle to DS World in these specific markets, but overall.
Asia Pacific will continue to be very strong and will be led by China.
Whose progress.
We will continue to do that would be an hour and our peanut and also that's what's happening so far now D. What you called variability of seats, many up and down some sales in Asia Pacific, particularly in China, frankly is more about seasonality.
There is a clear seasonality like the reason the U S led the visa Europe and there are holiday moments.
Chinese new here moments moments, where the Chinese population toggle moments and we should have more home.
Were there some <unk> and there are moments of the year with certain products, particularly in skincare is more used than August obviously that is important elements of seasonality to now the good news we are completely on top of those and we manage the seasonality with anticipation.
And that's why our cost of of course the year programs.
T well articulate and recognized consumer society and trade promo tonality period.
And very accurate way at this point of time. So this is a leverage point rather than an issue that's why I would not call it viability, but rather susana on it.
Yeah.
Thank you. Our next question will come from the line of Lauren Lieberman with Barclays.
Great. Thanks, good morning.
I will start with the discussion of 3% contribution from pricing in 'twenty two I know, there's always some pricing in the business.
Subtle at least from a consumer standpoint, but 3% just sounded higher than usual to me. So I was curious if it's more centered in categories and brands are there areas, where you just like the momentum is so strong that it's not an untapped opportunity or is this more in in response to the broadly inflationary environment.
Well as you mentioned Lauren we take pricing every year, usually in the two to two and a half per cent range.
We are taking approximately 3% of pricing this year.
Yes. It is certainly considering the inflationary environment that we're operating in we do take differential pricing. So that is an average across all of our markets all of our brands.
And and but but so theres no specific category that were taking any more pricing than others, but ah, but it is tiered certainly by the tearing of R. R.
Our brand portfolio.
And I just want to add we do have the ability to price, where the reason you're pursuing it and because of our loyalty levels et cetera, obviously in certain markets, we spaces and so we are planning because of the current slashing environment as you said to take.
Half a point more prime.
Prices that into PVC is and this is completely justified and this combined with our cost saving programs, which should allow us to manage that inflation without any negative impact neither of our advertising nor on our profitability and that's our plan. The other think I want to say.
About our flexibility on pricing is that with the kinds of success. We are having all the innovation and the kind of very attractiveness of our innovation that can command luxury pricing very easily because of the great great quality that we are deploying to the consumers and the moment you have between 20.
30% every year of this coming from innovation you can imagine that we can decide the pricing of 20% to 30% every year based on when our intent on the power of our innovation. So this is the next threat flexibility that we have internal imagine pricings over to us.
And our next question is going to come from the line up Rob <unk> with Evercore.
Great. Thank you very much.
Two questions. If I can just a quick follow up on the China.
We're reading a little bit about government actions in terms of cracking down on the wealth.
Wealth faulting luxury, particularly in social media and so I just wanted to be make sure that that's not something that you see affecting your business.
And then my my my deeper question is if you could give us an update.
On the e-commerce in the U S.
As a percent of sales and how that breaks out between.
Your direct brand Dot com business, and the retail dot com business and any changes in trends there that you're seeing thank you.
Sorry could you repeat the one on the U S.
The dot com just yeah.
Just an update on the the dot com business in the U S.
The percent of sales I think it's it was running at 40% and then how that's breaking out between the direct business and the retail dot com.
Okay, starting with China.
No we don't see any any issue on China potential in our industry.
Lots of what Youre, saying actually we see a lot of support to the trend in the lot of the interest in our products as the middle class evolves and and we see also given for example, all the government actions have been taken to support the development of high end and in the duty free.
There is obviously an interest in supporting internal consumption.
And somehow that our industry is benefiting from the interest in being it.
The creation of internal consumption and also bringing the consumption in the past it was outside more internally. So he is all on a positive trend.
And when you when you speak about luxury you just want to say, we had really affordable luxury in the sense that our products are luxury within the beauty category, but theyre very affordable purchase is in the context of total luxury so we don't see any any negative disappointing.
Time on this front on the continent very strong support for the long term.
Going to the Internet online development in the U S.
Turned is too crazy for your specific question on the percentages.
Yeah in in terms of the online percentage, we ended up last year, a little over 40% online again as you know we started the year.
With some of our brick and mortar doors actually closed I'm, so very very strong online penetration and as brick and mortar reopened.
The online penetration lessened a bit but we did end the year at about 40, 40%.
In terms of the retailer dot com versus versus brand Dot Com. You know we are seeing in it and it varies so we saw quite a bit of strength and and retailer dot com towards the second half of the year and and strength and brand Dot com earlier in the year.
And this year, obviously, we have some very strong plans for both our brand dot com and retailer dot com in the U S. Two to continue to grow.
Thank you.
Our next question will come from the line of Steve powers with Deutsche Bank.
Yes, thanks, and good morning.
I was hoping you could just elaborate a bit further on what.
Youre doing to best position your portfolio take advantage of.
Anticipated recovery in makeup and to what degree.
You see your business is likely to.
No.
Accrued net share gains alongside of that recovery.
Yeah.
So.
We are we are preparing for the makeup Renaissance.
And we are working on all of our makeup brands and you know what our regions to leverage these as usage locations comes back and.
The proof that what will rocket happening in the U S. In this last quarter.
<unk> is very encouraging and did last quarter. Our makeup was extraordinarily strong for example in countries, where there was a recovery of reopening led the U S and we saw great resolve some knock on two phase of many other brands and and we saw that particularly the recovery starts from foundation in Lipsticks, which.
She is a very good very good news are very good signs. So what we're doing is first of all we are preparing programs marketing programs and innovation programs and new launches for every market, making sure that we're tying those two the expected recovery trend that will be gradual but we.
We'll be as we as you know it will be dependent on a vaccination levels and on the ability to control.
They called it spikes, where this happens and so we have all the analytics that tell us when this time and could be in different parts of the world. We time, our marketing auction, our advertising relaunch auctions, our innovation options to the different expected recovery moments. So he is pretty complex elaboration of plan.
But he is very effective and so far it has given us the kind of results. We wanted but most importantly, the kind of return on the investment that we wanted when you time it correctly.
The second thing that we're doing obviously is making sure that we use data analytics and we use the understanding of the consumers to two.
Two really tailored to where the trend would start and then as I said by mid cap sub categories that are very different and that's very different priorities that the consumer choose in coming back to the makeup when they use their location will get restated in so we have some outstanding new capability and analytics.
Drive us maximo and effectiveness in D C a S.
So all in all we are very very encouraged by the early recovery in the countries, where this happened which are mainly U S. China and we are well organized to follow up on the recall it and gradually in the course of 2022.
And our next question will come from the line of Stephanie Wissink with Jefferies.
Yeah.
Hi, Good morning. This is Chris on for staff I wanted to dig in a little on the travel retail recovery that you're expecting and how you think about the growth in market locations like Hainan would you expect that China continues to grow and international travel resumes or is there a rebalancing of where the demand is real.
Thank you.
Yeah first of all we expect China to continue to growth.
In the future.
We spent <unk> success.
To be a relatively independent from the come back to international travel, but let me explain that.
You put in the number of Chinese consumers to have a passport which is.
About 10% evolved towards a 15 four from the informations Wechat available and you assume that don't get percentage of dos consuming the possible travel internationally in a given year you immediately see that the international travel.
Is going to create consumption, but he's a certain percentage of the Chinese population Hainan is domestic travel so he's open to 100% of the China's middle class and it wants to chime in it's probably as we speak so the Hainan phenomenon is basically goes well beyond international.
Travel because he is domestic travel and appeals went under percentage of the population. That's why we believe the Hainan is here to stay and use it as a great opportunity for the long term that will continue.
To grow even when international travel will restart as far as the international travel question. We are assuming that some international childhood, we gradually restocked in the second semester.
Our fiscal year 'twenty to fiscal year end and is obviously this is an assumption.
He knows and will depend not only from the pandemic development will depend also from the government decisions on how to manage the Dvds rules around the management to the pandemic. So is.
We can only go with estimates, but that's what we are currently estimating and we have seen.
<unk> for example in summer in Europe, we are seeing some new chavan sudden movements in some.
Some increase but obviously relative.
Relative to the still very much below what it was before COVID-19.
And then in fiscal year 2023, we assume there will be a more robust international travelers acceleration.
And our next question is going to come from the line of Mark Astrachan with Stifel.
Thanks.
Everyone.
Wanted to ask.
Bit of a follow up on China, and just maybe talk a bit about what's embedded in your your expectations just overall for the business for that country for fiscal 'twenty two.
Maybe in the context of.
Things that we've seen around slowing sales on T mall and discuss the commentary about expanding on JD and just how does that fit in and you talked about different demographics. So if you could elaborate a bit on what's your what youre, hoping to accomplish there that'd be helpful. Thank you.
Okay.
So we just spread that the market in China.
To continue to grow double digit and we are very very optimistic on the strength of this market as well as on our position with the consumers in this market.
We expect to see and continuous acceleration of online, which is already 50% mainland China business to the ER and fab five to growing them.
We see the possibility of continued growth in the existing platforms like Tmall, which is for.
For us for beauty for our brands very successful and a great partners that we will continue to develop and manage.
With some specific problems in specific brands and specific and new brands in the future and then we see it.
In acceleration of brand recall and in the marketing margins around the blender call in which we are investing and also improving our technologies to keep it aligned with the historic development of technology in China and the ability to meet this technology are very appealing to the consumers and so we keep them.
Ernie and keep evolving in this area and then there are certain brands that are appealing to certain demographics that also decided to expanding J D and E and just now in July and so we will we are very optimistic.
So the results of these increased coverage of consumers that we are getting and and it would be more opportunity in the future is a very very dynamic market and competitive market, which keep evolving and our principle is always to stay ahead of the evolution, which admittedly is not easy in such a dynamic market.
But we are trying to stay always ahead with evolution and anticipate change and we'd get helped in this by our extraordinary Chinese leadership team that keep us abreast of what's happening and help us anticipating on the trends and we get helped by our compass that we discussed.
At a time, which gave us a good good point of view on what would be the evolution in the consumer preferences in every market, but particularly in China.
And our next question is going to come from the line of Erinn Murphy with Piper Sandler.
Great. Thanks. Good morning. My question is for Tracy if you could talk a little bit more about what you expect for the sales and the profitability of rebound in the North American segment in fiscal 2022.
Particularly when you're kind of layering on some of the new distribution partnership both Kohl's and Sephora and Ulta target and then I do have a follow up for appropriate deal I'm Duffy I know the ordinary has been driving that large success to date, but they do have a number of other brands in their portfolio. So curious on your plans to scale some of them. Thank you.
Okay, Let me start with North America, you know we're very.
Optimistic.
Given the trends that we saw in the fourth quarter and that are continuing into the first quarter as it relates to North America. So people are coming back to stores people are still shopping online and and certainly.
The the the new retail partnerships of our retail partners.
We are expecting will well.
Also contribute to growth this year.
But you know across the board the team has really been working on a terrific innovation.
We're increasing advertising in North America and in fiscal 2022, So we expect both topline growth and margin expansion in North America related to our strategies in 2022.
And on lithium you are absolutely right <unk> is a company with an extraordinary portfolio of brands. The ordinary is today the biggest and that is continuing to be very successful and growing as an extraordinary brand, but there are other Brian gladden yards, which is more science based that we are in.
Intend with the <unk> team to continue to develop and also DCM is adding twist of the company deep capability of an extraordinary incubation model and ability. So we definitely intend to continue incubate new brands develop new ideas and continue with the DCM philosophy.
The challenge the status quo and seeing new different point of views to be offered to the consumers and develop it extraordinarily new brands in the long term.
But in this moment the opportunity for dealers entity to continue to grow to continue to expand is frankly amazing and is obviously the priority we are focusing on in fiscal year 2022.
Thank you so much.
And our next question is.
Going to be from the line of Chris Carey with both cargo.
Hi, Thank you very much I just wanted to follow up on the disclosure around travel retail being 29% of fiscal 'twenty. One sales can you just confirm that and then that would imply that you had a pretty big acceleration in Q4.
In the travel retail business and then does that mean that.
The Continental Europe business declined in the quarter so any.
Just any clarification just around that.
And then just a longer term.
This.
The decision to partner with OLED target support calls this is really an expansion of distribution, perhaps in some channels, where you've been less comfortable going in the past, but theres more of these brands are being curated in a different setting what are your thoughts on that and other channels say Amazon or other online forms over time. So thanks, so much.
And for Us.
Yeah, So I can confirm travel retail.
And in terms of the percent of mix at at 29%.
We did have strong growth in travel retail in the fourth quarter.
And.
In terms of the EMEA region, we did see growth as well in the EMEA region, excluding excluding travel retail the U K was a little challenge but.
But as we mentioned in the prepared remarks, all regions grew in in the fourth quarter.
Yeah and.
The other thing I want to say on travel retail on the long term as I said is deep.
Travel retail.
As these edition of the domestic travel in China, we treat she's a very important additions and so the development.
The business with the Chinese consumers is extraordinary and then the Chinese consumer depending on the pedal to the yeah. Their choices some of them with Tau traveled to Ireland by their address Woodbine cities.
And so you would see these spending growth so the Chinese consumers in the China region or in the travel retail China, depending on what the Chinese consumer decide to do our strategy is very simple we are going to serve the growing demand of Chinese consumers wherever they choose to shop and so.
We are online we are in the outstanding quality of Department stores in China, We are in Hainan and in all of these areas, where they shop, we tend to be present with outstanding execution, great luxury quality of services and to really get at Justice.
Two our innovative luxury positioning in these positions and that's the strategy to cover the Chinese consumer shopping and as far as the when not when the the international traveling will restart will obviously also covered the integration of travelers in the best possible way.
In term of your second part of the question is I would like to clarify one thing I think fiscal year 2021 was an extraordinary year to build our luxury position and to innovate.
Our consumer and expression in a very luxury way. If you think that the core investment that we have done has been in elevating the brand building the luxury experience online.
And that we have been able to bring online a lot of the luxury speed into services than the past, we're only in the best department stores or in the best brick and mortar locations. So DS now means that we have elevated that to the best possible experience about 30%.
<unk> of our business and then as I explained our best expression of luxury is frankly in TR is being Florida and since a long time, particularly in the best parts of the world, but now he's an island where that he is the best expression of the brands in the World and as you said is another 29%. So we have elevated our.
Luxury expression in more than 60% of our business around the world and that's the key Adas, where we invest we have also taken the opportunity where there is the opportunity to source from us and to continue growing the prestige segment to bring some of our brands that have the power of <unk>.
Sent from us closer to where the mass consumers are choosing to shop. It wants to have the opportunity to upgrade to different quality, and that's where some opportunities lie with target and sephora cores offer us the opportunity to Florida.
First from us and further serve more consumers in consumer that we didn't access before with our best experience the best quality products.
Thank you and that's all the time, we have for questions and answers with that I would like to.
Conclude the Q&A portion of today's call.
If you were unable to join for the entire call a playback will be available at one P. M. Eastern time today through September 2nd.
Her a recording of the call. Please dial 8558592056 pass code is 6687487 again dial 8558592056, and passcode of 6687487 that concludes.
The Este Lauder conference call I would like to thank everyone for their participation and I wish you all a good day.
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