Q1 2024 The Estée Lauder Co Inc Earnings Call

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Good day, everyone and welcome to the Este Lauder companies fiscal 'twenty 'twenty four first quarter conference call.

Today's call is being recorded and webcast.

For opening remarks, and introductions I'd like to turn the floor over to senior Vice President of Investor Relations Ms Rainey Mancini.

Man.

Maybe get.

Hello on today's call are for Brookdale, 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 organic net sales growth also exclude the non comparable impact of acquisitions divestitures and branch closures and the impact of foreign 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 that we make directly to our consumers through our brand dotcom sites and through third party platforms and also includes estimated sales of our products are a retailer's website during.

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 Hello to everyone. We appreciate you joining us to discuss our first quarter results revised outlook for fiscal year, 2024, and accelerated proceeds recovery plan to benefit fiscal years 2025 and 2026.

Before we begin.

I want to start by expressing the tremendous grief and sadness, we add for the victims and their families of your recent terrorist attacks against Israel.

Tragic loss of Palestinian lives.

And the growing your money Patti I'm crisis in Gaza.

Our hearts break for the profound suffering across the middle East during the study both time.

We are committed to continuing to support the safety well being of all our employees in the affected areas and around the world.

Let me now toward to our first quarter results.

We delivered our outlook for organic seeds and exceeded expectation for adjusted diluted EPS.

Organic sales decreased 11%, our global travel retail business drove the decline as expected with organic sales lower by 51% given the combination of trade inventory reduction in a structured market containment.

The entire rest of our global business Rose, 4% organically led by mid to high single digit growth in the Americas, and the math gets old email and double digit growth in Asia Pacific Excluding mainland China.

Excellent performance in these regions enabled us to deliver our sales outlook. Despite its lower than expected recovery of overall prestige beauty in mainland China.

Adjusted diluted EPS of 11 cents was ahead of the outlook as we achieved better than expected adjusted operating margin.

There were several drivers for this more favorable profitability led by a greater contribution to sales from skincare than forecasted as well as disciplined expense management, notably we continued brand building investments in the areas with the greatest growth opportunities with a P C.

The rising as a percentage of seats.

While we had the better than expected start of the fiscal year, we are lowering our fiscal year 2024 outlook given the fact that incremental external headwinds in two specific areas of our business.

First the expected growth rate of overall prestige beauty has load in Asia travel retail and mainland China, which is currently also evidenced that in.

In the presale phase of the 11 11 shopping festival.

To reflect these impacts as well as the ongoing policies and efforts to contain unstructured market activity. We are moderating our expedition for fiscal year 2020 for retail sales for Asia travel retail and mainland China.

As part of this we continue to expect to reset retail inventory in Asia travel retail by the end of the third quarter.

Second we are reflecting the risks or business disruption in Israel and other parts of the middle East.

For fiscal year 2024, our revised outlook continues to expect sequentially, improving sales trends each quarter with double digit organic sales growth in the second house.

Operator: Good day, everyone, and welcome to the Estee Lauder Companies Fiscal 2024 First Quarter Conference call. Today's call is being recorded and webcast.

We also still a spread sequentially stronger adjusted operating margin eat margin each quarter, we continued consumer facing investment in our growth engines.

Laraine Mancini: For opening remarks and introductions, I'd like to turn the floor over to Senior Vice President of Investor Relations, Ms. Rainey Mancini. Man, we may begin. Hello.

Moreover, we had accelerating and expanding our profit recovery plan, which is designed to benefit fiscal year 2025, and 2026 for us to realize our ambitions to rebuild profitability. Despite external headwinds increased pressure on the business in fiscal year 2024.

Laraine Mancini: On today's call, our Fabrizio 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 in 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.

When our earning call in August I describe our four strategic imperatives for fiscal year, 2024, which are driving momentum where our business is thriving.

Turn to growth in the U S capture demand from the returning individual travelers in Asia travel retail and begin to rebuild our profitability.

Laraine Mancini: Unless otherwise stated, all organic net sales growth also excludes the non-comparable impacts of acquisitions, investors, brand closures, and the impacts of foreign currency translation. You can find recommendations between GAAP and non-GAAP measures and our press release and on the investor section of our website. As a reminder, references to online sales include sales that we make directly to our consumers through our brand.com sites and through third-party platforms. It also includes estimated sales of our products through our retailers' websites.

Let me share with you our progress across these pillars as well as the framework of our accelerated and expanded property recovery plan.

First we are focused on extending the gains we achieved in fiscal year 2023 in the numerous developed and emerging markets around the world, where we prospered.

In the first quarter, we did just that.

Laraine Mancini: 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.

In the market. So EMEA, we achieved impressive results once more driven by the U K and Germany.

Fabrizio Freda: And I'll turn the call over to Fabrizio. Thank you, Rainy, and hello to everyone. We appreciate you joining us to discuss our first quarter results, revised our look for fiscal year 2024, an accelerated profit recovery plan to benefit fiscal year 2025 and 2026.

<unk> sales growth was balanced across brick and mortar and online as engaging activation in store and on social media ratio need to strongly with consumers across our brand portfolio.

We have standard our prestige beauty share gains in western Europe, driven by our high quality hero products and innovation in EMEA is emerging market, India was a standout driven by tailored against by the ordinary and double digit growth by Mac in Latin America prestige beauty remains vibrant.

Fabrizio Freda: Before we begin, I want to start by expressing the tremendous grief and sadness we have for the victims and their families of the horrific terrorist attacks against Israel, the tragic loss of Palestinian lives, and the growing humanitarian crisis in Gaza. Our hearts break for the profound suffering across the Middle East during this terrible time. We are committed to continuing to support the safety well-being of all our employees in the affected areas and around the world.

We again achieved strong results, Mexico, and Brazil excel at each up double digits organically.

Our localized to go to market initiatives in these two dynamic emerging markets have succeeded in attracting new consumers.

We continued our winning ways in many markets across Asia Pacific.

The evolution of Hong Kong <unk> S. A R is especially compelling and we realized very strong prestige beauty share gains with our brands strong desirability high touch services and innovation engaging consumer as retail traffic really increasingly returns.

Fabrizio Freda: Let me now turn to our first quarter results. We delivered our outlook for organic sales and exceeded expectation for adjusted the due to DPS. Organic sales decreased 11%. Our global travel retail business drove the decline as expected. With organic sales lower by 51%, given the combination of trade inventory reduction and a structured market containment. The entire rest of our global business rose 4% organically, led by mid-to-high single-digit growth in the Americas and the markets of EMA and double-digit growth in Asia-Pacific, excluding mainland China.

Our performance in Japan, and Australia, once again robust driven by our diversified brand portfolio Catherine to local disease.

Around the world, our direct to consumer business performed especially well every region contributed led by double digit organic sales growth in freestanding stores in Asia Pacific.

On a global basis, we are thrilled that the makeup Renaissance is improving and we have been ready to meet consumers as they again embraced the enthusiasm for the category.

Fabrizio Freda: The excellent performance in these regions enabled us to deliver our sales outlook despite a lower than expected recovery of other role-preserved beauty e-mailers, and China. Adjusted diluted EPS of 11 cents was ahead of the outlook as we achieved a better than expected adjusted operating margin. There were several drivers for this more favourable profitability led by a greater contribution to sales from skincare than forecasted as well as discipline expense management. Notably, we continue brand building investments in the areas with the greatest growth opportunities with AP spending rising as a percentage of sales.

<unk> tried in the quarter as the Americas the markets in EMEA and Asia Pacific Each contributed high single digit organic sales growth to offset the pressure in the category from global travel retail.

We have successfully tapped into and creating trends with one point innovation like mass to Max studio Radiance Foundation, and Este Lauder food juries Squinting serum foundation. During this exciting area for the category our brands are leveraging their expert artists and social media knowhow to engage.

With consumers and generates strong and expanding levels of earned media value.

Fragrance again prosper it we delivered our 11th consecutive quarter of organic sales growth led by outstanding performance in the Americas, and Asia Pacific and strong share gains in prestige fragrance in Western Europe.

Fabrizio Freda: While we had a better than expected start of the fiscal year, we are lowering our fiscal year to 2024 outlook given the further incremental external headwinds in two specific areas of our business. First, the expected growth rate of overall prestige beauty has slowed in Asia, travel retail and mainland China, which is currently also evident in the pre-sales phase of the 11-11 shopping festival. To reflect this input, as well as the ongoing policies and efforts to contain a structural market activity, we are moderating our expectation for fiscal year 2024 retail sales for Asia, travel retail and mainland China. As part of this, we continue to expect to reset retail inventory in Asia, travel retail by the end of the third quarter.

We continue to believe that we are still in the beginning of a promising long term phase of growth for fragrance in Asia Pacific as consumer increasingly embracing the category and penetration levels are low relatively to the west Indeed in Asia Pacific fragrance represent 8% of the prestige beauty industry, whereas in <unk>.

Western Europe, it is 40% of the industry.

We are well positioned for this growth opportunity with our luxury and artisanal brands alignment with the trends in the region as consumers gravitate to fragrance collections. In addition to seniors with strengths for multiple distinct.

Of the highest quality.

Moving to our second pillar, we are focused on returning to growth in the U S for the full year and made strides in the first quarter when encouragingly, our organic sales growth improved strongly on a sequential basis and moved from a modest decline last quarter to mid single digit growth this quarter our.

Fabrizio Freda: Second, we are reflecting the risks of business disruption in Israel and other parts of the Middle East. For fiscal year 2024, our revised outlook continues to expect sequentially improving sales trend each quarter, with double-digit organic sales growth in the second half. We also still expect sequentially stronger adjusted operating margin, each quarter. We continued consumer-stasing investment in our growth engines. Moreover, we are accelerating and expanding our profit recovery plan, which is designed to benefit fiscal year 2025 and 2026 for us to realize our ambitions to rebuild profitability despite the external headwinds increased pressure on the business in fiscal year 2024.

Multi faceted strategic plan include launching a robust innovation pipeline with increased focus on breakthrough ideas and leading trends increasing engagement by brands on social media to realize greater earned media value accentuating, our strengths in luxury and artisanal fragrance and in high performance ingredient led.

And dermal skin care and expanding brand reach in specialty multi to attract new consumers. During the first quarter innovation proved to be a powerful catalyst for growth in the U S across every category. The contribution of many from Clinique high impact high five full volume Mascara, and Max studio Radiant serial <unk>.

Fabrizio Freda: For our earning goal in August, I described our four strategic imperatives for fiscal year 2024, which are drive momentum where our business is driving, return to growth in the US, capture demand from the returning individual travelers in Asia travel retail and begin to rebuild our profitability. Let me share with you our progress across these pillars, as well as the framework of our accelerated and expanded profit recovery plan. First, we are focused on extending the gains we achieved in fiscal year 2023, in the numerous developed and emerging markets around the world where we prospered.

Our foundation in makeup to Este Lauder advanced night repair rescue solution in skincare and more through these high profile launches with sophisticated media strategies, our brand's elevated their engagement or detox Instagram and other platforms impressively Max earned media value in the U S beauty improve.

Several drugs to number two in the months of September further solidified its number one rank globally.

We also achieved strong progress in fragrance in the U S driven by our luxury and artisanal brands Le Labo, Tom Ford and Jo Malone, London, each rose double digit driven by multiple growth engines from innovation to online brick and mortar and expanded consumer reach.

Fabrizio Freda: In the first quarter, we did just that. In the markets or email, we achieved impressive results once more, driven by the UK and Germany. Organic sales growth was balanced across brick and mortar and online, as engaging activation in store and on social media resonated strongly with consumers across our brand. Paul Foyer. We extended our prestige beauty share gains in Western Europe, driven by our high-quality Europe products and innovation. Inemies, emerging market, India was a stand-out, driven by stellar gains by the ordinary and double-digit growth by MAC.

Encouragingly, we returned to growth in skin care in the U S. The ordinary was a standout consumers continue to gravitate to the brands for its scientific ingredient led skincare driving strong prestige beauty share gains the brand launch of suiting and various support serum drove exceptional new consumers.

Acquisition trends on brand comp and strategically expanded the D. Ordinary portfolio to include more multi asset products. Moreover, Este Lauder and la Mer further bolstered our improving performance in the category.

Let me now discuss the third pillar to capture demand from the return of individual travel in Asia travel retail.

Fabrizio Freda: In Latin America, prestige beauty remains vibrant and we again achieved strong results. Mexico and Brazil excelled, each up double-digit organically. Our localized go-to-market initiatives in these two dynamic emerging markets have succeeded in attracting new consumers. We continued our winning ways in many markets across Asia-Pacific. The evolution of Hong Kong's SIR is especially compelling and we realized very strong prestige beauty share gains. With our brands, strong desirability, height of services and innovation, engaging consumers as retail drastically, increasingly returns.

For the first quarter retail sales in global travel retail were substantially ahead of our organic sales decline, which reflects the execution of our priority to reduce trade inventory in alignment with retailers and indeed, we are making solid progress two exciting activation of our hero.

Capitalizing on innovation and investing in beauty advisors.

Across these three pillars, one of our greatest strengths to leverage is our diverse brand portfolio, which was a fundamental driver of our progress during the first quarter.

Fabrizio Freda: Our performance in Japan and Australia once again robust, driven by our diversified brand portfolio, catering to local desires. Around the world, our Dara to consumer business performed especially well. Every region contributed, led by double-digit organic sales growth in free-standing stores in Asia-Pacific. On a global basis, we have drilled, then the MACAP renaissance is in full swing and we have been ready to meet consumers as they again embrace their enthusiasm for the category.

Max excellent performance showcase the strengths of our portfolio among larger brands.

While the ordinary drove double digit organic sales growth among our scaling brands available excelled rising over 40% among the developing brands.

Let me now turn to our fourth pillar rebuilding our profitability, we are accelerating and expanding upon our profit recovery plan.

We expect to realize $800 million to $1 billion of incremental operating profit across fiscal year 2025, and 2026. The plan consists of four building blocks to improve each of gross margin and operating margin.

Fabrizio Freda: MACAP tried in the quarter as the Americas, the markets in India and Asia-Pacific, each contributed high single-digit organic sales growth to have set the pressure in the category from global trouble retail. We have successfully tapped into and created trends with on-point innovation like MAC Studio Radiance Foundation and Estelota Futuri's Schintin-Sirum Foundation. During this exciting area for the category, our brands are leveraging their expert artists and social media know-how to engage with consumers and generate strong and expanding levels of earned media value.

First.

We are focused on optimizing mix by elevating luxury across brands, most especially in skincare fragrance driven by consumer preferences by expanding our direct to consumer ecosystem across brick and mortar and in line.

We have identified many opportunities to maximize value through better price realization and accretive innovation.

Third we intend to increasingly leverage this strategic investment we have made over the last few years, most notably our new manufacturing facility in Japan, our new China innovation labs in Shanghai and expanded online capabilities.

Fabrizio Freda: Regrants, a game prospered. We deliver our 11th consecutive quarter of organic sales growth, led by outstanding performance in the Americas and Asia-Pacific, a strong share gains in prestige fragrance in Western Europe. We continue to believe that we are still in the beginning of the promising long-term phase of growth for fragrance in Asia-Pacific, as consumers increasingly embrace the category and penetration levels are low relatively to the West. Indeed, in Asia-Pacific, fragrance represents 8% of the prestige beauty industry, whereas in Western Europe, it is 40% of the industry.

Lastly, we believe we can unlock meaningful cost efficiency from a combination of shorter supply chain regionalization of our value chain and improved forecasting accuracy enabled by our new integrated business planning progress for process across the global operation supported by advanced AI capabilities.

Fabrizio Freda: We have well-positioned for this growth opportunity with our luxury and artisanal brands alignment with the trends in the region as consumers gravitate to fragrance collections in addition to singer's sense for multiple distinct sense of the highest quality.

Please.

Before I close I am pleased to share that today, we released our fiscal year 2023, social impact and sustainability report Fisher advancement made possible by the extraordinary efforts of our employees around the world across our ESG areas of focus and previously stated goals important.

We again achieved scope, one and scope two carbon neutrality and maintained our starters are 100% renewable electricity globally for our direct operations.

Fabrizio Freda: Moving to our second pillar, we have focused on returning to growth in the US for the full year and made strides in the first quarter when, encouragingly, our organic sales growth improved strongly on a sequential basis and moved from a modest decline last quarter to meet single-digit growth, quarter. Our multi-faceted strategic plan included launching a robust innovation pipeline with increased focus on breakthrough ideas and leading trends, increasing engagement by brands of social media to realize greater media value, accentuating our strengths in luxury and artisanal fragrance, and in high-performance, ingredient-led and dermiskin care, and expanding brand-rich in specialty-multi to attract new consumers.

The report also details that we obtained our global gender pay equity target for selected employee populations and achieved our spending targets with women and black owned suppliers and made strong progress toward our water withdrawal reduction in packaging targets. Today, we will also publish our second.

Lineup transition plan, which describes the effort in our ongoing climate transition in Germany.

In closing in fiscal year 2024, we will remain focused on driving momentum in our markets of strengths.

Returning to growth in the U S normalizing, our Asia travel retail trade inventory and expanding prestige beauty share further in mainland China from our calendar two year to date gains.

Fabrizio Freda: During the first quarter, innovation proved to be a powerful catalyst for growth in the U.S, across every category. The contribution are many. From Clinique, High Hempath, High-Five, Full, Volume, Mascara, and Max Studio, Radiant, Serium, Powered Foundation in MECAP to Estelo that advanced and I repair rescue solution in skincare and more. Through these high-profile launches with sophisticated media strategies, our brands elevated their engagement on TikTok, Instagram, and other platforms. Impressively, Max earned media value in the U.S, beauty improved several ranks to number two in the month of September.

While accelerating our profit recovery plan for a robust acceleration of profitability in fiscal year 2025 and 2026.

To our employees these are difficult times for the world.

All of US I am grateful for what you do each and every day in caring for each other and for our beautiful company. Thanks.

You and I will now turn the call over to Tracy.

Thank you for retail and Hello, everyone.

Fabrizio Freda: Further solidifying is number one rank globally. We also achieved strong progress in fragrance in the U.S, driven by our luxury and artisanal brands. Le Labo, Tom Ford, and Jommalon London, each rose double digit driven by multiple growth engines from innovation to online, brick and mortar, and expanded consumer reach. Encouragingly, we returned to growth in skincare in the U.S. The ordinary was a standout. Consumers continue to gravitate to the brands for its antisic, ingredient-led skincare, driving strong-prestibuted share gains.

Let me begin with a brief review of our first quarter results in order to develop the majority of my discussion to our revised fiscal 2020 for outlook and our profit recovery plan.

Our first quarter organic net sales declined 11% and earnings per share was 11.

From a geographic standpoint organic net sales in the Americas increased 6% led by mid single digit growth in North America and continued strength in specialty multi in.

In Latin America net sales rose high single digits and was driven by continued strength in makeup as well as strong growth in both brick and mortar and online channels.

Fabrizio Freda: The brand launched, observing and various support serum drove exceptional new consumers acquisition trends on brand.com and strategically expanded the de-ordinary portfolio to include more multi-active products. Moreover, Estelo and Lamar further bolstered our improving performance in the category.

Organic net sales in our Asia Pacific region fell, 3%, primarily due to incremental headwinds from the slower than expected recovery of overall prestige beauty in mainland China.

There were several bright spots in the rest of the region led by Triple digit growth in Hong Kong as they are as well as double digit growth in Japan and Australia.

Fabrizio Freda: Let me now discuss the third pillar to capture the demand from the returning individual travel in Asia, travel retail. For the first quarter, retail sales in global travel retail were substantially ahead of our organic sales decline, which reflects the execution of our priority to reduce trade inventory in alignment with retailers. Indeed, we are making solid progress through exciting activation of our heroes, capitalizing on innovation and investing in beauty advisors. Across these three pillars, one of our greatest trends to leverage is our diverse brand portfolio, which was a fundamental driver of our progress during the first quarter. Max excellent performance showcased the strengths of our portfolio among large brands, while the ordinary drove double-digit organic sales growth among our scaling brands, available excelled, rising over 40% among the developing brands.

Our strategic investments and brand activation and new product innovation continued to resonate well with consumers in these markets.

Hong Kong as they are also benefited from increased traffic in brick and mortar due to fewer COVID-19 related restrictions compared to last year and the resumption of tourism.

Organic net sales fell 27% in Europe, the middle East and Africa due to the ongoing headwinds in our Asia travel retail business.

The overall challenges in our travel retail business more than offset the performance in the rest of the region, where we saw strong growth in skincare and makeup as well as growth in most western and emerging markets.

Organic net sales growth was driven by our developed markets led by the UK, Germany and France.

From a category perspective fragrance continued to lead growth with organic net sales rising 5%.

Fabrizio Freda: Let me now turn to our fourth pillar, rebuilding our profitability. We are accelerating and expanding upon our profit recovery plan. We expect to realize 800 million to $1 billion of incremental operating profit across fiscal years 2025 and 2000, on 26. The plan consists of four building blocks to improve each of gross margin and operating margin. First, we are focused on optimizing mix by elevating luxury across brands, most especially in skincare fragrance, driven by consumer preferences, by expanding our data to consumer ecosystem across brick and mortar and the line.

Strength from hero products as well as compelling innovation from Longbow propelled double digit increases in the Americas and in Asia Pacific.

Tom Ford also contributed to growth rising double digits in the Americas.

Organic net sales rose, 1% and makeup we continue to enhance consumer engagement through strategic investments in brand campaigns, including social media activation and new product innovation.

Once again <unk> was the overall top performer and too faced Tom Ford and Clinique, all contributed to growth as well.

Organic net sales declined 7% in hair care and 21% in skincare.

Fabrizio Freda: Second, we have identified many opportunities to maximize value to better price realization and accretive innovation. Third, we intend to increasingly leverage the strategic investment we have made over the last few years, most notably our new manufacturing facility in Japan, our new China Innovation Labs in Shanghai, and expanded online capabilities. Lastly, we believe we can unlock meaningful cost efficiency from a combination of shorter supply chains, regionalization of our value chain, and improve forecasting accuracy enabled by our new integrated business plan in progress process across the global operation supported by advanced AI capabilities.

The pressures in Asia Asia travel retail and in mainland China drove the decrease in skincare.

The declines from Este, Lauder, and La Mer were somewhat offset by strong growth from the ordinary.

Consumer demand for the brands hero products, and new product innovation boosted it standout performance in the quarter.

Our gross margin declined 440 basis points compared to last year.

The benefits from the strategic pricing actions, we took at the beginning of the fiscal year were more than offset by the under absorption of overhead in our plants due primarily to the lower production of skincare products that accelerated in the second half of fiscal 'twenty three.

Fabrizio Freda: Before I close, I am pleased to share that today we will release our fiscal year 2023 social impact and sustainability report. The future advancement made possible by the extraordinary efforts of our employees around the world across our ESG areas of focus and previously state of goals. Importantly, we again achieved scope one and scope two carbon neutrality and maintained our status of one hundred percent renewable electricity globally for our data operations. The report also details that we attained our global gender equity target for selected employees populations and achieved our spending targets with women and black owned suppliers and made strong progress toward our water withdrawal reduction and packaging targets.

Higher obsolescence charges and an increase in promotional items, such as settlement samples to support consumer activation.

Operating expenses increased 950 basis points as a percent of sales driven largely by the reduction in sales we.

We maintain key investment plans in areas, such as advertising and promotional activities innovation and selling to accelerate growth, where we had momentum which collectively accounted for 400 480 basis points of the increase compared to last year.

Operating income declined 84% to $108 million and our operating margin contracted to three 1% from 17% last year.

Fabrizio Freda: Today, we will also publish our second climate transition plan which describes the effort in our ongoing climate transition journey, including in fiscal year 2024, we will remain focus on driving momentum in our markets of strengths. Returning to growth in the US, normalizing our Asia travel retail trade inventory and expanding prestige beauty share further in mainland China from our calendar to year date gains. While accelerating our profit recovery plan for a robust acceleration of profitability in fiscal year 2025 and 2026.

Diluted EPS of <unk> 11 cents decreased 92% compared to the prior year.

The impact from the cyber security incident, we disclose this past July was eight cents dilutive to EPS.

The acquisition of the Tom Ford brand was neutral to EPS, including interest expense related to our debt financing and reflecting savings from royalties, we no longer pay as we now own the brand.

During the quarter, we utilized $408 million and net cash flows from operating activities compared to $650 million last year.

The decrease from last year reflects lower levels of working capital, including lower inventory levels, partially offset by lower net income we invested $295 million in capital expenditures and we returned $236 million in cash to stockholders through dividends.

Fabrizio Freda: To our employees, these are difficult times for the world and all of us. I'm grateful for what you do each and every day in caring for each other and for our beautiful company.

Turning now to our outlook for the second quarter and the full year.

Tracey Travis: Thank you and I will not turn the call over to Tracy. Thank you Fabrizio and hello everyone.

As Fabrizio mentioned, while we delivered on our Q1 expectations, we are lowering our fiscal 'twenty for outlook for the balance of the year to reflect the slower than expected pace of recovery due to incremental external headwinds that continue to evolve during the second quarter.

Tracey Travis: Let me begin with a brief review of our first quarter results in order to devote the majority of my discussion to our revised fiscal 2024 outlook and our profit recovery plan. Our first quarter organic net sales declined 11 percent and earnings per share was 11 cents. From a geographic standpoint organic net sales in the America's increased 6 percent led by mid single digit growth in North America and continued strength and specialty mold.

This includes the slower than expected growth in overall prestige beauty as well as the containment of the unstructured market activity in Asia travel retail and in mainland China.

This reduction also reflects the risks of potential business business disruptions in Israel and other parts of the middle East as well as currency headwinds.

Tracey Travis: In Latin America, net sales rose high single digits and was driven by continued strength and makeup as well as strong growth in both brick and mortar and online channels. Our strategic investments in brand activation and new product innovation continue to resonate well with consumers in these markets. Hong Kong SAR also benefited from increased traffic in brick and mortar due to fewer COVID-related restrictions compared to last year in the resumption of tourism.

Using September 30 spot rates of 1.055 for the Euro one point to one nine for the pound 730 too for the Chinese one and $13 49 for the Korean won currency translation is anticipated to negatively impact reported sales and diluted EPS.

For the second quarter and for the full year.

We expect organic sales for our second quarter to decline 8% to 10%.

The incremental pressures from impacting sales in our Asia travel retail business in mainland China are expected to continue to more than offset anticipated growth in other markets globally.

Currency translation and the potential risks of further business disruptions in the middle East are each anticipated to dilute reported sales growth for the second quarter by one percentage point.

Tracey Travis: Organic net sales fell 27% in Europe the Middle East in Africa due to the ongoing headwinds in our Asia travel retail business. The overall challenges in our travel retail business more than offset the performance in the rest of the region where we saw strong growth in skincare and makeup as well as growth in most western and emerging markets. Organic net sales growth was driven by our developed markets led by the UK, Germany, and France.

We expect second quarter adjusted EPS of <unk> 48 to 58.

For a decline between <unk>, 62% to 69%.

This includes dilution of approximately eight cents from assumed risks of potential business disruption in Israel and other parts of the middle East and approximately <unk> <unk> from currency translation.

The increases in our full year effective tax rate and net interest expense are collectively expected to dilute EPS by <unk> <unk>.

Tracey Travis: From a category perspective fragrance continued to lead growth with organic net sales rising 5%. Strength from hero products as well as compelling innovation from Lollabot propelled double digit increases in the Americas and in Asia Pacific. Tom Ford also contributed to growth rising double digits in the Americas. Organic net sales rose 1% in makeup. We continue to enhance consumer engagement through strategic investments in brand campaigns including social media activation and new product innovation.

In constant currency adjusted EPS is expected to decline between 60% and 66%.

For the full year, we expect organic sales to range between a decline of 1% and an increase of 2%.

Currency translation and the potential risk of further business disruptions in the middle East are each anticipated to dilute reported sales growth for the fiscal year by one percentage point.

Tracey Travis: Once again Mac was the overall top performer and two face Tom Ford and Clinique all contributed to growth as well. Organic net sales declined 7% in hair care and 21% in skincare. The pressures in Asia travel retail and in mainland China drove the decrease in skincare. The declines from Estee Lauder and La Mer were somewhat offset by strong growth from the ordinary consumer demand for the brand's hero products and new product innovation boosted its stand out performance in the quarter.

We expect full year operating margin to be between nine and nine 5%.

A contraction from 11, 4% last year due to the lower sales growth level.

We now expect our full year effective tax rate to be approximately 28%, reflecting the full year estimate of our geographical mix of earnings.

Diluted EPS is expected to range between $2 17, and $2.42 before restructuring and other charges and adjustments.

This includes approximately 22 cents from the potential risks of further business disruptions in the middle East as well as approximately 16 from currency translation.

Tracey Travis: Our growth margin declined 440 basis points compared to last year. The benefits from the strategic pricing actions we took at the beginning of the fiscal year were more than offset by the under absorption of overhead and our plants due primarily to the lower production of skincare products that accelerated in the second half of fiscal 23. Higher up to lessen charges and an increase in promotional items such as sets and samples to support consumer activation.

The increases in our full year effective tax rate and interest expense are collectively expected to dilute EPS by <unk> 16.

In constant currency, we expect EPS to fall between 25% to 33%.

Given this more challenging backdrop for fiscal 'twenty four we have advanced the development of our multi year profit recovery plan to support our priority to progressively rebuild margin in fiscal year, 'twenty five and 'twenty six.

Tracey Travis: Operating expenses increase 950 basis points as a percent of sales driven largely by the reduction in sales. We maintain key investment plans in areas such as advertising and promotional activities. Innovation and selling to accelerate growth where we had momentum which collectively accounted for 480 basis points of the increase compared to last year, last year. Operating income declined 84% to 108 million, and are operating margin contracted to 3.1% from 17% last year.

This plan is designed to accelerate the pace at which we expect to rebuild our margins. While also facilitating operational efficiencies to support go to market agility in our local markets.

The planned initiatives will target specific areas to deliver expanded gross margin and operating profitability improvements and is initially expected to drive $800 million to $1 billion of incremental operating profit over the next two fiscal years.

We aim to accelerate many initiatives and substantially operationalize the plan in the second half of fiscal 'twenty four to enable the realization of a meaningful amount of the benefits beginning in fiscal 'twenty five.

Tracey Travis: Diluted EPS of 11 cents decreased 92% compared to the prior year. The impact from this cybersecurity incident, we disclosed this past July, was 8 cents diluted to EPS. The acquisition of the Tom Ford brand was neutral to EPS, including interest expense related to our debt financing and reflecting savings from royalties we no longer pay as we now own the brand. During the quarter, we utilized 408 million and net cash flows from operating activities compared to 650 million last year.

Our first priority is to accelerate the rebuild of our gross margin.

We plan to optimize our category product and channel mix to support profitable growth as well as focus on accretive innovation.

We aim to better capitalize on our strategic pricing initiatives by reducing discounts related to excess production.

Tracey Travis: The decrease from last year reflects lower levels of working capital, including lower inventory levels, partially offset by lower net income. We invested 295 million in capital expenditures, and we returned 236 million in cash to stockholders through dividends.

And continuing to exercise our pricing power ahead of inflation in our markets.

Are there more we plan to reduce excess and obsolete inventory by enhancing our operational efficiencies and begin to leverage the investments we've made to regionalize our supply network in Asia.

Tracey Travis: Turning now to our outlook for the second quarter and the full year, as Fabrizio mentioned, while we delivered on our Q1 expectations, we are lowering our fiscal 24 outlook for the balance of the year to reflect the slower than expected pace of recovery due to incremental external headwinds that continue to evolve during the second quarter. This includes the slower than expected growth in overall prestige beauty, as well as the containment of the unstructured market activity in Asia travel retail and in mainland China.

Our profit recovery plan will also target opex reductions, while further investing in consumer facing activities that are imperative to accelerating recovery in driving long term profitable growth. Our main areas of focus include containing head count as well as reduction in costs related to indirect procurement teeny.

In transportation.

These are just a few examples of actions we expect to take under our profit recovery plan, we plan to share more during our second quarter earnings call in February.

In closing, while we are encouraged by the strength, we're seeing across our brand portfolio and recovery markets intensifying macroeconomic and geopolitical volatility as well as weakening consumer confidence in certain markets have unfortunately slowed the pace of our anticipated recovery and isolated.

Tracey Travis: This reduction also reflects the risks of potential business disruptions in Israel and other parts of the Middle East, as well as currency headwinds. Using September 30 spot rates of 1.055 for the euro, 1.219 for the pound, 7.302 for the Chinese one, and 1349 for the Korean one, currency translation is anticipated to negatively impact reported sales and diluted EPS for the second quarter and for the full year. We expect organic sales for our second quarter to decline 8 to 10%.

Markets.

Given these incremental challenges we are taking actions through the advancement of our profit recovery plan to support our intention to progressively rebuild our profit margins over the next few years.

We remain confident about the long term prospects for global prestige beauty and in our corporate strategy to drive long term sustainable profitable growth the desirability of our brands as well as the positive momentum we are seeing across categories and in certain markets give us optimism for the future recovery in all of our markets and.

Tracey Travis: The incremental pressures from impacting sales in our Asia travel retail business and mainland China are expected to continue to more than offset anticipated growth in other markets globally. Currency translation and the potential risks of further business disruptions in the Middle East are each anticipated to dilute reported sales growth for the second quarter by one percentage point. We expect second quarter adjusted EPS of 48 to 58 cents for a decline between 62 to 69%.

Demonstrate the resilience of our multiple engines of growth and our ability to drive share gains globally.

Our return to sales growth combined with the profit recovery plan, which we plan to finalize and began implementing in the second half of this year as I said before support the achievement of margin rebuilding and profit recovery in the next few years.

Tracey Travis: This includes dilution of approximately 8 cents from assumed risks of potential business disruption in Israel and other parts of the Middle East and approximately 4 cents from currency translation. The increases in our full year effective tax rate and net interest expense are collectively expected to dilute EPS by 4 cents. In constant currency, adjusted EPS is expected to decline between 60 and 66%. For the full year, we expect organic sales to range between a decline of 1 percent and an increase of 2 percent currency translation and the potential risk of further business disruptions in the Middle East are each anticipated to dilute reported sales growth for the fiscal year by 1 percentage point.

I would like to extend our heartfelt appreciation to our employees around the globe for their continuing commitment and efforts to deliver our results during these challenging times.

That concludes our prepared remarks, we'll be happy to take your questions at this time.

Ladies and gentlemen, we will now begin the question and answer session to ask a question you May Press Star and then one on your Touchtone telephone.

If you are using a speaker phone we do ask you. Please pick up your handset prior to pressing the keys to ensure the best sound quality.

So what's your all your questions you May press star two.

Once again that is star and then one to join the question queue.

We will pause momentarily to assemble the roster.

Our first question today comes from Dara <unk> from Morgan Stanley. Please go ahead with your question.

Tracey Travis: We now expect our full year effective tax rate to be approximately 28 percent reflecting the full year estimate of our geographical mix of earnings. Deluted EPS is expected to range between $2.17 and $2.42 before restructuring in other charges and adjustments. This includes approximately 22 cents from the potential risk of further business disruptions in the Middle East as well as approximately 16 cents from currency translation. The increases in our full year effective tax rate and interest expense are collectively expected to dilute EPS by 16 cents. In constant currency, we expect EPS to fall between 25 to 33 percent.

Okay.

So.

Apologies for multi part question, but just had a few things on the profit recovery program.

Conceptually it sounds like it's more of a recovery from a depressed fiscal 'twenty four base pushing even harder on some of the building blocks. You outlined previously is that the case or are there more significant organizational changes that are now new in this plan to generate incremental savings and also.

That $800 million to $1 billion profit recovery should.

Should we think of that as just.

Savings in recovery from a depressed space and then base business topline growth on top of that it could lead to greater recovery. How do we think about that and then just be taking a step back why not get even more aggressive here in terms of posture with the larger restructuring obviously the external environment has changed there has been some internal issues with <unk>.

Tracey Travis: Given this more challenging backdrop for fiscal 24, we have advanced the development of our multi-year profit recovery plan to support our priority to progressively rebuild margin in fiscal years 25 and 26. This plan is designed to accelerate the pace at which we expect to rebuild our margins while also facilitating operational efficiencies to support go-to-market agility in our local markets. The plan initiatives will target specific areas to deliver expanded gross margin and operating profitability improvements and is initially expected to drive 800 million to 1 billion of incremental operating profit over the next two fiscal years.

Fly chain and forecasting so just thoughts on taking a more aggressive tact with a broader restructuring at some point. Thanks.

Yes.

And ladies and gentlemen at this point, we may be having some technical difficulties with the speaker line. So one moment, while we attempt to reconnect the speaker line.

I was just going to I'll leave you in the queue.

Your line muted it was new up as soon as we rejoining the speakers.

Okay.

Tracey Travis: We aim to accelerate many initiatives and substantially operationalize the plan in the second half of fiscal 24 to enable the realization of a meaningful amount of the benefits beginning in fiscal 25. Our first priority is to accelerate the rebuild of our gross margin. We plan to optimize our category product and channel mix to support profitable growth as well as focus on a creative innovation. We aim to better capitalize on our strategic pricing initiatives by reducing discounts related to excess production and continuing to exercise our pricing power ahead of inflation in our markets.

Tracey Travis: Furthermore, we plan to reduce excess and obsolete inventory by enhancing our operational efficiencies and begin to leverage the investments we've made to regionalize our supply network in Asia. Our profit recovery plan will also target op-ex reductions while further investing in consumer facing activities that are imperative to accelerating recovery and driving long-term profitable growth. Our main areas of focus include containing headcount as well as reduction in costs related to indirect procurement, T&E and transportation. These are just a few examples of actions we expect to take under our profit recovery plan.

And ladies and gentlemen, once again, we do thank you for your patience as we attempt to reconnect the speaker line.

I'm going to place the hold music back on here momentarily I'll, let you know as soon as we joined the speakers back into the conference.

Tracey Travis: We plan to share more during our second quarter earnings call in February.

Okay.

Tracey Travis: In closing, while we are encouraged by the strength we are seeing across our brand portfolio in recovery markets, intensifying macroeconomic and geopolitical volatility as well as weakening consumer confidence in certain markets, have unfortunately slowed the pace of our anticipated recovery in isolated markets. Given these incremental challenges, we are taking actions through the advancement of our profit recovery plan to support our intention to progressively rebuild our profit margins over the next few years.

Okay.

[music].

Tracey Travis: We remain confident about the long-term prospects for global prestige beauty and in our corporate strategy to drive long-term sustainable, profitable growth. The desirability of our brands as well as the positive momentum we are seeing across categories and in certain markets give us optimism for the future recovery in all of our markets and demonstrate the resilience of our multiple engines of growth in our ability to drive share gains globally. Our return to sales growth combined with the profit recovery plan, which we plan to finalize and begin implementing in the second half of this year, as I said before, support the achievement of margin rebuilding and profit recovery in the next few years. I would like to extend our heartfelt appreciation to our employees around the globe for their continuing commitment and efforts to deliver our results during these challenging times.

Okay.

Yes.

Okay.

[music].

Yes.

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Yes.

Yes.

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Yes.

Operator: That concludes our prepared remarks.

Yes.

Operator: We'll be happy to take your questions at this time.

Operator: Ladies and gentlemen, we'll now begin that question in the answer session. To ask a question, you may press star and then one on your touch-tone telephones. If you are using a speaker phone, we do ask you please pick up your handset prior to pressing the keys to ensure the best sound quality. To withdraw your questions, you may press star and two. Once again, that is star and then one to join the question queue. We'll pause momentarily to assemble the roster.

Yes.

[music].

Thanks.

Okay.

[music].

Dara Mohsenian: Our first question today comes from Dara Muscensia from Morgan Stanley. Please go ahead with your question. Thank you very much.

Dara Mohsenian: So apologies for multi-part question, but just had a few things on the profit recovery program. Conceptually, it sounds like it's more of a recovery from a depressed fiscal 24 base pushing even harder on some of the building blocks you outlined previously. Is that the case or are there more significant organizational changes that are now new in this plan to generate incremental savings? And also that $800 million to $1 billion profit recovery, should we think of that as just savings and recovery from a depressed base? And then base business, top line growth on top of that could be greater recovery. How do we think about that?

Yes.

[music].

Okay.

Yes.

Okay.

[music].

Dara Mohsenian: And then just be taking a step back. Why not get even more aggressive here in terms of posture with the larger restructuring? Obviously, the external environment has changed. There's been some internal issues with supply chain and forecasting. So just thoughts on taking a more aggressive tack with the broader restructuring at some point.

Okay.

Yes.

[music].

Tracey Travis: Thanks. And ladies and gentlemen, at this point, we may be having some technical difficulties with the speaker line, so one moment while we attempt to reconnect the speaker line. Dara, I'm just going to leave you in the queue. I'll have your line muted and we'll open you up as soon as we rejoin the speakers. Thank you. And ladies and gentlemen, once again, we do thank you for your patience as we attempt to reconnect the speaker line.

Okay.

Yes.

Yes.

Yes.

Okay.

Okay.

[music].

And ladies and gentlemen, we do have the speaker line reconnected to the conference I'd like to turn the floor back over to Randy for a quick statement.

Thank you everyone for your patience, we apologize for the difficulty for Raytheon Tracey already Tracy are ready for our Q&A session. Now so Jamie if you can take us to our first question. Please.

Absolutely and our first question once again is Dara. Please go ahead and restate your question.

Hey, guys.

So just wanted to start with a clarity question on the profit recovery program.

Sales related stemming more from a recovery versus a depressed fiscal 'twenty four base and pushing even harder on some of the building blocks. You had previously outlined is that the case or is it more of their larger organizational changes here that are new in this plan versus three months ago, and also is that $800 million to 1 billion profit.

Tracey Travis: I'm going to place the whole music back on here momentarily. I'll let you know as soon as we do. We'll join the speakers back into the conference. [inaudible] Thanks, Dara, for the question, and again, we do apologize for the technical difficulties. As it relates to the profit-recovering plan, it is incremental to the growth that we expect from the base-depressed level this year, as you indicate, Dara. So, and we are looking at everything.

Recovery is that just the savings in recovery from a depressed base or.

Should we expect base business growth on top of that in terms of a topline rebel and the flow through to profit and then be and apologize for the multipart, but I wanted to get clarity there just taking a step back why not get more aggressive here with a larger restructuring obviously the external environment has changed there's been into.

Arnell issues, the last few quarters, where supply chain and forecasting.

<unk> SG&A levels of loci ex marketing relative to peers. So just any thoughts on taking a more aggressive tack with our broader restructuring and how you guys think about that.

Yes.

Thanks Dara for further question and again, we do apologize for the technical difficulties as it relates to the profit recovering plan it is incremental to the.

The growth that we expect from the base depressed level this year.

As you indicate Dara so and.

We are looking at everything obviously, the first thing we're looking at is as we mentioned in our prepared remarks recovering our gross profit margin and to your point.

We've had.

Issues with high levels of inventory, we've talked for years about and you all know that we typically because of our lead times.

And in our historic footprint carry high levels of inventory, which does affect.

Our agility to be able to manage when shocks happen to the system, which is what's happened over the last couple of years. So certainly regionalized, our supply chain and in completing the manufacturing facility. We have in Japan will help us over the next few years in terms of being able to take more <unk>.

<unk> out of transit and being able to produce a bit closer to demand.

We also have implemented and Fabrizio talked about our integrated business planning process, which is leveraging some of the tools that we've invested in over the last few years to really improve the accuracy of our forecast.

To include a bit more of the commercial drivers that drive our business in our forecast again to improve the accuracy and and have less excess inventory.

And then the actions that we're already taking this year to and help to help improve our gross margins for next year is a significant pull down in our production volume. So our production units this year down about 25% from what they were last year. So even though we are anticipating now more modest growth given the update to our.

Our forecast.

We are drawing down on the inventory that we have on hand.

As well as obviously some of the actions, we're taking from a shipment standpoint to draw down the inventory that we have in trade in Asia travel retail. So there are a number of actions that we're taking.

That will help gross margin we are going through a SKU rationalization program. In addition to cutting some of our smaller dilutive innovation programs that were planned over the over the next year or two so there are lots of actions. We're taking all of those actions are not finalized yet.

But many of them are in flight they just won't impact as much this year as as.

They will future years.

And then yes, we are looking at our expense base and and how we operate going forward.

Especially given our current level of sales and the lower base that we will be growing off of.

Our next question comes from Stephen Powers from Deutsche Bank. Please go ahead with your question.

Yes, Thank you and good morning.

I guess.

Probably Tracy for you as well just maybe you could help provide a little bit more help bridging to the implied second half revenue and profitability outlook as implied in your guidance.

Pretty significant step up from where you will be.

As of the end of December based on the <unk> Guide and that's despite battling what sounds like it will be.

Headwinds in Asia travel retail inventory that will will extend until at least the third quarter.

So again, maybe you can just.

The building blocks, there your level of confidence and visibility in.

Alongside that it might help just if you have a view on what.

Consumption is for your brands.

Through this first quarter, maybe through the first half versus versus what you're actually shipping because I think a big.

A big.

Part of that bridge is that you start to ship more to consumption as you get out from underneath the inventory headwinds, but again, it's a very big step up so just some clarity on some some more detail there would be great. Thank you.

Yeah, So you're exactly right. The assumption is that we ship more towards we're able to ship more towards.

Towards the retail trends I mean, as we said in the prepared remarks, our retail trends are ahead of our.

Our Barnett trip trends in in Asia travel retail both still down.

Because we are destocking, the trade and so the expectation.

Is that that will be completed.

By the end of the third quarter. So in the second half of the year. So part of this you know a large part of the step up that you see in the second half of the year is our shipping more towards the retail trends that.

That we are expecting in the second half of the year.

That's that's a big part of it and when you think about what happened to us and what we're anniversarying from the second half of last year.

Where we had the policy changes first in Korea that impacted our third and fourth quarter and then the policy change our policy reinforcement in Hainan, which impacted our fourth quarter we.

We had in some parts of our travel retail business very low shipments.

Tracey Travis: Obviously, the first thing we're looking at is, as we mentioned in our prepared remarks, recovering our gross profit margin, and to your point, you know, we've had, you know, issues with high levels of inventory. We've talked for years about, and you all know that we typically, because of our lead times, and in our historic footprint, carry high levels of inventory, which does affect our agility to be able to manage when shocks happen to the system, which is what's happened over the last couple of years.

Given those those policy changes and so.

So we are anniversarying as well some of the initial shocks of that lastly, I would say that we are seeing travel come back slowly.

So again more slowly than what we anticipated we are seeing lighter levels of conversion relative to what we saw certainly pre pandemic or even pre the significant.

Changes in policy across the Asia region.

Tracey Travis: So, certainly regionalizing our supply chain and completing the manufacturing facility we have in Japan will help us over the next few years in terms of being able to take more inventory out of transit and being able to produce a bit closer to demand. We also have implemented, and Fabrizio talked about our integrated business planning process, which is leveraging some of the tools that we've invested in over the last few years to really improve the accuracy of our forecast, to include a bit more of the commercial drivers that drive our business in our forecast, again, to improve the accuracy and have less excess inventory.

And.

But we are seeing traffic pick up and and we are certainly.

Expecting that that conversion will gradually pick up as well in the second half. So those are some of the things that are underlying our second half expectations and the reason you see that that big Big step up in terms of in terms of volume. It's a combination of multiple factors mostly in.

In our Asia travel retail a bit of it is a pickup as well in in China also perfect. Today I don't know if theres anything you want to add just want to add there.

Our retail underlining our retail calendar year to date is the bead high single digit rates globally.

Tracey Travis: And then the actions that we're already taking this year to help to help improve our gross margins for next year is a significant pull-down in our production volume. So, our production units this year are down about 25 percent from what they were last year. So, even though we are anticipating now more modest growth, given the update to our forecast, we are drawing down on the inventory that we have on hand, as well as obviously some of the actions we're taking from a shipment standpoint to draw down the inventory that we have in trade in Asia travel retail.

And in our estimate of retail.

To be accurate improving on this point so the retail base, which is driven by the consumption of consumers buy the innovation by the strengths of the band by the demand from the consumer standpoint.

It is very solid for calendar year or calendar yesterday.

And as Tracy as said the adjustment of inventories is the big things that we are dealing with and the evolutions of the Polish depth created. These readjustments. It is what has been difficult to predict and anticipate and has been pretty volatile.

Tracey Travis: So, there are a number of actions that we're taking that will help gross margin. We are going through a skew rationalization program in addition to cutting some of our smaller deluded innovation programs that were planned over the next year or two. So, there are lots of actions we're taking. All of those actions are not finalized yet, but many of them are in flight. They just won't impact as much this year as they will future years. And then, yes, we are looking at our expense base and how we operate going forward, especially given our current level of sales and the lower base that we will be growing off of.

And so that's the adjustment, but the underlying fundamentals are already strong is not that we need to develop them in order to deliver the retail in the future with just to continue evolving on these fundamentals.

That's very helpful. Thank you very much.

Yeah.

Our next question comes from Jason English from Goldman Sachs. Please go ahead with your question.

Hey, good morning folks thanks for Slotting me and thanks for sharing the encouraging data point on retail sales.

Tracy you're talking about how shipments way down last year and kind of following the story for last year.

Ben.

Stephen Powers: Our next question comes from Steven Powers from Deutsche Bank. Please go ahead with your question. Yes, thank you and good morning. I guess and probably Tracy for you as well.

Thinking of your once you get leverage back and once you are able to turn back on the sales catch up of retail sales is going to give you a lot of operational leverage to aid gross margin recovery and Thats really a sales problem, but if I objectively stopped back I step back and look at the composition of the P&L.

Does tell us slightly different story I mean, it doesn't look like a revenue problem rent revenue is actually just round trip to where you were in the first quarter of <unk> 19.

Tracey Travis: Maybe you could try a little bit more help bridging to the implied second half revenue and profitability outlook as implied in your guidance. It's a pretty significant step up from where you will be as of the end of December based on the FUQ guide. And that's despite battling what sounds like it will be headwinds in Asia, travel retail inventory that will extend into at least the third quarter. So again, maybe you can just the building blocks there, your level of confidence and visibility.

Looks like it's really a cost problem despite revenue being back where it was in first COVID-19, Cogs up $250 million SG&A up $320 million and this is despite a cost cut product program that you announced in late 2020, which so far doesn't appear to have yielded any savings.

So can you help us understand what's caused the cost to run up so much over the last couple of years, where have the efficiency savings gone so far.

And I guess you are announcing the new actions to kind of go after it.

Tracey Travis: Alongside that, it might help just you have a view on what consumption is for your brands through this first quarter, maybe through the first half versus what you're actually shipping. Because I think a big part of that bridge is that you start to ship more to consumption as you get out of them underneath the inventory headwinds.

Is that enough to kind of take that back out there with the initiatives you have in place.

Yeah, No Greg Great question.

Jason So if you look back to the composition of the P&L in fiscal 19, you'll see that our gross margins were higher.

And certainly our cost as a percent of sales was.

Tracey Travis: But again, it's a very big step up, so just some clarity and some more detail there will be great. Thank you. So, no, you're exactly right. The assumption is that we ship more towards, we're able to ship more towards towards the retail trends. I mean, as we said in the prepared remarks, our retail trends are ahead of our net trends in Asia, travel retail, both still down because we are destocking the trade.

Was a bit lower and obviously given the pull down that we've had in this latest guidance review our cost as a percent of sales are are higher as well but.

We did have we've had two cost saving programs, we had the leading beauty forward program and then we had the post COVID-19 business acceleration program.

In both of those instances.

Tracey Travis: And so the expectation is that that will be completed by the end of the third quarter. So in the second half of the year, so a large part of the step up that you see in the second half of the year is our shipping more towards the retail trends that we are expecting in the second half of the year. That's a big part of it. And when you think about what happened to us and what we're anniversary from the second half of last year, where we had the policy changes first in Korea that impacted our third and fourth quarter.

Certainly leading beauty forward gave us runway, we were actually expanding operating margins by over 100 basis points of year.

Anywhere between 60 to 80 to 100 basis points, a year through that program and that program allowed us to reinvest in capabilities that we needed in particular.

To accelerate some of our digital marketing activities.

To create some share services structures, and some of our functional areas and and to be able to leverage costs better in those areas. So those programs that program was successful in both delivering margin expansion and <unk> expense leverage at that time.

Tracey Travis: And then the policy change or policy reinforcement in Hainan, which impacted our fourth quarter. We had, in some parts of our travel retail business, very low shipments given those policy changes. And so we are anniversarying as well some of the initial shocks of that. Lastly, I would say that we are seeing travel come back slowly. So again, more slowly than what we anticipated. We are seeing lighter levels of conversion relative to what we saw, certainly pre-pandemic or even the significant changes in policy across the Asia region.

Advance allowed us to close some of our under productive brick and mortar doors.

Take a little bit of.

Org.

Adjustments as well.

We have over the last few years invested in a number of capabilities.

That have been needed.

In terms of in our regulatory area that.

That includes cyber but also in the regulatory area, given the increasing regulations and all of the countries that we do business with.

And and the claims and that we need.

Two to support.

Our brand marketing initiatives going forward.

We've made investments in in areas like our social sustainability program. So we have made a number of investments that you know other.

Tracey Travis: But we are seeing traffic pick up and we are certainly expecting that conversion will gradually pick up as well in the second half. So those are some of the things that are underlying our second half expectations. And the reason you see that big step up in terms of volume. It's a combination of multiple factors, mostly in our Asia travel retail. A bit of it is a pick up as well in China.

Other than the shocks that we've had over the last couple of years have been investments that were needed in the company.

Certainly as we look forward.

We are looking at as I said before the profit recovery program is both focused on gross margin because we're not.

Back at the gross margin levels that we were at in fiscal 19 or even before.

Rupesh Parikh: Rupesh Parikh, I don't know if there's anything you want to add. I just want to add that the our retail underlining retail calendar you have to date is the bid-high single digit, already globally. And our estimate of retail continue to be actually improving on this point. So the retail base which is driven by the consumption of consumers, by the innovation, by the strength of the band, by the demand from the consumer standpoint is very solid.

And and we also are looking at expense areas everything from our procurement program, where we expect that we can get some savings there.

Two two other org efficiency so more to come in January February actually when we when we give you our second quarter results on what the final plan will look like.

But.

Believe me we are as focused on.

The P&L structure recovery as the as you or Jason.

Okay. Thanks.

Rupesh Parikh: For calendar year. For calendar year today. And as Tracey has said, the readjustment of inventories is the big things that we are dealing with and the evolutions of the policies that have created these readjustments is what has been difficult to predict and anticipate and it's been pretty volatile. And so that's the adjustment. But the underlying fundamentals are already strong, is now that we need to develop them in order to deliver the retail in the future, we just to continue evolving on these fundamentals.

Jason just wanted to add a point on the fact that in the really the broker recovery plan needs to rebuild gross margin and as you said also that our new capability that we invested in that Tracy mentioned also.

In many other areas needs to align to our current sales levels and that's the work we're going to do as well. So those are the two big area of focus and in February we will give much more specifics and details how will effect will impact 2025 in the majority in 2026.

And so it is a politically a plan I just want to say the entire organization is aligned on this plan we have teams already working on this.

Operator: That's very helpful. Thank you very much.

Jason English: Our next question comes from Jason English from Goldman Sachs. Please go ahead with your question. Hey, good morning, folks. Thanks for slot me in and thanks for sharing that encouraging data point on retail sales. Tracey, you're talking about how shipments weigh down last year and it's kind of following the story for the last year. We've been thinking once you get leveraged back in, once you're able to turn back on the sales, catch up with retail sales, it's going to give you a lot of operational leverage to aid the gross margin recovery.

We are completely committed to deliver that and I just want to make a clarification on the programs that we announced that you've touched on a 'twenty because you said that didn't deliver save it needs deliver savings in the area of selling that was the focus remember this program was tailored a lot to the fact that the corvid it disrupted the.

Go to market part of the business and increase our sales online vessel sales in brick and mortar. So we need to reallocate resources more to online unless the brick and mortar and to create the right future, but the future balance of costs between the two areas. That's what we did in fact, we invested in your line progress.

Jason English: And that's really a sales problem. But if I objectively step back and look at the composition of the PNL, it does tell a slightly different story. I mean, it doesn't look like a revenue problem. Revenue is actually just round trip to where you were in the first quarter of 19. It looks like it's really a cost problem. Despite revenue being backward, it was in first quarter 19, cogs, up 250 million, SGNA up 320 million.

Today, we are still leveraging the benefits and we did reduce our cost in the brick and mortar selling areas accordingly to the trends that they call the debt created so.

Jason English: And this is despite a cost cut product program that you announced in late 2020, which so far doesn't appear to have yielded any savings. So can you help us understand what's caused the cost to run up so much over the last couple of years? Where have the efficiency savings gone so far? And I guess you are announcing the new actions to kind of go after it. Is that enough to kind of take that back out with the initiatives you have in place?

When we did in the past these kind of programs, we have been pretty successful in delivering what we wanted.

Okay.

Thank you I'll pass it on.

Thank you. Our next question comes from Olivia Tong from Raymond James. Please go ahead with your question.

Great. Thank you.

It's a bit of a multipart question.

Follow ups to a few but first just a point of clarification on the global retail number that you gave of up mid to high single digits was that for you or for the category.

Tracey Travis: No, great question, Jason. So if you look back to the composition of the PNL in fiscal 19, you'll see that our gross margins were higher. And certainly our cost as a percent of sales was a bit lower. And obviously, given the pull down that we've had in this latest guidance review, our cost as a percent of sales are higher as well. But we had two cost saving programs. We had the leading beauty forward program.

And then.

On travel retail can you give us a sense on your visibility into how much inventory is still sitting with the groups or individuals versus in the brick and mortar duty free channel, which we have a little bit better clarity and thank you.

Yes.

Yes.

It is our retail sales that was referring to so calendar year to date in 2023 hour trend.

Tracey Travis: And then we had the post-COVID business acceleration program. In both of those instances, certainly leading beauty forward gave us runway. We were actually expanding operating margins by over 100 basis points a year, anywhere between 60, 80 to 100 basis points a year through that program. And that program allowed us to reinvest in capabilities that we needed in particular to accelerate some of our digital marketing activities to create some share of services structures in some of our functional areas and to be able to leverage costs better in those areas.

Our retail is mid high single digits.

Up to date and our estimate for the future is to continue improving that trend. So my point is that retail is solid and the negative net sales that we see in these first six months for sure.

So some dismantle this of the <unk>.

Fiscal year.

Related to the readjustment of inventories that Tracy was mentioned.

Second on the visibility on these inventories in travel retail.

And.

By the way when when we say these retail we see ex the travel retail numbers, yes, just one clarification. So he is once the travel retail number the point, we're trying to make is that when the travel retail number.

Tracey Travis: So those programs, that program was successful in both delivering margin expansion and expense leverage at the time. Advanced allowed us to close some of our underproductive brick and mortar doors and take a little bit of or adjustments as well. But we have over the last few years invested in a number of capabilities that have been needed in terms of in our regulatory area. That includes cyber, but also in the regulatory area given the increasing regulations in all of the countries that we do business with.

The retail and the net will be aligned and we said that there will be aligned as of the end of the third quarter.

As of this moment they retail the solidity of the retail progress is already in the making the point we are trying to make.

Anyway on travel retail we had a significant stock reduction in this.

This first quarter and we aim.

Tracey Travis: And the claims that we need to support our brand marketing initiatives going forward. We've made investments in areas like our sustainability program. So we have made a number of investments that other than the shocks that we've had over the last couple of years have been investments that were needed in the company. Certainly as we look forward, we are looking at, as I said before, the profit recovery program is both focused on gross margin because we're not back at the gross margin levels that we were at in fiscal 19 or even before.

To be in line with inventory expectation of retailers by the end of March and we have visibility into these numbers. We have visibility we have exactly the understanding with each one of our retailers on where we are today what are the programs that we are doing in order to accelerate.

Sales at retail of the existing stocks and without the program, Sir two obviously replenishing and sell in innovation and always we need to do in these areas.

And finally, how by end March we aim to have the retail and the net aligned.

That's the program.

Okay.

Tracey Travis: And we also are looking at expense areas, everything from our procurement program where we expect that we can get some savings there to other org efficiencies. So more to come in January, February, actually when we give you our second quarter results on what the final plan will look like. But believe me, we are as focused on the P&L structure recovery as you are, Jason.

Our next question comes from Filippo.

<unk> from Citi. Please go ahead with your question.

Hey, good morning, everyone.

So I wanted to ask a question on mainland China.

The first quarter, where you guys talk about a bit of a slowdown relative to prior quarters. So maybe fabrizio can you give some context on the level of slowdown that youre seeing in the category and then from a competitive standpoint, we've seen some local brands do a little bit better or more on the math.

Fabrizio Freda: Jason, Jason, just wanted to add the point on the fact that in, really, the Procurricore Plan needs to rebuild Gross Margin, and as you said, also our new capability that we invested in, the Tracey Mansion, also in IT, in many other areas, needs to align to our current sales levels, and that's the work we are going to do as well. So those are the two big areas of focus and in February, we will give much more specifics and details how we will affect the will impact 2025 in the majority in 2026.

Syed but have you seen any trade down within the category.

Total skincare and cosmetics. Thank you.

Yes.

First of all the market the market was growing 2% in the first quarter in China, our retail during this quarter it was flat.

But our retail in China calendar year to date is growing and we are building market share, but in that specific quarter. The market growth went down to 2% now our estimate of the recovery of the beauty market in prestige was higher than that.

Fabrizio Freda: And so is a politically a plan, I just want to say the entire organization is aligned on this plan, we have teams already working on this, we are completely committed to deliver that, and I just want to make a clarification on the programs that we announced in 2020, because you said it didn't deliver saving, it did deliver saving in the area of selling. That was the focus, remember this program was tailored a lot to the fact that the COVID had disrupted the go-to market part to the business and then increased our sales online versus the sales in Brick and Mortar, so we need to relocate resources more to online, less to Brick and Mortar, and to create a right future in, but the future balance or cost between the two areas, that's what we did.

And that is the.

One of the key the adjustments, we're making in the in projecting the year, that's the point and.

So this 2% is the current trend level also as I said in my prepared remark the.

Resell period of demand.

And particularly on in general the single day confirms a softer trend versus a year ago and that's why we are reflecting this confirmation now we are more optimistic about the next part of the single day events in November but is the presale was confirming a softer market.

Fabrizio Freda: In fact, we invested in the online progress today, we are still leveraging the benefits and we did reduce our cost in the Brick and Mortar selling areas accordingly to the trends that COVID had created. So when we did in the past these kind of programs, we have been pretty successful in delivering is what we wanted.

In term of your second part of the question is the.

That's local brands in mass.

Any masstige, which are doing well and we should start doing well in China for sure in prestige and the impact of that is for the moment limited and so we we see prestige being solid in comparison to mass in Genoa.

Operator: Okay, thank you, I'll pass on. Thank you.

Olivia Tong: Our next question comes from Olivia Tong from Raymond James, please go ahead with your question. Great, thank you. A bit of a multi-part question and follow-ups to a few, but first, just a point of clarification on the global retail number that you gave up mid to high single digits, was that for you or for the category, and then on travel retail, can you give us a sense on your visibility into how much inventory is still sitting with groups or individuals versus in the Brick and Mortar duty free channel, which we have a little bit better clarity and thank you.

And we don't see a big.

Movement from prestige too much at this point in time.

Great. Thank you.

Our next question comes from Bryan Spillane from Bank of America. Please go ahead with your question.

Thanks, operator, good morning, everyone.

I wanted to go back to Jason Jason English is question regarding margins and I guess.

Olivia Tong: Yeah, yes, it was, is our retail sales that was referring to? So calendar year to date in 2023, our trend of retail is mid-high single digit up to date, and our estimate for the future is to continue improving that trend. So my point is that retail is solid, and the negative net sales that we see in these first six months, for sure, are, first of these months of the fiscal year, are related to the readjustment of inventories that Tracy was mentioned.

As we kind of look forward and try to think about the rebuild to the previous margin aspiration.

How much of it do you expect to come from.

The expanded cost savings and how much is just resetting the bar.

Business mix because travel retail is so so profitable and so do we need travel retail to get back to kind of a similar percentage of sales is it where it was three years ago or.

Would you be able to get there if.

Travel retail ended up being smaller for.

Reasons, given how cyclical with it.

Yeah, no. It's a great question.

Olivia Tong: Second, on the visibility on these inventories in travel retail, and by the way, when we say this retail, we say X, the travel retail numbers, just one clarification. So is once the travel retail number, the point we are trying to make is that when the travel retail number, the retail and the net will be aligned, and we said that there will be a line as of the end of the third quarter, as of this moment, they retail, the solidity of the retail progress is already in the making.

Given given where travel retail is right now and certainly we I'm sure. Many others are thinking about the future of travel retail, which we are very encouraged by in terms of a return to growth, but a return to the prior levels don't know.

Have much now.

The volume that has shifted to the local market.

And I would expect to continue to see growth in our in the local market as well. So there may be a rebalance as it relates to the consumption.

For for the Chinese consumer in particular.

Olivia Tong: That's the point we are trying to make. Anyway, on target retail, we had a significant stock reduction in this first quarter. And we aim to be in line with the inventory expectation of retailers by the end of March. And we have visibility into these numbers. We have visibility, we have exactly the understanding with each one of our retailers on where we are today, what are the programs that we are doing? In order to accelerate sales, a retail of the existing stocks, and what are the programs to obviously replenish and sell in innovation and all what we need to do in these areas. And finally, how by end March, we aim to have the retail and the net aligned. That's the program.

As well as perhaps other consumer groups.

So we're not counting on travel retail to get back to.

Prior prior levels, if it does thats great.

Our profit recovery program combined with some of the growth plans that we have for our markets and brands going forward.

Are not relying on that to return to profit margin.

The profit margins that we had previously.

<unk>.

And I would like to offer a bit of historical perspective on what happened. During this COVID-19 period ended and the volatility that these broad I mean, when you because you were comparing in your question versus.

Before Cogs versus three years ago previous so it takes 2019.

Our business in mainland China.

Versus 2019 is more than doubled.

Our TR business today globally versus 2019 is by now with these estimates that we are.

Filippo Falorni: Our next question comes from Filippo Falorni from City. Please go ahead with your question. Hey, good morning, everyone. So I wanted to ask a question on mainland China. It's the first quarter where you guys talk about a bit of a slow down relative to prior quarter. So maybe Fabrizio, can you give some context on the level of slow down that you're seeing in the category and then from a competitive standpoint, I've seen some local brands doing a little bit better, more on the math side.

Get into you know is actually well below.

Deb.

That is true that during this call the period the Ti business.

Also driven by deal structure phenomenon that we had we have discussed previously.

It was actually up but then by now this has been reabsorbed. So the profile of the business in with Chinese consumers. In 2019 was that there was a base sales in mainland China. There was a lot of the sales to Chinese consumer that were happening.

Filippo Falorni: But have you seen any trade down within the category, bottom skin care and cosmetics. Thank you. Yeah, no, the first of all, the market, the market was growing 2% in the first quarter in China, our retail during this quarter was flat. But our retail in China, calendar year to date is growing and we are building market share. But in that specific quarter, the market growth went down to 2%. Now our estimate of the recovery of the beauty market in prestige was higher than that.

The world in their travel.

This was estimated to be up to 40% of what was the total consumption at that time before COVID-19.

And there is a lot of these was in travel retail and also was in the.

The cities that were visited layered in Orlando, Paris, New York, Hong Kong, Tokyo et cetera.

Now during Covid, obviously, the frontier, where all closed so this consumption came back into mainland China in fact, our business in mainland China today as I said, it's doubled their world Wars.

Filippo Falorni: And that is the one of the key real addressments we are making in the in project in the year. That's the point. And so this 2% is the current trend level. Also, as I said in my prepare remark, the pre-sell period of Timo and particularly in general, the single day confirms a softer trend versus year ago. And that's why we are reflecting this confirmation. Now we are more optimistic about the next part of the single day events in November, but the pre-sell was confirming a softer market.

And some of it went into travel retail like Hana development and all the other things that happened, which are very good for the long term and some of it went into the structure business, which is actually going down now and as part of the readjustment and is a positive things for the long term.

So D, resulting the result of all these movements.

He is frankly solid and sustainable for the long term because the result is a solid business in mainland China, which we are supporting a will continue to support we build an R&D center. We have created the all the reasons or the ability to be more locally relevant into the future and to continue to.

Filippo Falorni: In term of your second part of the question is that local brands in mass and in prestige, which are doing well and which start doing well in China for sure, in prestige, the impact of that is for the moment limited. And so we see prestige being solid in comparison to mass in general. And we don't see a big movement from prestige to mass at this point in time. All right, thank you.

Support this business and invest in this business and invest in this very important market for us in the long term that we believe is core to also to our future growth algorithm.

At the same time the amount of volatile business that went into the tier in the period of Covid has been de risked and is going down and as we said we need to continue to de risk. It in this fiscal year and that that's what we are planning that's what we are announcing interim.

The resulting guidance so that and.

Bryan Spillane: Our next question comes from Bryan Spillane from Bank of America. Please go ahead with your question. Thanks operator, good morning everyone.

And the D.

For other business, mainly the regular travelers and Chinese consumer debt traveling the world. This is gradually going up again, and so will create a good consumption by regular travelers in this moment is growing up more in Asia than in the west the traveling to the west is still relatively lean.

Tracey Travis: I wanted to go back to Jason, Jason English's question regarding margins and I guess it's we kind of look forward and you know try to think about the rebuild to you know the previous margin, how much of it will be expect to come from, you know, that the expanded cost savings and how much is just resetting the business mix, you know, because travel retail is so so profitable and so do we need travel retail to get back to kind of a similar percentage of sales is aware it was three years ago, or, you know, would you, would you be able to get there if, you know, travel retail ended up being, you know, smaller for. You know reason, given how cyclical it is.

But we forecast these overtime to continue to improve.

And the lending place of these movements.

B the sustainable profitable business that we are coming back too.

Okay. So would it be to be clear, we can get back to kind of the previous profit algorithm EBIT if travel retail.

Hainan is not as big as it was previously.

Yes, we believe so.

Alright, perfect. Thank you very much.

Tracey Travis: Yeah, no, it's a great question, you know, given given where travel retail is right now and certainly we I'm sure many others are thinking about the future of travel retail, which we are very encouraged by in terms of a return to growth, but a return to the prior levels don't know you have much now of the volume that is shifted to the local market. And I would expect to continue to see growth in in the local market as well, so there may be a rebalance as it relates to the consumption for for the Chinese consumer in particular as well as perhaps other consumer groups.

And ladies and gentlemen, with that we've reached the end of today's question and answer session.

To turn the floor back over to Fabrizio for any closing remarks.

Thank you.

I just wanted to try to summarize this.

Enormous of moving past and make sure that we give you the clarity of what we are focused on at this point in this moment. So we expect calendar year 2023 to be the final and frankly painful post COVID-19 reset period for the company.

We move forward with confidence as our fundamentals are strong in these attractive prestige beauty industry.

Tracey Travis: So we're not counting on travel retail to get back to, you know, prior prior levels, if it does, that's great, but our profit recovery program combined with some of the growth plans that we have for our markets and brands going forward are not relying on that to return to profit margin, the profit margins that we had previously.

Our calendar year to date retail sales performance remained very solid in all recovery markets and in general both developed and emerging in the mid single high digit that I quoted before our brand portfolio is better than ever with the recent acquisition of Tom Ford solely define our luxury strategy.

And the ordinary which we didn't talk a lot in this call, but it's becoming a powerhouse brand at the entry of growing active derma segment and is definitely our fastest growing brand in our portfolio.

Fabrizio Freda: And I would like to offer a bit of historical perspective on what happened during this COVID period and the volatility that is brought. I mean, when you because you were comparing in your question versus before COVID versus the three years ago previous in so takes 2019. Our business in mainland China versus 2019 is more than doubled our TR business today globally versus 2019 is by now with this estimated that we are giving to you now is actually well below.

Our innovation pipeline is robust for fiscal year 2024, but it gets even better and bigger and stronger in fiscal year 2025, we especially to the west spaces opportunity that we have identified.

We are on track to aligned retail and net sales via inventory reduction with our retailers in China travel retail as discussed during the call. We are focused on accelerating a more balanced growth in the future by market or by channel.

And importantly via the profit recovery plan, we are preparing to rebuild gross margin leverage our new capabilities to align our expenses to our current sales level and further strengthen our consumer facing activities.

Fabrizio Freda: So there, but it's true that during this COVID period, the TR business also driven by the infrastructure phenomenon that we have discussed previously was actually up, but then by now this has been reabsorbed. So the profile of the business in with Chinese consumers in 2019 was that there was a base sales in mainland China, there was a lot of the sales to Chinese consumer that were happening around the world in their travel.

We have the strategic focus and the talent to do this work.

And together intend to return to our historical cadence of delivering sustainable sales and profit growth.

And thank you for your time and for your attention today.

Ladies and gentlemen, with that we'll conclude today's conference call and presentation. We thank you for joining you may now disconnect your lines.

Fabrizio Freda: This was estimated to be up to 40% of what was the total consumption at that time before COVID. And this a lot of this was in travel retail and also was in the cities that were visited, like I don't know, London, Paris, New York, Hong Kong, Tokyo, etc. So now during COVID, obviously the frontier were all closed, so this consumption came back into mainland China. In fact, our business in mainland China today, as I said, is double the world was and some of it went into travel retail, like Hannah development and all the other things that happened, which are very good for the long term.

Fabrizio Freda: And some of it went into the infrastructure business, which is actually going down now and is part of the readjustment and these are positive things for the long term. And so the resulting, the result of all these movements is frankly solid and sustainable for the long term because the results is a solid business in mainland China which we are supporting and will continue to support. We have built an ever-and-ecentre, we have created all the abilities to be more locally relevant in the future and to continue to support this business and invest in this business and invest in this very important market for us in the long term, the we believe is core to also to have a future growth algorithm.

Fabrizio Freda: At the same time, the amount of volatile business that went into the T.R, in the period of COVID has been the risk and is going down and as we said, we need to continue to the risk it in this fiscal year and that's what we are planning and that's what we are announcing in terms of the resulting guidance of that. And the travel business, meaning the regular travelers in China is consuming their traveling the world, this is gradually going up again and so we'll create good consumption by regular travelers.

Fabrizio Freda: In this moment is going up more in Asia than in the West, the traveling to the West is still relatively limited but we forecast this over time to continue to improve. And the lending place of these moments will be the sustainable, profitable business that we are coming back to.

Bryan Spillane: Okay, to be clear, we can get back to kind of the previous profit algorithm even if travel retail and basically high-non is not as big as it was previously. Yes, we believe so. All right, perfect. Thank you very much.

Fabrizio Freda: And ladies and gentlemen with that, we've reached the end of today's question and answer session. I'd like to turn the floor back over to for BCO for any closing remarks. Thank you.

Fabrizio Freda: And I just wanted to try to summarize this enormous moving part and make sure that we give you the clarity of what we are focused on at this point in this moment. So we expect calendar year 2023 to be the final and frankly painful post-COVID reset period for the company. We move forward with confidence as our fundamentals are strong in this attractive beauty industry. Our calendar year to date retail sales performance remain very solid in all recovery markets and in general, both developed and emerging in a mid-single high digit that I quoted before.

Fabrizio Freda: Our brand portfolio is better than ever with the recent acquisition of comfort solidifying our luxury strategy and the ordinary which we didn't talk a lot in this goal but is becoming a powerhouse brand at the entry of growing active Dharma segment. And it's definitely our fastest growing brand in our portfolio. Our innovation pipeline is robust for fiscal year 2024 but it gets even better and bigger and stronger in fiscal year 2025.

Fabrizio Freda: We dispassion into the white spaces opportunity that we have identified. We are on track to align retail and net sales via inventory reduction with our retailers in China private retail as discussed during the call. We are focused on accelerating a more balanced growth in the future by marketed by channel and importantly via the profit recovery plan. We are preparing to rebuild gross margin leverage our new capabilities to align our expenses to our current sales level and further strengthen our consumers facing activities.

Fabrizio Freda: We have the strategic focus and the talent to do this work, and together intend to return to our historical cadets of delivering sustainable sales and profit growth. And thank you for your time and for your attention today.

Operator: Ladies and gentlemen, with that we'll conclude today's conference call and presentation. We thank you for joining.

Operator: You may now disconnect your line.