Q3 2024 The Estée Lauder Companies Inc. Earnings Call

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

Operator: Good day, everyone, and welcome to the Estee Lauder Companies fiscal 2024 third quarter conference call. Today's call is being recorded and webcast. If you require operator assistance, please press star and zero for opening remarks and introductions. I'd like to turn the call over to Senior Vice President of Investor Relations, Ms. Rainey Mancini. Ma'am, you may begin.

Today's call is being recorded.

If you require operator assistance, please press star zero.

For opening remarks and introductions.

Speaker Change: I'd like to turn the call over to senior Vice President of Investor Relations. It's raining asking then.

Speaker Change: Ma'am you may begin.

Speaker Change: Hello on today's call are Fabrizio, Freda, President and Chief Executive Officer, and Tracey Travis Executive Vice President and Chief Financial Officer.

Laraine A. Mancini: Hello, on today's call are Fabrizio Freda, President and Chief Executive Officer, and Tracey Travis, Executive Vice President and Chief Financial Officer. Since many of our results today contain forward-looking statements, let me refer you to our press release and our filings 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.

Speaker Change: Since many of our adults 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.

Speaker Change: 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 excludes the non comparable impacts of acquisitions and divestitures.

Laraine A. Mancini: Unless otherwise stated, all organic net sales growth also excludes the non-comparable impacts of acquisitions, divestitures, brand 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 investor section of our website. As a reminder, reference to online sales includes 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.

Speaker Change: Branch closures and the impact of foreign currency translation.

Speaker Change: 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, our referenced our online sales include sales that may make directly to our consumers through our brand dotcom sites and third party platform. It also includes estimated sales of our products to our retailers' websites.

Laraine A. 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. And now, I'll turn the call over to Fabrizio.

Speaker Change: 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 will turn the call over to Fabrizio.

Fabrizio Freda: Thank you, Irene, and hello to everyone. We are pleased to be with you today to review our third quarter results and discuss our strategic initiatives. For the third quarter, we delivered organic sales growth of 6% at the high end of our outlook, exceeded our expectations for profitability, and continued to significantly improve working capital. We achieved stronger-than-anticipated performance, beginning with gross margin. Results benefited from a greater-than-expected mix of skincare products. Moreover, we made great strides in reducing the pressure on excess and obsolescence, driven by our now lower inventory levels and in realizing strategic pricing.

Fabrizio: Thank you Amy and Hello to everyone. We are pleased to be with you today to review, our third quarter results and discuss our strategic initiatives for.

Fabrizio Freda: Further contributing to the outperformance, we manage expenses with discipline across multiple areas of the business and have shifted certain advertising spending to the front quarter to support our rich innovation pipeline and expanded consumer reach. Encouragingly, with our third quarter results and fourth quarter outlook, we are confident that the second half of fiscal year 2024 will indeed prove to be an inflection point for the company, representing a renewed sales and profit growth trajectory.

Fabrizio: For the third quarter, we delivered organic sales growth of 6% at the high end of our outlook exceeded expectations for profitability and continued to significantly improve working capital we achieved stronger than anticipated performance beginning with gross margin results.

Fabrizio: Benefited from a greater than expected mix of skincare.

Fabrizio: We made great strides in reducing the pressure on excess and obsolescence driven by our now lower inventory levels and in realizing the strategic pricing.

Fabrizio: Further contributing to the outperformance, we manage expenses with discipline across multiple areas of the business and have shifted certain advertising spending to the fourth quarter to support our rich innovation pipeline and expanded consumer reach in.

Fabrizio: Accordingly, with our third quarter results and fourth quarter outlook. We are confident that the second half of fiscal year 2024 will indeed prove to be an inflection point for the company, representing a renewed sales and profit growth trajectory.

Fabrizio Freda: First, momentum in organic sales growth is primed to accelerate in the fourth quarter for a strong second half. Second, we continue to expect operating margin in the second half of fiscal year 2024 to be higher than in the first half and to expand from the year-ago period.

Fabrizio: First momentum in organic sales growth is primed to accelerate in the fourth quarter for a strong second half.

Fabrizio: Second we continue to expect operating margin in the second half of fiscal year 2024 to be higher than the first half and to expand from the year ago period.

Fabrizio Freda: Third, with the profit recovery plan designed to deliver $1.1 to $1.4 billion of incremental operating profit in fiscal years 2025 and 2026, we are well positioned to rebuild our profitability. And with the profit recovery plan also expected to generate savings to reinvest in our brands and consumer-facing initiatives, we are well positioned to accelerate sustainable sales and profit growth as a faster and leaner organism, with stronger leverage from our future growth. During the third quarter, we accomplished much to solidify the inflection point of the second half.

Fabrizio: Third with the profit recovery plan designed to deliver one one to $1 $4 billion of incremental operating profit in fiscal year, 2025, and 2026, and we are well positioned to rebuild our profitability and with the profit recovery plan.

Fabrizio: Also expected to generate savings to reinvest in our brands and consumer facing initiatives, we are well positioned to accelerate sustainable sales and profit growth.

Fabrizio: Is it faster and leaner organization with stronger leverage from our future growth.

Fabrizio: During the third quarter, we accomplished match to solidify the inflection point of the second half.

Fabrizio Freda: Indeed, we made progress in achieving targeted trade inventory levels in Asia Trade Retail. We are encouraged by the evolution of our Asia travel retail business this fiscal year as we execute our priority to reduce trade inventory in alignment with retailers, an effort by various local authorities to contain unstructured market activity. And retail sales growth in Asia Travel retail significantly improved sequentially, returning to growth in the third quarter.

Fabrizio: Indeed, we made progress in achieving targeted trade inventory levels in Asia travel retail.

Fabrizio: We are encouraged by the evolution of our Asia travel retail business. This fiscal year as we execute our priority to reduce trade inventory in alignment with retailers and export by various local authorities to contain a structured market activity.

Fabrizio: And retail sales growth in Asia travel retail significantly improves sequentially returning to growth in the third quarter.

Fabrizio Freda: This improving retail sales trend near travel retail complemented the double-digit retail sales growth we continue to see in EMEA and the Americas travel retail. So far this fiscal year, we have also invested in the long-term growth opportunities of traveling consumers, evidenced by our brands having moved within Hainan Sanya International Duty-Free Shopping Complex to the Galleria's new Global Beauty Plaza. The larger, elegant new stores span upon the high-tech services and experiences that we offered at the previous locations in the complex, from Estee Lauder's Renutrive New Skin Longevity Institute to La Mer Cabin, offering bespoke spa services and Kylian's Paris juice and cocktail bars featuring fragrance-inspired cocktails.

Fabrizio: These improving retail sales trend neither travel retail complimented double digit retail sales growth, we continue to see in EMEA and the Americas travel retail.

Fabrizio: So far this fiscal year, we also invested in the long term growth opportunities traveling consumers. If you danced by our brands had a move that we didn't find in Sanya International duty free shopping complex. So the gallery is new global Beauty Plaza.

Fabrizio: Larger elegant new stores expands upon the high touch services and experiences that we offered at the previous locations in the complex from Este Lauder renewed three of Nu skin longevity Institute to La Mer Cabbies, offsetting bespoke S spot services and Chelios bodies jus a cartel.

Fabrizio: <unk> featuring fragrance inspired contests.

Fabrizio Freda: We also made great progress in advancing strategic initiatives and launching exciting innovation to fuel North America, re-accelerate growth in mainland China, and drive momentum in markets that are strong across developed and emerging markets in Asia Pacific, India, and Latin America. Let me begin with cleaning, where we had a robust quarter of progress as the brand doubled down on its authentic dermatologist brand heritage. Clinique deepened its relationship with the medical community, returning to the American Academy of Dermatology annual meeting with high-impact engagement.

Fabrizio: We also made great progress in advancing strategic initiatives and launching exciting innovation to few of North America Reaccelerate growth in mainland China and drive momentum in markets that are strong across developed and emerging markets in Asia Pacific EMEA and Latin America.

Fabrizio Freda: The brand also established the Clinique Dermatologist Creator Council, a collection of doctors who are amplifying the sharing of science and dermatological insights on their own social channels as well as informing clinic narratives on its social platforms. Impressively, Clinique's Influencer earned media value for skincare in the U.S. soared 80 percent during the quarter, leaping 33 spots in rank. We believe this is just the beginning of the success the clinic will realize by communicating its dermatological education and clinically proven solution for skin care.

Fabrizio: Let me begin with cleaning, where we had a robust quarter of progress as the brands doubled down on it our 10 Dermatologists brand heritage.

Fabrizio: Deepening its relationship with the medical community returning to the American Academy of Dermatology annual meeting with high impact engagements. The brand also establish the clinique the dermatologist create or cancel a collection of doctors, who are amplifying the sharing of science and dermatology Galena.

Fabrizio: <unk> on their own social channels as well as in forming Clinique narrative puneet social platforms.

Fabrizio: Impressively Clinique influenza earned media value for skin care in the U S sword, 80% during the quarter, leaving 33 spots in Iraq. We believe this is just the beginning of the success Clinique, we realized by communicating each dermatologist education and clinically prove.

Fabrizio: And solution for skincare makeup Mauro.

Fabrizio Freda: Moreover, having started with Clinique in March, we are thrilled to be strategically expanding our consumer reach in the U.S. as a select few brands will open dedicated storefronts in Amazon's fast-growing premium beauty store over the coming months. Clinique's launch capitalized on its renewed dermatologist-guided branding with striking creative assets and elevated storytelling. Impressively, Clinique's store has exceeded our retail sales expectations thus far and already contributed in March to the brand's share gains in the U.S. prestige skincare biggest subcategory of moisturizers, among others, as well as in U.S. prestige makeup.

Fabrizio: Moreover, having started with Clinique and match, we are thrilled to be strategically expanding our consumer reach in the U S. As a select few brands will open dedicated storefronts in Amazon's fast growing premium beauty store over the coming months clean.

Fabrizio: Clinique launched capitalize on its renewed dermatologists guided branding with striking creative assets and elevated storytelling impressively Clinique store has exceeded our retail sales expectations, thus far and already contributed in March to the brand's share gains in.

Fabrizio: U S prestige skincare biggest subcategory of most store rises among others as well as U S. Prestige makeup.

Fabrizio: We also successfully accelerated our innovation in the quarter for.

Fabrizio Freda: We also successfully accelerated our innovation in the course; for the Estee Lauder brand, we brought to market breakthrough innovation across franchises. For its luxury, renewed franchise, the brand was inspired by its over 15 years of skin longevity research with its new Ultimate Diamond transformative brilliance of cream and serum cream foundation. The impact of these launches is powerful.

Fabrizio: For the Este Lauder brand, we brought to market breakthrough innovation across franchises.

Fabrizio: It's luxury renewed franchise the brand was inspired by each over 15 years Osceola JBT research with each new ultimate Diamond transformative brilliance of cream and serum cream Foundation.

Fabrizio: The impact of these launches is powerful beyond contributing to the brand growth.

Fabrizio Freda: Beyond contributing to the brand's growth, they firmly established ReNutri as a leader in the science of skin longevity, a visible age of reversal. For Estee Lauder's supreme franchise, the brand leveraged its decades of night repair expertise and collagen research with a new revitalizing supreme night bounce cream first launched to rave reviews in Asia-Pacific and expanding globally in the coming months. We believe this launch holds great promise, serving to strengthen the brand leadership in nighttime science and skincare across subcategories.

Fabrizio: Certainly established renewed trip as the leader in the science of skin longevity visible agent reverse.

Fabrizio: For Este Lauder Supreme franchise, the brand leverage each decades of Knight repair expertise in collagen research with the new revitalizing Supreme nights bounds Dream personal launched to rave reviews in Asia Pacific and expanding globally in the coming months.

Fabrizio: We believe this launch holds great promise serving to strengthen the brand leadership in Nytimes science and skincare across subcategories.

Fabrizio Freda: La Mer extended its winning streak of innovation with a moisturizing fresh cream, which, along with its icon hero products, drove the brand to make the strongest contribution to the company's growth for the course. Beyond the strategic innovations and go-to-market activations across active derma, longevity, and night skin care, MAC introduced newness in makeup to jumpstart our rich innovation pipeline in the category for the second half. MAC launched Maximal Silky Matte Lipstick to great acclaim, successfully modernizing its icon matte lipstick with nourishing ingredients and bolder.

Fabrizio: <unk> extended its winning streak of innovation with a most of the rising fresh cream, which along with its icon hero products drove the brand to be the strongest contribution to the company growth for the quarter.

Fabrizio: Beyond these strategic innovations and go to market activations across active derma longevity nice skincare Mac introduce newness in makeup to jumpstart our rich innovation pipeline in the categories for the second half Mac launched maximal siddiqi matte lipstick.

Fabrizio: To great acclaim successfully modernizing icon matte lipstick with new Rishi ingredients bolder packaging from cell to Berlin to New York City maximal pop apps events drove strong engagement in earned media value.

Fabrizio Freda: From Seoul to Berlin to New York City, maximal pop-up events drove strong engagement and earned media value. MAC Remastered Studio Fix Fluid Foundation came to market in April, delivering a new soft matte finish enhanced with new skincare ingredients and even more shade.

Fabrizio: <unk> remastered studio fix fluid foundation came to market in Israel, delivering a new soft mud finished enhance with new skincare ingredients it even more shades.

Fabrizio Freda: This highly sought-after innovation and its icon prove the enduring love of Nike with consumers and make-up artists alike, as the brand celebrates its 40 years in 2020. Looking at fragrances, over the last couple of months, we have expanded our consumer reach in the high-potential Asia-Pacific region, opening spectacular flagship stores for Jo Malone London and Le Labo, each unique with locally relevant features. And we are incredibly excited for the evolution of luxury and artisanal fragrances, as, together with Balmain, we introduce Balmain Beauty this September.

Fabrizio: This high showed innovation and its icon, who the end do reliable mccabe consumers in my capacity as the light as the brand celebrates its 40 years in 2024.

Fabrizio: Looking at fragrances over the last couple of months, we have expanded our consumer reach in the high potential Asia Pacific region opening spectacular flagship stores for Jo Malone, London, and Liverpool each unique with locally relevant features and we are incredibly excited for the Avalon.

Fabrizio: As shown in luxury and artisanal fragrances S. Together with <unk>, we introduced vitamin beauty. This September.

Fabrizio Freda: Across our brands and around the world, we are focused on leveraging technology, including AI, in support of our enduring strengths and high-touch experiences and high-quality products. We continue to partner with leading technology companies, from Microsoft, with whom we are collaborating to embed AI to drive faster speed to market and local relevance, to Google Cloud, as we strive to announce customized targeting for media at scale. Turning to the regions, we have spoken about our focus on driving the momentum in markets that are strong.

Fabrizio: Across our brands and around the World, we are focused on leveraging technology, including <unk> and.

Fabrizio: So part of our enduring strengths and high touch experiences and high quality products, we continue to partner with leading technology companies from Microsoft with whom we are collaborating to embed AI to drive faster speed to market and local relevance to Google cloud as we strive to win.

Fabrizio: <unk> customized targeting a media S K.

Fabrizio: Turning to the regions, we have spoken about our focus on driving the momentum in markets, which are strong.

Fabrizio Freda: To that end, we have delivered terrific results across many markets, reflecting the desirability of our brands, the compelling innovation which I described, and strong go-to-market execution. We see this across our developed and emerging markets around the world.

Fabrizio: And we have delivered terrific results across many markets, reflecting the desirability of our brands.

Fabrizio: Compelling innovation, which I described and strong go to market execution.

Fabrizio: We see this across our developed and emerging markets around the world.

Fabrizio Freda: Beginning in Asia-Pacific, Hong Kong, S.A.R., and Japan have prospered, up double digit organically in the quarter and year to date, and we are excited about what's to come, including the launch of The Ordinary in Japan during the fourth quarter. Moving to EMEA, Germany and Italy have consistently contributed to growth in the markets of the region each quarter.

Fabrizio: Beginning in Asia Pacific Hong Kong, Japan.

Fabrizio: Japan at prosperity.

Fabrizio: Double digit organically in the quarter and year to date.

Fabrizio: We are excited about what's to come including the launch of the ordinary in Japan during the fourth quarter.

Fabrizio: Moving to EMEA, Germany, and Italy have consistently contributed to growth in the markets of the region each quarter.

Fabrizio Freda: Mexico, Brazil, and India's strong double-digit growth in the third quarter fueled excellent performance in our emerging market year-to-date. For North America, we delivered sequentially improved organic sales trends in the third quarter, driven by the multifaceted strategic plan we first discussed with you in August. We are pleased with the results we are seeing in our areas of strategy focus. Skincare grew organically in North America for the third consecutive quarter, driven by Estee Lauder and The Ordinary as hero products, innovation, and go-to-market activation excelled.

Fabrizio: Mexico, Brazil, and India strong double digit growth in the third quarter, a fuel excellent performance in our emerging market year to date.

Fabrizio: For North America, we delivered sequentially improved organic sales trends in the third quarter driven by the multi faceted strategic plan. We first discussed with you in August we are pleased with the results we are seeing in our areas of strategic focus.

Fabrizio: Skin care grew organically North America for the third consecutive quarter, driven by Este Lauder and the ordinary as hero products innovation, a go to market activation excel at.

Fabrizio Freda: Our luxury and articulate fragrances rose double digits organically one more time, fueled by Jo Malone London, Killian Paris, and Tom Ford. Across our brand portfolio in North America, we are realizing success as we focus on deepening consumer engagement on social platforms where so much discovery and beauty takes place. The ordinary has long been a pilgrimage, with an outstanding social engine, and more of our brands have announced their engagement with consumers this year.

Fabrizio: Our luxury and FTE growth fragrances rose double digits organically, where more fueled by Jo Malone, London, Paris, and Tom Ford.

Fabrizio: Across our brand portfolio in North America, we are realizing success as we focus on deepening consumer engagement on social platforms, where so much discovered in beauty take place. The ordinary has long been a pioneer with an outstanding social engine and more of our brands are announced.

Fabrizio: Their engagement with consumers this year.

Fabrizio Freda: We are also successfully expanding our consumer reach to better serve new consumers. From Clinique's new storefront in the U.S. Amazon Premium Beauty Store to expansions early this fiscal year as the Estee Lauder brand entered into more Ulta beauty stores, and Killian Paris entered into additional Sephora stores. Proclinic is the number one dermatologist beauty brand in the U.S. prestige

Fabrizio: We are also successfully expanding our consumer reach to better serve new consumers from Clinique, new storefronts in the U S. Amazon premium beauty store two expansions early this fiscal year as the Este Lauder brand entered into more Ulta beauty stores and Kilian Patti.

Fabrizio: <unk> entered into additional sephora stores for Clinique is the number one dermatologist beauty brand in the U S. Prestige, we are optimistic for the positive impact its launch on the U S. Amazon premium beauty store will have for the fourth quarter either initial performance in March.

Fabrizio Freda: We are optimistic about the positive impact its launch on the U.S. Amazon Premium Beauty Store will have for the four quarters in its initial performance in March. For Mainland China, we return to organic sales growth, albeit at a slower pace than expected amid an overall sub-prestige beauty industry. Retail sales for Prestige Beauty were strong in January, but moderated in February and March due in part to the Chinese New Year coinciding with Valentine's Day this year, which limited gifts. This certainly impacted the industry and also many of our brands, which have a strong presence in Giza.

Fabrizio: For mainland China, we returned to organic sales growth, albeit at a slower pace than expected I mean, an overall soft prestige beauty industry.

Fabrizio: Retail sales for prestige beauty was strong in January but moderated in February and March due impart to the Chinese new year, coinciding with Valentine's day, This year, which limited gifting. This certainly impacted the industry, but also many of our brands, which have a strong presence in gifting.

Fabrizio Freda: Our focus remains bringing irresistible newness to consumers to best create growth opportunities. Here, our innovation in Estee Lauder Renew3 and Supreme Franchise, as well as La Mer and Mac, was well-received across the third quarter, and we have more compelling launches in the fourth quarter. One in particular from Estee Lauder's Perfectionist Pro franchise is especially exciting as it is among the first products created in our China Innovation Labs and addresses local demand for SPF 50 plus UV protection that is suitable for sensitive and post-derm procedures.

Fabrizio: Our focus remains bringing irresistible newness to consumers to best create growth opportunities here, our innovation and Este Lauder renewed trip and Supreme franchise, as well as la Mer and Mac, we have well received across the third quarter and we are more competitive launches in the fourth quarter.

Fabrizio: One in particular from Este Lauder Perfectionist pro franchise is especially exciting as it is among the first product created in our China innovation labs and addresses local demand for SPF 50, plus UV protection that.

Fabrizio: Suitable for sensitive a past that and procedures skin.

Fabrizio: With the fourth quarter innovation pipeline expanding upon the innovation launched throughout the third quarter and the key shocked in moments of 618 Academy, we are increasing our investment in advertising go to market activation to sustained retail.

Fabrizio Freda: With the four-quarter innovation pipeline expanding upon the innovation launch throughout the third quarter and the key shopping moments of 6-18 coming, we are increasing our investment in advertising and go-to-market activation to sustain retail. Since we spoke with you in February, we also made important progress in all work streams across the pillar of the Profit Recovery Plan, of which I'm pleased to share a few examples with you today. For one, our integrated business planning process, which has now been rolled out globally, is contributing to operational inventory improvements.

Fabrizio: Since we spoke with you in February we also made important progress in all work streams across the pillar of the profit recovery plan, which I'm pleased to share a few examples with you today.

Fabrizio: For one our integrated business planning process, which has now rolled it out globally is contributing to operational inventory improvements our enterprise wide integrated business planning will serve as the foundation to drive better demand planning and reduce excess and obsolescence.

Fabrizio Freda: Our enterprise-wide integrated business planning will serve as the foundation to drive better demand planning and reduce excess and over-obsolescence. It is complemented by advanced planning technologies, including AI, to statistically elevate forecast accuracy, and dynamically position and deploy inventors.

Fabrizio: <unk>.

Fabrizio: It is complemented by advanced planning technologies, including AI to statistically elevate forecast accuracy dynamically position and deploy inventories.

Fabrizio: We have refined and optimized our innovation pipeline for fiscal year, 2025, and 26 to best focus on accretive innovation bring into market progress the both create and dry trends locally and globally across categories innovation in fiscal <unk>.

Fabrizio Freda: We have refined and optimized our innovation pipeline for fiscal years 2025 and 2026 to best focus on creative innovation, bringing to market products that both create and drive trends locally and globally across categories. Innovation in fiscal year 2025 is still expected to be even bigger and stronger than in fiscal year 2024, with more breakthrough innovation and expansion into wild space opportunities. We also announced plans to streamline manufacturing and distribution on the campus through realigning shift schedules, consolidating operations into fewer buildings, and shifting outer manufacturing to a trusted third-party partner.

Fabrizio: 2025 is still expected to be even bigger and stronger than in fiscal year 2024, more breakthrough innovation and expansion into white space opportunities.

Fabrizio: We also announced plans to streamline manufacturing and distribution on a campus through realigning sheep schedules consolidating operations into fewer building and shifted our manufacturing to a trusted third party partner.

Fabrizio Freda: This strategy initiative accomplishes multiple objectives, as in addition to consolidating capacity and optimizing cost, we also expect greater speed to market by leveraging more external innovation with a global leader in power. Before I close, I want to speak to the exciting milestones in our brand portfolio during the 4.0. First, a few days ago marked the one-year anniversary of our Tom Ford acquisition.

Fabrizio: These strategic initiatives accomplished multiple objectives.

Fabrizio: In addition to consolidating capacity and optimizing cost. We also expect greater speed to market by leveraging more external innovation with a global leader in powder.

Fabrizio: Before I close I want to speak to the exciting milestones in our brand portfolio during the fourth quarter first a few days ago market.

Fabrizio: One year anniversary of our Encore acquisition. This transformational deal, where we evolved from licensees of Tom Ford beauty to the owner and the license or tongue forward solidified and coveted brands in the company luxury portfolio for the long term and created a new royal.

Fabrizio Freda: This transformational deal, where we evolved from licensees of Tom Ford Beauty to the owner and licensor of Tom Ford, solidified and coveted the brand in the company's luxury portfolio for the long term and created new royalty revenue. Moreover, it afforded us strategic synergies which we are now unlocking, demonstrated by the recent launch of brand.com in the US and UK as just one example. And with the Ermenegildo Zegna Group and Marcolin, we are capitalizing on the power of the brand's modern luxury glamour across fashion, eyewear, and beauty, connecting these three verticals in compelling new ways to drive growth.

Fabrizio: T revenue stream. Moreover, it afforded us strategic synergies, which we're now unlocking demonstrated by the recent launch of brand Dot com in the U S and UK is just one example.

Fabrizio: And with the <unk> group and marketing we are capitalizing on the power of the brand modern luxury glamour across fashion eyewear.

Fabrizio: And beauty connecting these three verticals in compelling new ways to drive growth. Indeed in February for fashion weeks from Milan to London, Paris, and New York, We orchestrated the first ever 360 degree Cross category campaign and featured a blockbuster fragrance launch.

Fabrizio Freda: Indeed, in February, for Fashion Weeks from Milan to London, Paris, and New York, we orchestrated the first ever 360-degree cross-category campaign and featured a blockbuster fragrance launch. Later this month, we are thrilled to be further solidifying our brand portfolio in yet another way as we acquire the remaining interest in this, completing the deal we made three years ago when we became majority owners. During these three years, Dezium and its beloved brand, The Ordinary, have soared to new heights, ranking top five in prestige skincare in many markets, including top two in its home markets of Canada and the U.S.

Fabrizio: Sure.

Fabrizio: Later this month, we are thrilled to be further solidifying our brand portfolio and yet another way as we acquire the remaining interest in basin completing the deal we made three years ago. When we became a majority owner.

Fabrizio: During these three years DCM and his beloved brands the ordinary have soared to new Heights ranked in top five in prestige skincare in many markets, including top two in its home market of Canada and the U S.

Fabrizio Freda: Together, we have successfully invested in innovation for the ordinary and have increased ordinary innovation as a percentage of sales from 5% to over 25% this fiscal year. We have expanded the brand globally, from India to the Middle East to South Africa, and improved its profitability by driving operational efficiencies in the supply chain. With that said, we believe the ordinary and the easy still have bigger opportunities in front of them, and we are excited for what the future holds.

Fabrizio: Together, we have successfully invested to scale innovation for the ordinary and it increased the order innovation as a percentage of sales from 5% to over 25%.

Fabrizio: Bad debt this fiscal year expanded the brand globally from India to the Middle East to South Africa, and improved its profitability by driving operational efficiencies in the supply chain.

Fabrizio: With that said, we believe the ordinary and lithium still a bigger opportunities in front of them and we are excited for what the future holds.

Fabrizio: Finally, we are pleased to see our initiatives to progress in sustainability recognized and since we spoke with you in February we were included in Cdp's climate a list for 2023 overall, we received our best ever collective scores in 2020.

Fabrizio Freda: Finally, we are pleased to see our initiative's progress in sustainability recognized, and since we spoke with you in February, we have been included in the CDP's Climate A list for 2020. Overall, we received our best ever collective scores in 2023 from CDP, as, along with these excellent climate results, we scored A- in each of the water security, forest, timber, and forest palm oil areas. In closing, we are at an inflection point in our company performance, primed for a strong second half of organic sales growth and improved profitability.

Fabrizio: From CDP as along with these excellent climate result, we scored a minus in each of the water security force, the inverse and forest Palm oil.

Fabrizio: In closing we are at an inflection point in our company performance.

Fabrizio: And for a strong second half organic sales growth and improved profitability.

Fabrizio Freda: And with our profit recovery plan, we are well positioned to meaningfully rebuild our profitability in fiscal years 2025 and 2026 by also generating savings to reinvest in our brands and consumer-facing industries. We are confident in our strategy to realize the promising growth opportunities of global prestige beauty, leveraging the strengths of our diversified brand portfolio, rich innovation pipeline, and the superior quality of our products. I extend my gratitude to our employees for the significant contribution you have made in bringing us to this inflection point of a renewed sales and profit growth trajectory. I will now turn the call over to

Fabrizio: And with our profit recovery plan, we are well positioned to meaningful rebuilt.

Fabrizio: Our profitability in fiscal year, 2025, and 26, while also generating savings to reinvest in our brands and consumer facing initiatives.

Fabrizio: We are confident in our strategy to realize the promising growth opportunities our global prestige beauty leveraging the strengths of our diversified brand portfolio reached innovation pipeline and the superior quality of our products.

Fabrizio: Extend my gratitude to our employees for the significant contribution you have made in bringing gas to this inflection point of a renewed sales and profit growth trajectory.

Fabrizio: I will now turn the call over to Tracy.

Tracey Thomas Travis: Thank you, Fabrizio, and hello everyone. Our third quarter organic net sales increased 6% at the higher end of our expectations. As Fabrizio mentioned, we are pleased with the progress we've made thus far in Asia travel retail with reducing retailer inventory and the corresponding return to net sales growth. These achievements in the quarter were a bit earlier than expected and led to a partial shift in the expected timing of the resumption of replenishment orders from the fourth quarter to the third.

Tracy: Thank you Fabrizio and Hello, everyone.

Tracy: Third quarter organic net sales increased 6% at the higher end of our expectations.

Tracy: As Fabrizio mentioned, we are pleased with the progress we've made thus far in Asia travel retail with reducing retailer inventory and the corresponding return to net sales growth.

Tracy: Achievements in the quarter or a bit earlier than expected and led to a partial shift in the expected timing of the resumption of replenishment orders from the fourth quarter to the third parcel.

Tracey Thomas Travis: Partially offsetting this growth was lower-than-expected net sales in mainland China, reflecting the impact of ongoing softness and overall prestige beauty, in part due to subdued consumer confidence and softness during holiday and tea-shopping moments. However, our earnings per share of $0.97 exceeded our outlook for the quarter due to the acceleration of skin care, the return to net sales growth in our Asia travel retail business, tighter expense management, and a lower tax rate The reduction in our tax rate was largely driven by the shift in our geographical mix of businesses.

Fabrizio: Partially offsetting this growth was lower than expected net sales in mainland China, reflecting the impact of ongoing softness in overall prestige beauty in part due to subdued consumer confidence and softness during holiday and key shopping moments.

Fabrizio: Our earnings per share of 97% exceeded our outlook for the quarter due to the acceleration of skincare. They returned to net sales growth in our Asia travel retail business tighter expense management and a lower tax rate.

Fabrizio: The reduction in our tax rate was largely driven by the shift in our geographical mix of business.

Tracey Thomas Travis: Regarding our regions, organic net sales in our Europe, the Middle East, and Africa region increased 12%, driven largely by the growth in our travel retail business. Our travel retail net sales increased strongly by double digits, returning to growth after seven consecutive quarters of decline, given the sequential acceleration of retail sales and shipments, as well as the anniversary of lower shipments last year, which were pressured by transitory headwinds in Hainan and Korea, as well as limited international flights, visas, and group tours from China to other markets last year.

Fabrizio: Regarding our region's organic net sales in our Europe, the middle East and Africa region increased 12% driven largely by the growth in our travel retail business.

Fabrizio: Our travel retail net sales increased strong double digits returning to growth after seven consecutive quarters of decline given the sequential acceleration of retail sales and shipments as well as the anniversary of lower shipments last year, which were pressured by transitory headwinds in Hainan in Korea, as well as limited international flights.

Fabrizio: It is in group tours from China to other markets last year.

Fabrizio: Elsewhere in EMEA organic net sales in our priority emerging markets increased strong double digits, where we drove growth from those brands and in most channels of distribution given our strategic initiative to expand consumer reach in particular for our fragrance and skincare brands.

Tracey Thomas Travis: Elsewhere in EMEA, organic net sales in our priority emerging markets increased strongly by double digits, where we drove growth from most brands and in most channels of distribution, given our strategic initiative to expand consumer reach, in particular for our fragrance and skincare brands. Our results in mature markets were mixed, resulting in overall flat growth.

Fabrizio: Our results in mature markets were mixed resulting in overall flat growth.

Tracey Thomas Travis: Organic net sales in our Asia-Pacific region increased 3%, led by Hong Kong SAR, mainland China, and Japan, reflecting mid-single-digit net sales growth in skincare and high single-digit growth in fragrance. Organic net sales in the Americas increased 1%, largely due to Latin America, where continued growth in Mexico and Brazil, led by makeup, drove double-digit increases in department stores and freestanding stores. Organic net sales in North America were flat in the quarter, as growth in fragrance and skin care was offset by declines in makeup and hair care.

Fabrizio: Organic net sales in our Asia Pacific region increased 3% led by Hong Kong as they are mainland, China, and Japan, reflecting mid single digit net sales growth in skincare and high single digit growth in fragrance.

Fabrizio: Organic net sales in the Americas increased 1% largely due to Latin America, where continued growth in Mexico, and Brazil led by makeup drove double digit increases in department stores and freestanding stores.

Fabrizio: Organic net sales in North America were flat in the quarter as growth in fragrance and skincare was offset by declines in makeup and hair care.

Tracey Thomas Travis: The double-digit growth in specialty multi, driven by Estee Lauder and MAC, was offset by softer performance in department stores and direct-to-consumer channels. From a category standpoint, organic net sales and skin care rose 9%, largely driven by our Asia travel retail business, as well as from Hong Kong SAR and mainland China. Organic net sales from La Mer and Estee Lauder propelled the category's growth, led by strong campaigns behind our hero product franchises with new product innovation and increased in-store activation.

Fabrizio: The double digit growth in specialty multi driven by Este Lauder and Mac was offset by softer performance in department stores and direct to consumer channel.

Fabrizio: From a category standpoint organic net sales in skincare rose, 9% largely driven by our Asia travel retail business as well as from Hong Kong as they are in mainland China organic net sales from La Mer Este Lauder propelled the category growth led by strong campaign behind our hero product franchises with new product.

Fabrizio: Innovation and increased in store Activations.

Tracey Thomas Travis: Organic net sales and makeup increased 4%, largely driven by our Asia travel retail business and by Latin America. Net sales from Estee Lauder and Clinique led the category's growth, fueled by ongoing activations behind our hero product franchises.

Fabrizio: Organic net sales in makeup increased 4% largely driven by our Asia travel retail business and my Latin America net sales from Este Lauder and Clinique led the category growth fueled by ongoing.

Fabrizio: Activations behind our hero product franchises. This was partially offset by a prior year benefit from changes made to Max take back loyalty program, excluding the impact from the prior year benefit Max net sales increased mid single digits with growth across all regions, mainly driven by new product innovation.

Tracey Thomas Travis: This was partially offset by a prior year benefit from changes made to MAC's Take Back loyalty program. Excluding the impact from the prior year benefit, MAC's net sales increased mid-single digits with growth across all regions, mainly driven by new product innovation. Organic net sales in fragrance increased 1% and in haircare declined 4%. In fragrance, net sales growth was driven by our luxury and artisanal brands, led by Jo Malone London and Lalabeau. Joe Malone London grew double digits in travel retail and specialty multi-brands.

Fabrizio: Organic net sales in fragrance increased 1% and in hair care declined 4% in.

Fabrizio: Fragrance net sales growth was driven by our luxury and artisanal brands led by Jo Malone, London and all of them.

Fabrizio: Jo Malone, London grew double digit in travel retail and specialty multi.

Tracey Thomas Travis: Lalabeau saw double-digit growth in its direct-to-consumer channels, particularly in freestanding stores driven by both same-door growth and targeted expanded consumer reach. Partially offsetting these increases was a decline from Estee Lauder due to retail softness during holiday and key shopping moments. Our gross margin increased 280 basis points compared to last year. This reflects positive impacts from changes in category mix driven by the acceleration of skin care, lower obsolescence charges given the reduction in excess inventory compared to last year, and stronger strategic price realization through lower levels of promotion.

Fabrizio: All of those saw double digit growth in our direct to consumer channels, particularly in freestanding stores driven by both same door growth and targeted expanded consumer reach harsha.

Fabrizio: Partially offsetting these increases was a decline from Este Lauder due to retail softness during holiday and key shopping moments.

Fabrizio: Our gross margin increased 280 basis points compared to last year. This reflects positive impacts from changes in category mix driven by the acceleration of skincare lower obsolescence charges, given the reduction in excess inventory compared to last year and stronger strategic price realization.

Fabrizio: Through lower levels of promotion.

Tracey Thomas Travis: These improvements were partially offset, as expected, by the impact of the previous pulldown of production that triggered a requirement to recognize the related manufacturing costs in the current period instead of when products are sold. This resulted in a 215 basis point headwind to gross margin. Foreign currency also pressured gross margin in the court.

Fabrizio: These improvements were partially offset as expected by the impact of the previous pull down of production that triggered a requirement to recognize the related manufacturing costs in the current period instead of when products are sold.

Fabrizio: This resulted in a 215 basis point headwind to gross margin.

Fabrizio: Foreign currency also pressured gross margin in the quarter.

Tracey Thomas Travis: Operating expenses decreased 290 basis points as a percent of sales during the quarter, driven by sales growth leverage and expense management, including advertising and promotional expense, which decreased approximately 240 basis points compared to last year. This reduction reflects the anticipated shift in certain spending from the third quarter to the fourth to support innovation launches and key holiday moments in the fourth quarter. Operating income increased 75% to $554 million, and our operating margin expanded 570 basis points to 14.1% compared to 8.4% last year. Our effective tax rate for the quarter was 30.5% compared to the elevated rate of 43.1% last year.

Fabrizio: Operating expenses decreased 290 basis points as a percent of sales during the quarter driven by the sales growth leverage and expense management, including advertising and promotional expense, which decreased approximately 240 basis points compared to last year.

Fabrizio: This reduction reflects the anticipated shift in certain spending from the third quarter to the fourth to support innovation launches and key holiday movements in the fourth quarter.

Fabrizio: Operating income increased 75% to $554 million and our operating margin expanded 570 basis points to 14, 1% compared to eight 4% last year.

Fabrizio: Our effective tax rate for the quarter was 35% compared to the elevated rate of 43, 1% last year.

Tracey Thomas Travis: The decrease in the effective tax rate was primarily driven by a lower effective tax rate on our foreign operations due to the difference in timing of the estimated change in our full year geographical mix of earnings in the current and prior year periods. This was partially offset by the unfavorable impact associated with previously issued stock-based compensation. Diluted EPS was $0.97 compared to $0.47 last year, largely due to an increase in sales, an improvement in gross profit margin, and a lower tax rate.

Fabrizio: Decrease in the effective tax rate was primarily driven by a lower effective tax rate on our foreign operations due to the difference in timing of the estimated change in our full year geographical mix of earnings in the current and prior year periods.

Fabrizio: This was partially offset by the unfavorable impact associated with previously issued stock based compensation.

Fabrizio: Diluted EPS was <unk> 97, compared to 47 last year largely due to the increase in sales improvement in gross profit margin and a lower tax rate the impact from the business disruptions in Israel and other parts of the Middle East was one dilutive to EPS in the quarter.

Tracey Thomas Travis: The impact of business disruptions in Israel and other parts of the Middle East was one cent dilutive to EPS in the past. The acquisition of the Tom Ford brand was neutral to EPS as interest expense related to our debt financing was offset by the combined benefits derived as the licensor of the brand from royalty revenue this year and savings from no longer having to pay royalties on the beauty business. For the nine months, we generated $1.5 billion in net cash flows from operating activities compared to $1 billion last year.

Fabrizio: The acquisition of the Tom Ford brand with neutral to EPS as interest expense related to our debt financing was offset by the combined benefits derived as the licensed store of the brand from royalty revenue this year and savings from no longer having to pay royalties on the beauty business.

Fabrizio: For the nine months, we generated $1 $5 billion in net cash flows from operating activities compared to $1 billion last year.

Tracey Thomas Travis: The increase from last year reflects lower working capital, which was largely due to the actions we have taken to reduce in-house inventory levels, primarily finished goods and semi-finished goods, that resulted in a significant improvement in our days to sell. We invested $702 million in capital expenditures, and we returned $710 million in cash to stockholders through dividends.

Fabrizio: The increase from last year reflects lower working capital, which was largely due to the actions we have taken to reduce in house inventory levels, primarily finished goods and semi finished goods that resulted in a significant improvement in our days to sell.

Fabrizio: We invested $702 million in capital expenditures, and we returned $710 million in cash to stockholders through dividends.

Fabrizio: As Fabrizio mentioned, our plans under the profit recovery plan are progressing and are on track. This quarter, we began taking charges under the restructuring program and expect approval to accelerate in the fourth quarter of this year and throughout fiscal 2025 with meaningful benefits beginning to flow into our fiscal year 2025 results.

Tracey Thomas Travis: As Fabrizio mentioned, our plans under the profit recovery plan are progressing and are on track. This quarter, we began taking charges under the restructuring program and expect approval to accelerate in the fourth quarter of this year and throughout fiscal 2025, with meaningful benefits beginning to flow into our fiscal year 2025 results. Turning now to our outlook for the remainder of fiscal 2024, we are pleased with our progress thus far in reducing inventory levels, resuming replenishment shipments in Asia travel retail, accelerating innovation, and selectively expanding our consumer reach.

Fabrizio: Turning now to our outlook for the remainder of fiscal 2024.

Fabrizio: We are pleased with our progress thus far in reducing inventory levels resuming replenishment shipments in Asia travel retail accelerating innovation and selectively expanding our consumer reach these efforts have led to sequential improvements in both net sales and operating margin from the first half of the year, culminating in our return to <unk>.

Tracey Thomas Travis: These efforts have led to sequential improvements in both net sales and operating margin from the first half of the year, culminating in our return to profitable net sales growth this quarter. With these results and our outlook for the fourth quarter, we continue to expect a stronger second half compared to last year, underscoring that we believe we are at a sales and profitability inflection point. While we delivered on the high end of our third quarter expectations, we are lowering our fiscal 24 organic net sales outlook range to reflect continued risks from evolving macroeconomic volatility, including continued softness in mainland China and geopolitical tensions in certain areas around the world. In Asia travel retail, we are also mindful of potential short-term volatility in retail sales related to actions certain retailers are taking to increase their profitability.

Fabrizio: <unk> net sales growth this quarter.

Fabrizio: With these results and our outlook for the fourth quarter, we continue to expect a stronger second half compared to last year underscoring that we believe we are at a sales and profitability inflection point.

Fabrizio: While we delivered on the high end of our third quarter expectations. We are lowering our fiscal 'twenty four organic net sales outlook range to reflect continued risks from evolving macro economic volatility, including continued softness in mainland China and geopolitical tensions in certain areas around the world.

Fabrizio: In Asia travel retail we are also mindful of potential short term volatility in retail sales related to actions certain retailers are taking to increase their profitability.

Tracey Thomas Travis: With the recalibration between our third and fourth quarters, as discussed earlier, we are maintaining our full-year operating margin expectation and are increasing our EPS outlook slightly to reflect disciplined expense management year-to-date, somewhat offset by our plans to strategically invest in key areas of our business in the fourth quarter to continue to drive profitable growth and reflect incremental headwinds from foreign currency translation. The combination of our third quarter performance and outlook for the fourth quarter results in a strong second half compared to the first half, with improvements in net sales and operating margins. Excluding the end-period charge we recognized in the third quarter, gross margin is also expected to improve in the second half.

Fabrizio: With the Recalibration between our third and fourth quarters. We discussed earlier, we are maintaining our full year operating margin expectation and are increasing our EPS outlook slightly to reflect disciplined expense management year to date somewhat offset by our plans to strategically invest in key areas of our business in the fourth quarter to continue.

Fabrizio: To drive profitable growth and reflecting incremental headwind from foreign currency translation.

Fabrizio: The combination of our third quarter performance and outlook for the fourth quarter results and a strong second half compared to the first half with improvements in net sales and operating margin.

Fabrizio: Excluding the end period charge, we recognized in the third quarter gross margin is also expected to improve in the second half we believe our assumptions for the second half Mark a meaningful turning point for the company demonstrating the signs of a recovery and better position us along with our profit recovery plan initiatives to drive sales growth and profitability.

Tracey Thomas Travis: We believe our assumptions for the second half mark a meaningful turning point for the company, demonstrating the signs of our recovery and better position us, along with our profit recovery plan initiatives, to drive sales growth and profitability further in fiscal 2025 and beyond. Using March 29th's spot rate of 1.079 for the euro, 1.262 for the pound, 7.227 for the Chinese yuan, and 1350 for the Korean yuan, currency translation is anticipated to negatively impact reported sales and diluted EPS for both the fourth quarter and the full year.

Fabrizio: Any further in fiscal 2025 and beyond.

Fabrizio: Using march 29th spot rates of 1.079 for the Euro 1262 for the pound seven two to seven for the Chinese one and <unk> 50 for the Korean won currency translation is anticipated to negatively impact reported sales and diluted EPS for both the fourth quarter.

Fabrizio: In the full year.

Fabrizio: We now expect organic net sales for our fourth quarter, two increased 6% to 10% with increased consumer facing investments, including shifts from the third quarter and aligned to support innovation in key shopping moment in the fourth quarter.

Tracey Thomas Travis: We now expect organic net sales for our fourth quarter to increase six to 10% with increased consumer-facing investments, including shifts from the third quarter and aligned to support innovation and key shopping moments in the fourth quarter. This growth also reflects the anniversary of some business disruptions we experienced last year, primarily in high net worth. In mainland China, we expect the ongoing softness of overall prestige beauty to continue to pressure net sales.

Fabrizio: This growth also reflects the anniversary of some business disruptions, we experienced last year primarily in Hainan.

Fabrizio: In mainland China, we expect the ongoing softness of overall prestige beauty to continue to pressure net sales currency translation is expected to be dilutive to reported net sales by one point.

Tracey Thomas Travis: Currency translation is expected to be dilutive to reported net sales by one point. We expect four-quarter adjusted EPS of $0.18 to $0.28, an increase of over 100%. Currency translation is expected to dilute EPS by $0.01, and potential risks of business disruptions in the Middle East are expected to be diluted by $0.03. Adjusted EPS and constant currency is expected to range between 19 to 29 cents. For the full year, we expect organic net sales to range between a 1% to 2% decline.

Fabrizio: We expect fourth quarter, adjusted EPS of 18% to 28.

Fabrizio: An increase of over 100% currency translation is expected to dilute EPS by one <unk> and.

Fabrizio: And potential risks of business disruptions in the middle East are expected to be dilutive by <unk> <unk>.

Fabrizio: Adjusted EPS and constant currency is expected to range between 19% to 29.

Fabrizio: For the full year, we expect organic net sales to range between a 1% to 2% decline curve.

Tracey Thomas Travis: Currency translation is expected to be diluted to reported net sales by one point. Our full-year operating margin outlook remains unchanged and is expected to be between 9% and 9.5%, a contraction from 11.4% last year. We continue to expect our full-year effective tax rate to be approximately 35% compared to 26.5% last year. Diluted EPS is expected to range between $2.14 and $2.24 before restructuring and other charges. Currency translation and potential risks of business disruptions in Israel and other parts of the Middle East are expected to dilute earnings per share by $0.09 and $0.06, respectively. In constant currency, we expect EPS to decrease between 33 to 36%. Our fiscal 2024 outlook also assumes the purchase of the remaining outstanding equity interest in Decim anticipated to be completed in May of 2024.

Fabrizio: Currency translation is expected to be dilutive to reported net sales by one point.

Fabrizio: Our full year operating margin outlook remains unchanged and is expected to be between nine and nine 5% a contraction from 11, 4% last year.

Fabrizio: We continue to expect our full year effective tax rate to be approximately 35% compared to 26, 5% last year.

Fabrizio: Diluted EPS is expected to range between $2 14.

Fabrizio: And $2 24, before restructuring and other charges.

Fabrizio: Translation and potential risks of business disruptions in Israel and other parts of the Middle East are expected to dilute earnings per share by <unk> <unk>.

Fabrizio: And <unk> respectively.

Fabrizio: <unk>.

Fabrizio: In constant currency, we expect EPS to decrease between 33% to 36%.

Fabrizio: Our fiscal 2024 outlook also assumes the purchase of the remaining outstanding equity interest in <unk> anticipated to be completed in may of 2024.

Speaker Change: In closing.

Tracey Thomas Travis: Our expected second half results, starting with our strong third quarter performance, demonstrate our progressive return to sales growth and profitability. We have navigated through numerous challenges over this past year with resilience and determination to take meaningful actions to begin to improve the trajectory of our business. Our results show we have made great strides, and we have immense gratitude for the resolve and hard work of our teams globally. And while we are pleased with our progress and results this quarter, we remain keenly aware of the additional work that lies ahead to continue down the path of restoring stronger profit margins.

Fabrizio: Our expected second half results, starting with our strong third quarter performance demonstrate our progressive return to sales growth and profitability.

Fabrizio: We have navigated through numerous challenges over this past year with resilience and determination to take meaningful actions to begin to improve the trajectory of our business.

Fabrizio: Our results show, we have made great strides and we have immense gratitude for their resolve and hard work of our teams globally.

Fabrizio: And while we are pleased with our progress and results. This quarter, we remain keenly aware of the additional work that lies ahead to continue down the path of restoring stronger profit margins. We are intensely focused on doing the necessary work to return to long term sustainable growth and profitability supported by the profit.

Tracey Thomas Travis: We are intensely focused on doing the necessary work to return to long-term sustainable growth and profitability, supported by the profit recovery plan initiatives and executed by our dedicated employees. And that concludes our prepared remarks. We'll be happy to take your questions at this time.

Fabrizio: Recovery plan initiatives and executed by our dedicated employees.

Speaker Change: And that concludes our prepared remarks, we'll be happy to take your questions at this time.

Speaker Change: The floor is now open for questions. If you have a question.

Operator: The floor is now open for questions. If you have a question, you may simply press the star key followed by the digit 1 on your touch-tone telephone. To ensure that everyone can ask their question, we will limit each person to one question. Time permitting, we will return to you for additional questions. I'm going to face you up again by pressing star and 1.

Fabrizio: They simply press the star key followed by the digit one on your Touchtone telephone.

Fabrizio: And so that everyone can ask their questions, we will limit each person to one question.

Fabrizio: Time, permitting we will return to you for additional questions.

Fabrizio: Just queued up again by pressing Star then one.

Speaker Change: Our first question today.

Operator: Our first question today comes from Bryan Spillane from Bank of America. Please go ahead with your question.

Speaker Change: Comes from Bryan Spillane from Bank of America. Please go ahead with your question.

Bryan Douglass Spillane: Thanks, Operator. Good morning, everyone.

Bryan Douglass Spillane: Thanks, operator, and good morning, everyone. So Tracy I just wanted to ask I guess a question about about for Q4, Q guide and what's implied so I guess.

Tracey Thomas Travis: So, Tracey, I just wanted to ask, I guess, a question about the 4Q, the 4Q guide, and what's implied. So, I guess, The implied margin in 4Q steps down from 3Q, yet the revenue will be roughly the same. It just implies maybe there's not as much leverage, but so if you can just give us some perspective on the margin step down, you know, quarter to quarter. And then as we think about the run rate into 25, is there anything that we should read into the fourth-quarter guide that would sort of inform the exit rate for 24 into 25, both in terms of organic sales and margins? Thank you. Thanks, Bryan.

Bryan Douglass Spillane: The implied margin in four key steps down from <unk>, yet the revenue will be roughly the same just implies maybe there's not as much leverage but so if you can just give us some perspective on on the margin step down quarter to quarter and then as we think about the run rate in the 25.

Bryan Douglass Spillane: Is there anything that we should read into the fourth quarter guide that sort of inform exit rate for 24% to 25, both in terms of organic sales and margins. Thank you.

Speaker Change: Thanks, Brian.

Tracey Thomas Travis: Thanks, Bryan. You know, when you think about the fourth quarter and what I said in my prepared remarks, I talked about some shifts that, you know, are occurring in the fourth quarter. So we did shift some advertising expense out of the third quarter and into the fourth quarter. And that was to support some of the timing of the activity that we have in the fourth quarter, both innovation as well as some of the holidays in the fourth quarter.

Speaker Change: When you think about the fourth quarter and what I said in my prepared remarks, I talked about some shifts that.

Speaker Change: Are occurring in the fourth quarter. So we did shift some advertising expense out of the third quarter and into the fourth quarter.

Speaker Change: And that was to support.

Speaker Change: Some of the timing of the activity that we had in the fourth quarter, both innovation as well as some of the holidays in the fourth quarter.

Tracey Thomas Travis: I also talked about the fact that, you know, travel retail, Asia travel retail, we resumed shipments earlier than we had expected in the third quarter. So there are, it's hard to look at Q3, Q4, you really need to look at the second half together because of some of those shifts.

Speaker Change: I also talked about the fact that.

Speaker Change: Travel retail Asia travel retail, we resumed shipments earlier than what we had expected in the third quarter. So there are it's hard to look at Q3 Q4, you really need to look at the second half together.

Speaker Change: Because of some of those some of those shifts.

Tracey Thomas Travis: You know, what's impacting our fourth quarter performance is, you know, and the change in our guidance is the fost growth of, you know, prestige, beauty, and mainland China. You know, the continued macro uncertainty that retailers are cautious in many markets. We also have higher currency than we had expected, so that is pressuring our EPS a bit as well. But when you look at the second half compared to prior guidance, what you will see is some of the expense savings that we realized and that I, again, talked about in my prepared remarks, are actually flowing through.

Speaker Change: What's impacting our fourth quarter performance is and the change in our guidance and softer growth.

Speaker Change: Prestige beauty in mainland China.

Speaker Change: The continued macro uncertainty that that retailers.

Speaker Change: Our cautious in many markets.

Speaker Change: <unk>.

Speaker Change: We also have higher currency than what we had expected so that is pressuring our our EPS a bit as well.

Speaker Change: When you look at the second half compared to prior guidance, what you will see in some of the expense savings that we realized and then I again talked about in my prepared remarks, we are actually flowing through so we are offsetting some of the currency.

Tracey Thomas Travis: So we are offsetting some of the currency downside that we had, and we're also offsetting some of the sales softness that is embedded in our updated guidance rank. Our next question comes from Olivia Tom from Raymond James. Please go ahead with your question. Great, thank you. You mentioned several times that you've seen improvement towards targeted retail inventory levels.

Speaker Change: Downside that we had and we're also offsetting some of the sales softness that.

Speaker Change: That is embedded in our updated guidance range.

Speaker Change: Our next question comes from Olivia Tong from Raymond James. Please go ahead with your question.

Operator: Our next question comes from Olivia Tom from Raymond James. Please go ahead with your question. Great, thank you.

Olivia Tong Cheang: Great. Thank you.

Olivia Tong Cheang: And a couple of times that you've seen improvement towards targeted retail inventory levels in travel retail, but not quite there yet. So can you talk about exit rate on on a quarter or more recent performance in Asia travel retail, particularly in China and Korea, and then also China, both on and offline and you know just what consumption looks like more recently your views on the 618 Festival.

Olivia Tong Cheang: It sounds like Youre going to spend a bit more money on that than you had previously anticipated.

Olivia Tong Cheang: And just your outlook there. Thank you.

Speaker Change: Okay.

Speaker Change: So.

Fabrizio Freda: So, global travel retail returns to growth, also driven by, frankly, growth, every day growth across all the regions. So the first important point is retail sales growth. And this was very, very strong in EMEA, the Americas, in many parts of APAC, and was a single digit in the China TR part.

Speaker Change: Global travel retail returned to growth also driven by frankly growth retail growth across all the regions. So the first important point is retail sales growth and this was very very strong in EMEA EMEA recasts in many parts of APAC and was a single day.

Speaker Change: In that the China tier part, but this is a very important progress versus the past and these are for Este Lauder companies brands is great news also for the future.

Fabrizio Freda: But this is very important progress versus the past, and these four Estee Lauder Companies brands are great news also for the future. The second thing that we are seeing is a very robust traffic recovery across the travel retail channel, which is driving sales to travelers. There is work to be done still on conversion, which is an area of improvement that we are still working on, but we had a lot of work and progress on this through activations and retail activation, particularly in Hainan, with a lot of activity.

Speaker Change: Second thing that we are seeing is a very robust traffic recovery.

Speaker Change: Across the travel retail channel, which is driving the sales to travelers. There is work to be done still on conversion, which is the areas of improvement that we are still working on but we had a lot of work in progress and this buyer activations and retail activation, particularly high and then we.

Speaker Change: A lot of activity and that this division are working and so we see progress in this area.

Fabrizio Freda: And these activations are working, and so we see progress also in this area. And then, as was part of your question, because of all these elements, strong improvement in inventory in our retailers, and so reaching targets in several retailers and in several SKUs ahead of our original communicated target. So in the end, this created very good growth, which is based on retail growth and selling to replenishment because of the decreased inventory levels versus the past. This combination is very solid. We expect this to continue and to progress in line with our goals.

Speaker Change: And then as it was part of your question because of all these elements strong.

Speaker Change: Improvement in the inventory as well.

Speaker Change: Retailers and so reaching the targets in several retailers and in February Skus ahead of the of the of our originally communicated target. So again this created a very good growth, which is based on retail growth and selling to replenishment because.

Speaker Change: The decrease inventory levels versus the past this combination is very solid.

Speaker Change: Expect this to continue and to progress in line with our goals.

Speaker Change: Our next question comes from Lauren Lieberman from Barclays. Please go ahead with your question.

Operator: Our next question comes from Lauren Lieberman from Barclays. Please go ahead with your question.

Tracey Thomas Travis: quarter and the shift into 4Q, but I remember in 3Q there was also some timing shift on spend, so I wanted to talk a little bit about maybe the decision tree of like when to put that spending in, you know, is it because if it's shifting, is it about pace of getting innovation ready and launched, is it about the consumer environment, maybe avoid putting money in play that would be like pushing on a string if the consumer isn't there, but it does feel like some of those spending plans are shifting gently quarter to quarter, and so I was curious if you could just comment on that, thanks.

Lauren Rae Lieberman: Great. Thanks.

Lauren Rae Lieberman: I just had a question about spending levels. It was great Tracy thanks for being so specific on them on the advertising and the reinvestment this quarter now shifting to <unk>, but if I remember and three Q. There was also some timing shift on spend so I wanted to talk a little bit about maybe the decision tree of like Wednesday, when to put that spending.

Lauren Rae Lieberman: Is it because if it's shifting is it about pace of getting innovation ready and launched is it about the consumer environment, maybe avoid putting money in play that would be like pushing on a string if the consumer isn't there, but it does feel like some of the spending plans or are shifting gently quarter to quarter.

Speaker Change: Was curious if you could just comment on that thanks.

Speaker Change: Yeah, well you you outlined a few of the reasons that.

Tracey Thomas Travis: Yeah, well, you outlined a few of the reasons that we would make a decision to shift some of the spending. So, you know, one of the things that we saw early in the quarter, towards the middle of the quarter, was that some of the holidays, particularly in China, were not performing as we had anticipated. I think we mentioned in our prepared remarks that two holidays that are important for us, Chinese New Year and Valentine's Day, were closer this year and actually overlapped a bit more than in prior years.

Speaker Change: We would make a decision to shift some of the spending so.

Speaker Change: One of the things that we saw early in <unk>.

Speaker Change: In the quarter towards the middle of the quarter is that some of the holidays, particularly in China were not performing as as we had anticipated I think we mentioned in our prepared remarks to holidays that are important for us Chinese new year and Valentines day.

Speaker Change: We're closer this year actually overlapped a bit then.

Speaker Change: Then in prior years Valentine's day is actually a pretty strong gifting moment for us in China, our team does a fantastic job.

Tracey Thomas Travis: Valentine's Day is actually a pretty strong gifting moment for us in China. Our team does a fantastic job of supporting Valentine's Day. Both Chinese New Year and Valentine's Day are less promotional holidays than some of the other holidays, but we didn't see the lift that we would normally see from those holidays. And trending into other holidays in the quarter, we made the decision, or the China team made the decision, that it was best to shift some of that advertising to the fourth quarter and support some of the holidays that are upcoming in May and then, obviously, the big 6--18 holiday in June.

Speaker Change: Supporting Valentine's day, those Chinese new year, and Valentine's day, or less promotional holidays in some of the other holiday.

Speaker Change: But we didn't see the lift that we would normally see out of out of those holidays and trending into other holidays in the quarter.

Speaker Change: We made a decision or that the China team made the decision that.

Speaker Change: It was best to shift some of that advertising to the fourth quarter and support some of the holidays that are upcoming in May and then obviously the big 618 holiday in June.

Tracey Thomas Travis: So one of the things that we've talked about for a long time is the agility that we have created, particularly in our advertising spend, that allows us to take some of those decisions so that we can better match our advertising spend to when we think consumers will be reacting and responding, whether it's to, you know, our gifting programs or our innovation programs. So that is, you know, what you saw in Lauren, in the Q3, Q4 shift.

Speaker Change: So one of the things that we've talked about for a long time is the agility that we have created particularly in our advertising spend that allows us to take some of those decisions. So that we can better match, our advertising spend and when we think consumers will be reacting and responding whether it's too.

Speaker Change: Our gifting programs or our innovation programs. So that that is what you saw in.

Speaker Change: Lauren in the Q3 Q4 shifts.

Speaker Change: Our next question comes from Dara <unk> from Morgan Stanley. Please go ahead with your question.

Operator: Our next question comes from Dara Mohsenian from Morgan Stanley. Please go ahead with your question.

Speaker Change: Okay.

Dara Warren Mohsenian: Hi Tracey, I wanted to stick with that question, but perhaps look out more longer term. Obviously, you mentioned higher investment in fiscal Q4 and the shift from Q3. And also, you had better than expected expense management in Q3. So, can you just take a step back and discuss the pace of reinvestment you expect behind the business over the next few years? How much of that is captured in the difference between gross and net savings in the profit recovery program?

Dara: Hi, Tracy I wanted to stick with that question, but perhaps look out more longer term. Obviously, you mentioned higher investment in fiscal Q4, and the shift from Q3 and also your better than expected expense management. In Q3. So can you just take a step back and discuss the pace of reinvestment do you expect.

Dara: Behind the business over the next few years.

Dara: How much of that is captured in the difference between gross and net savings from the profit recovery program and then how the pace of that reimbursement fits with the savings from the profit recovery program and how you think about the savings so really the cadence annually looking at reimbursement versus savings as you look out over the next few years.

Dara Warren Mohsenian: And then how the pace of that reinvestment fits with the savings from the profit recovery program and how you think about the savings? So, really, the cadence annually looking at reinvestment versus savings as you look out over the next few years and how they interrelate with each other.

Dara: And how they interrelate with each other.

Tracey Thomas Travis: Great. No, thank you for the question.

Speaker Change: Right no. Thank you for the question. So yeah, let me take the opportunity to talk.

Tracey Thomas Travis: So yeah, let me take this opportunity to talk, as you asked, about the profit recovery plan. You know, we're always focused on profitable growth. Let me start there. The actions that we're taking both within the profit recovery plan as well as outside of the profit recovery plan are focused on profitable growth. The profit recovery plan is an accelerator of our growth and, in particular, an accelerator of our margin. And, you know, let me just try to simplify it a bit.

Speaker Change: You asked about the profit recovery plan.

Speaker Change: We're always focused on profitable growth, let me start there.

Speaker Change: Actions that we're taking both within the profit recovery plan as well as outside of the profit recovery plan are focused on profitable growth.

Speaker Change: The profit recovery plan as an accelerator of our growth and in particular, an accelerator of our margin and and let me just try to simplify it a bit I know, we've said that we will share, which we will more with you in August once our plans are complete and we provide guidance for the next the next year.

Tracey Thomas Travis: I know we've said that we will share more with you in August once our plans are complete and we provide guidance for the next year. But the profit recovery plan is first and foremost focused on restoration of our gross margin. Now we're mindful of shifts in category mix and channel mix relative to history.

Speaker Change: <unk>.

Speaker Change: But the profit recovery plan is first and foremost focused on restoration of our gross margin now we're mindful of shifts in category mix and channel mix relative to history, obviously, we had growth in fragrance and our artisanal and luxury fragrance portfolio and that's very very important.

Tracey Thomas Travis: Obviously, we have growth in fragrance in our artisanal and luxury fragrance portfolio, and that's very, you know, very important. We're also focused on the restoration of our makeup growth. But certainly, as you saw in this past quarter, we're also experiencing the acceleration of our very important skincare category, and we expect that that will continue.

Speaker Change: We're also focused on restoration of our makeup growth.

Tracey Thomas Travis: But certainly as you saw in this past quarter. We are also experiencing the acceleration of our very important skincare category and we expect that that will continue the biggest drain on our margin has been our gross margin you know and it's in the aftermath of the pandemic.

Tracey Thomas Travis: The biggest drain on our margin has been our gross margin, you know, and that's in the aftermath of the pandemic. It's, you know, has been the biggest focus of our recovery, and we are focused on price realization. Part of that will be driven by the actions that we are taking in terms of inventory management to control discounts, excess, and obsolescence. You saw a bit of the results of that in Q3, and you will certainly see more of that in fiscal 25.

Speaker Change: It's has been the biggest focus of a recovery and and we are focused on price realization part of that will be driven by the actions that we're taking in terms of inventory management to control discounts in excess and obsolescence you saw a bit of the results of that in Q3.

Speaker Change: <unk>.

Tracey Thomas Travis: And you will see certainly more of that in in fiscal 'twenty. Five so that that is a very big focus of our profit recovering plan. The focus on restoration of our growth gross margins. We're also focused on supply chain efficiencies that will help our gross margins and accretive innovation and we talked about.

Tracey Thomas Travis: So that is a very big focus of our profit recovery plan, the focus on restoration of our gross margins. We're also focused on supply chain efficiencies that will help our gross margins and accretive innovation. And we talked about some of the processes in Fabrizio's prepared remarks that we are deploying and strengthening in order to be able to do that. The second area of focus is greater leverage of our expense base. You know, we have made efforts in indirect procurement in terms of accelerating some of the savings there.

Some of the process processes.

Tracey Thomas Travis: And Fabricio his prepared remarks that we are deploying in strengthening in order to be able to do that.

Speaker Change: The second area of focus is greater leverage of our expense base. We have efforts in indirect procurement in terms of accelerating some of the savings there.

Tracey Thomas Travis: And we have, you know, are taking some difficult decisions as it relates to right-sizing and streamlining parts of our organization, and that's the restructuring program that we spoke to you about before. You know, that is really the combination of that should drive the 1.1 to 1.4 billion of incremental operating profit over two years. And again, we said that slightly more of that would happen in fiscal 25 than in 26.

Speaker Change: And and we have.

Dara Warren Mohsenian: Our taking some difficult decisions as it relates to right sizing and streamlining parts of our organization and that's the restructuring.

Tracey Thomas Travis: Program that we spoke to you about before.

Tracey Thomas Travis: That is really the combination of that should drive the one one to $1 4 billion of incremental operating profit over two years and again, we said that slightly more of that will happen in fiscal 'twenty. Five then in 'twenty six and again in terms of the mix of where that recovery is.

Tracey Thomas Travis: And again, in terms of the mix of where that recovery is expected, more in gross profit margin, but also in our operating expenses. But I want to take the opportunity to talk about a couple of other benefits as they relate to the profit recovery plan. So, in addition to the margin recovery, the program is expected to fund additional investment, to your point, for growth, namely in consumer activation, more consumer activation for our brands.

Tracey Thomas Travis: <unk> more in gross profit margin, but also in our operating expenses, but I want to take the opportunity to talk about a couple of other benefits as it relates to the profit recovery plan. So in addition to the margin recovery. The program is expected to fund additional investment to your point.

Tracey Thomas Travis: For growth, namely in consumer activation wore consumer activation for our brands. So the expectation is we're going to save more than the one one to $1 4 billion.

Tracey Thomas Travis: So the expectation is that we are going to save more than the $1.1 to $1.4 billion that we are committing to in terms of operating profit improvement in order to also increase some of our advertising spend very targeted and selectively against the momentum that we see in our business. And last but not least, we expect to streamline and reduce some of the complexity in the organization that has built up over time in our processes.

Speaker Change: That we are committing to in terms of operating profit improvement in.

Tracey Thomas Travis: In order to also increase some of our advertising spend very targeted and selectively against the momentum that we see in our business and last but not least we expect to streamline and reduce some of the complexity in the organization that is built up over time and our processes.

Tracey Thomas Travis: And that's expected to increase our speed, agility, and effectiveness in our markets. And I know our organization in particular very much looks forward to this benefit. So it's a powerful program. I'm glad you asked about it. We will deliver on all elements of it, and we will share more in terms of helping with the modeling of it in August.

Tracey Thomas Travis: And that's expected to increase our speed agility and effectiveness in our markets and I know our organization in particular very much looks forward to this benefit so it's a powerful program I'm glad you asked about it.

Tracey Thomas Travis: When we deliver on all elements of it and we will share more in terms of helping with the modeling of it in August.

Speaker Change: Our next question comes from pull.

Operator: Our next question comes from Filippo Falorni from Citi. Please go ahead with your question.

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

Filippo Falorni: Hey, good morning, everyone. I had a question on the mainland China business. You clearly mentioned a strong start in January, but then a deceleration. You mentioned that the exit rate has been soft in the country. So maybe you can comment particularly on what you've seen more recently from a category growth standpoint, promotional activity level, and maybe market share. And then maybe longer term, if you take a step back.

Citi: Hey, good morning, everyone.

Filippo Falorni: Had a question on the mainland China business, you clearly mentioned strong start in January but then a deceleration you mentioned that.

Filippo Falorni: To accelerate has been soft in the in the country.

Pull: So maybe you can comment, particularly like where you've seen more recently from a category growth standpoint promotional activity level and maybe market share and then maybe longer term if you take a step back.

Fabrizio Freda: And based on your analysis of the market, what do you think has been the main driver of the weakness? Is it mainly macro-related? Is it more trade-down in the category, or local competitors doing better? Any sense of what the drivers of the slowdowns are will be helpful.

Pull: Based on your analysis on the market. What do you think has been the main driver of the weakness is it mainly macro related is it more trade down into category local competitors doing better any sense of what the drivers of the physical downs or it will be it will be helpful. Thank you.

Fabrizio Freda: Thank you.

Pull: Yes.

Yeah sure on deep in this moment.

Fabrizio Freda: Yeah, sure. At this moment, the softness is the overall prestige market. And that's what is softer than what we originally expected, and that's what is in stock in mainland China. What I want to clarify is that we need to look at the whole picture of Chinese consumers in total, and not only at the segmentation the market does. So there is a mainland China consumer, there is Hong Kong ASR, there is the TR China, which includes Hainan, for example, and other parts, and there are the international traveling consumers, the people who, for tourism or business, travel from China to Tokyo, Paris, et cetera. So we see progress in the total Chinese consumer consumption of our brands. And They are very solid.

Fabrizio Freda: Does move down to the softness is the overall prestige market and that's what is softer than what we originally expected and that's what is stock in mainland China.

Fabrizio Freda: What I want to clarify is that we need to look at that we do look at the Chinese consumers in total.

Fabrizio Freda: Not only did segmentation the market does so there is a mainland China's consumers that his own Kong SAR dividends, the kiosk, China, which includes <unk> for example.

Fabrizio Freda: And there are the international traveling consumers that people, which for two reason where business travel from China to Tokyo, Paris et cetera. So.

Fabrizio Freda: We see actually progress in the total Chinese consumer.

Fabrizio Freda: Sounds good on our brands and they're very solid and that when you tube mainland plus the progress in Hong Kong Seilliere philosophy tier China retail progress that was speaking about in the previous quest placid. The success, we see all of our brands internationally, where the Chinese traveler.

Fabrizio Freda: And when you take the mainland plus the progress in Hong Kong, SIR plus the TR China retail progress that I was speaking about in the previous question, plus the success we see of our brands internationally where the Chinese traveler is now going more, for example, in Japan, for example, in Paris. And so when you put all these numbers together, and frankly, they are all solid numbers except for the international travelers in other cities, which is an estimate in our model. But we see clear progress.

Fabrizio Freda: I'll go in more for example in Japan for example, in Paris, and so when when you put all these numbers and frankly, they're all solid numbers, except the international travelers in other cities, which is an estimate in our in our model, but we see clear progress and there is.

Fabrizio Freda: And there is progress between quarter two and quarter three, despite the softness in mainland. And there is actually a turn, very interestingly positive, in quarter four estimates for the future. So the trends also depend on the channel, and the drivers, first of all, are different consumers. The consumers that travel both for vacation and internationally tend to be the high end. At this moment, the softness is more in the middle, in the consumer sentiment of the middle class. We tend to be shopping more on the mainland.

Fabrizio Freda: Progress between quarter to quarter three despite the softness in mainland and there is actually they're turning positive very interesting and positive in court that for estimates for the future. So that the trends are also depend by channel in the drivers first of all our different consumers.

Fabrizio Freda: The consumers that travel.

Fabrizio Freda: Both for vacation and internationally tend to have beat the high end in this moment the softness is more in the in the music and the consumer sentiment of the middle class, we tend to be shopping more in mainland and in these channels.

Fabrizio Freda: And these channels follow different trends, depending on the moment and depending on the situation. But the equity of the brands is strong, as seen by the overall progress, particularly certain brands, which are growing in the total already as we speak and continue to accelerate in our portfolio. And the future of this is positive. There is a sense of recovery in overall consumption. Although via channel, there are different percentages, different evolution, and this can also be different by quarter, by semester, depending on the various trends that occur.

Fabrizio Freda: Different trends in different depending on the moment that depending on the situation.

Fabrizio Freda: That the equities of the brands are strong as seen by the overall progress, particularly certain brands, which are doing growing in the total already as we speak and continue to accelerate.

Fabrizio Freda: In our portfolio.

Fabrizio Freda: And the future of the this is it is positive there is a sensor a recovery in the overall consumption.

Fabrizio Freda: So via channel there are different.

Fabrizio Freda: Different percentages different evolution and this can be different also by quarter by semester, depending on the various strengths of the habit. So we.

Fabrizio Freda: So we look internally at the Chinese consumer as a whole and not only at the various parts. Then your question was, what have been the key drivers behind this? Now, one of the key drivers, obviously, is the skincare trend and the fact that, post-COVID, consumers are having a period where they're focusing more on experiences, on overall experiences, consumption spending in their portfolio on overall experiences like travel, like other capital, or like restaurants or like things like that. So this is, is evolving in every single market after COVID and become more balanced over time. That's our experience, and that's already visible.

Speaker Change: We look internally.

Fabrizio Freda: The Chinese consumer as a whole and not only to the radio spot then your questions.

Fabrizio Freda: Was that what have been the key drivers behind this now one of the key drivers obviously is the the skincare trend and the fact that in the post COVID-19. The consumers have been having are having competed where they're focusing more on experiences on overall experiences.

Fabrizio Freda: Consumption is spending in there in the portfolio on an overall experiences like travel light like are the other categories.

Fabrizio Freda: Restaurants are life things like that so this is this is this will evolve is evolving in every single market after a coffee and become more balanced source time, that's our experience that's visible already so that's one of the drivers is the consumer priority by category and experiences versus goods.

Operator: So that's one of the drivers is the consumer priority by category and experiences versus goods. The second thing is that we are accelerating innovation in a big way. We have invested in an R&D center in China, and we are seeing the results of this innovation. By the way, the first innovation coming from the R&D center will be in quarter four, and we will see the impact of it, which is very dedicated to specific Chinese consumers. So part of the drivers is the amount of innovation and the quality of innovation that can be deployed. For quality, I also mean local relevancy of the innovation.

Operator: The second thing is the we are.

Operator: Accelerating innovation in a big way, we have invested in R&D center in China, We see the results of these innovation, but do we the first innovation timing from the R&D center will be in quarter, four and we will see the impact of it which is very.

Operator: The Decatur to specific Chinese consumers, so, possibly drivers has been the amount of innovation and the quality of innovation that can be deployed for quality. I mean also local relevancy of the innovation and then and this is on an improving trend. It is already enforcement trend, which needs very very solid indications.

Tracey Thomas Travis: And this is an improving trend. It is already an enforcement trend, which gives very, very solid indications for the future. So the other driver has been promotional activity. The market has been, during COVID, more promotional. But at this moment, all the activities that the governments have decided to do on the unstructured market are reducing the level of the unstructured market. Also, the price increases that many of the retailers are taking in private retail in the short term are impacting consumption, particularly at the middle-class level in the mainland.

Tracey Thomas Travis: Florida for the future so.

Tracey Thomas Travis: The other driver is being promotional at the market as being during COVID-19 more promotional.

Tracey Thomas Travis: But in this moment all the actor.

Tracey Thomas Travis: Activity is that the government decided to do honest on the extraction market is reducing the level of unstructured market also the price increases that many of the retailers are taking.

Tracey Thomas Travis: Also in travel retail.

Tracey Thomas Travis: In the short term.

Tracey Thomas Travis: Impacting the consumption, particularly intermediate glass level in mainland, but on the contrary in the long term will further balance the proportion between us that actually structured market, which is obviously in line with our goals and is the objective. So is it positive long term trend.

Tracey Thomas Travis: But on the contrary, in the long term, we'll further balance the proportion between unstructured and structured market, which is obviously in line with our goals and is the objective. So it is a positive long-term trend which is upward. So, but the market will remain promotional, and so that's why we have the activation of promotionality, particularly in the area of sampling, gifting to the points that Tracey was making before, is on an increase, and the level of discounts is on a decrease, and that's the change in the proportionality model.

Tracey Thomas Travis: <unk>, which is happening so.

Tracey Thomas Travis: But the market will remain promotional and so that's why.

Tracey Thomas Travis: We have the.

Tracey Thomas Travis: Activation of promote seasonality, particularly in the area of sampling gifting at some point.

Tracey Thomas Travis: Point that Tracy was making before.

Tracey Thomas Travis: The increase in the level of discounts Ethernet decrease trend and that's the change in the corporate generality model.

Tracey Thomas Travis: All in all, I just want to make sure that we understand that despite the short-term softness of the market in mainland China, the overall trend of Chinese consumers is positive, and this trend is expected to accelerate in

Tracey Thomas Travis: All in all I, just want to ensure that we understand the despite the short term softness of the market in mainland China.

Tracey Thomas Travis: Overall trend of Chinese consumers is positive and.

Tracey Thomas Travis: This trend is expected to accelerate in the future.

Operator: Our next question comes from Steve Powers from Deutsche.

Tracey Thomas Travis: Our next question comes from Steve Powers from Deutsche Bank. Please go ahead with your question.

Stephen Robert R. Powers: Yes, Hey, good morning Tracy.

Stephen Robert R. Powers: Yes, hey, Luisa and Tracey. Thanks for the question. So, what I just wanted to clarify, I think Olivia asked about it, but you know, on the trade inventory in China, it sounds like on certain skews, certain parts of the portfolio, you're ahead of your head of schedule and clearing that inventory backlog, but the total portfolio seems like it didn't quite hit that April 1 target you had.

Stephen Robert R. Powers:

Stephen Robert R. Powers: So is that the right read? And just, you know, your confidence in being able to ship to consumption across the total portfolio in the fourth quarter? Does that remain intact? Or is that part of the lower sort of organic outlook for the fourth quarter versus what was implied back in December?

Speaker Change: Thanks for the question. So one I just wanted to I wanted to clarify I think Olivia had asked about it but.

Stephen Robert R. Powers: On the trade inventory in China, It sounds like on certain skus certain parts of the portfolio. Youre ahead of you are ahead of schedule and clearing the inventory backlog, but the total portfolio. It seems like it didnt quite hit that April 1st target that you had so is that the right read in your.

Stephen Robert R. Powers: Your confidence in being able to ship to consumption across the total portfolio in the fourth quarter.

Stephen Robert R. Powers: Does that does that impact or is that part of the.

Tracey Thomas Travis: The second question that I really want to ask, Sorry, go ahead, Tracey, and then I can follow up if that's okay. No, no, go ahead with your second question, Steve. Okay. Even though we only have one.

Steve: The lower.

Steve: Sort of organic outlook for the fourth quarter versus what was implied back in December.

Steve: Second question now is what I really want.

Tracey Thomas Travis: Sorry.

Tracey: Go ahead, Tracy if I can follow up if that's okay. No go ahead, but your second question Dave Okay.

Steve: Even though I don't think all on the guidance can you bracket.

Stephen Robert R. Powers: Go ahead with your second choice. Well, that was a clarification. So I wanted to pivot actually to Clinique on Amazon. You know, historically, you cited, for a long time, hurdles launching on that platform that were, at least to me, a combination of, you know, questions around achievable unit economics on that platform, the brand experience for consumers and being able to curate that effectively, and then just your own sort of visibility into the required consumer insights.

Speaker Change: Well that was a clarification.

Stephen Robert R. Powers: I Wonder if I could.

Stephen Robert R. Powers: Okay.

Stephen Robert R. Powers: So clearly you've got Amazon.

Stephen Robert R. Powers: Historically, you've cited for longtime hurdles logic on that platform.

Stephen Robert R. Powers: Or at least to me a combination of quest.

Stephen Robert R. Powers: Questions around achievable unit economics on our platform the brand experience for consumers and being able to curate that effectively and then just your own sort of visibility until the required consumer insights. So just.

Stephen Robert R. Powers: If you accept that that's correct how did you overcome those hurdles.

Stephen Robert R. Powers: So just, you know, to the extent that that's correct, you know, how did you overcome those hurdles and get to the point where Clinique on Amazon, in your mind, is the right, right time for that? Thank you.

Stephen Robert R. Powers: Thats the point, where you got Amazon in your mind is the right time for that thank you.

Speaker Change: Okay, Steve So I'll take the first part of that question on on the inventory and in Asia travel retail and Fabrizio will take the Amazon.

Tracey Thomas Travis: Okay, Steve, so I'll take the first part of that question on the inventory in Asia travel retail, and Fabrizio will take the Amazon clinic follow-up question. You know, regarding the inventory and trade in Asia travel retail, we did reach the objectives that we had in the third quarter, actually before April. And so the reason that we ended up shifting a bit more from a replenishment standpoint in the third quarter is that we actually reached those levels a bit earlier than we had anticipated.

Speaker Change: Cleaning follow up question.

Tracey Thomas Travis: Regarding our R.

Tracey Thomas Travis: The inventory and trade in Asia travel retail we did reach the objectives that we had in in the third quarter actually before April and so the reason that we ended up.

Tracey Thomas Travis: Shifting a bit more from a rapport doing a bit more from a replenishment standpoint in the third quarter is because we actually reach those levels a bit earlier than what we had anticipated we anticipate reaching them by April which is the beginning of the fourth quarter obviously.

Tracey Thomas Travis: We anticipated reaching them by April, which is the beginning of the fourth quarter, obviously, and we reached them within the third quarter. So that is the reason why some of the shipments were a bit higher in the third quarter, and we will expect retail sell-through in the fourth quarter. And so, and as Fabrizio mentioned, we are also expecting an acceleration of retail in the fourth quarter. Just remember, for the cadence of what we're anniversary, you know, we actually had some disruption even in the fourth quarter as it related to Heinen last year.

Tracey Thomas Travis: Can we reach them within the third quarter.

Tracey Thomas Travis: So that is the reason why some of the shifts the shipments.

Tracey Thomas Travis: Were a bit higher in the third quarter.

Tracey Thomas Travis: And we will expect the retail sell through in the fourth quarter and and so.

Tracey Thomas Travis: As Fabrizio mentioned, we are expecting as well and acceleration of retail in the fourth quarter just remember four.

Tracey Thomas Travis: For the cadence of what we're anniversarying.

Tracey Thomas Travis: Actually had some disruption even in the fourth quarter as it related to Hainan last year. So we are going to see a bit of a disconnect between retail and net.

Tracey Thomas Travis: So we are going to see a bit of a disconnect between retail and net for a couple of quarters because of the significance of the interruptions that we had both at the beginning of the third quarter last year and the end of the fourth quarter last year as well. And so we would expect that net, you know, as we replenish relative to the comparison year over year to last year, then that would be ahead of retail, but we will be maintaining the inventory levels in the range that, you know, we and our retailers have agreed. Yeah, I end on click on my zone.

Tracey Thomas Travis: For a couple of quarters because of the significance of the interruptions that we had both at the beginning of the third quarter last year and the end of the fourth quarter last year as well and so we would expect that that net will as we replenish relative to the comparison year over year to last year.

Tracey Thomas Travis: Here.

Tracey Thomas Travis: That would be ahead of retail, but we will be maintaining the inventory levels.

Tracey Thomas Travis: In the range that.

Tracey Thomas Travis: We and our retailers have have agreed to.

Speaker Change: Yeah and on <unk>.

Fabrizio Freda: On Clinique or Amazon, I want to say one of the important progresses we're making on Clinique is the initiative of building on Clinique's heritage in active derma and relaunching the brands in North America and the UK at this moment and globally soon on this overall platform. The Amazon introduction in the U.S. is also right for Clinique in the context of this big relaunch because a lot of new consumers that are very high consumers of Atiderma are also interested in it.

Tracey Thomas Travis: <unk> I want to say one of the important.

Fabrizio Freda: Progress, we're making on Clinique is the initiatives.

Fabrizio Freda: Building on Clinique heritage in active Denmark, and re launch the brands.

Fabrizio Freda: In order to mitigate UK in this moment and globally soon on this.

Fabrizio Freda: Platform.

Fabrizio Freda: The Amazon introduction in the U S is all survived for clinique in the context. So this big relaunch because a lot of new consumers that are very high consumer selected them are also in this trial.

Fabrizio Freda: Amazon provides expanded consumer reach and a lot of new consumers. We expect to recruit, engage, and educate new consumers about this new channel. Amazon at this moment is a fast-growing online platform in the U.S., and their premium beauty store has been clearly a contributor to the overall market growth, and particularly has been an important brand discovery for some consumers, and also encouraged consumers to become new consumers too. And so the early results are very promising.

Fabrizio Freda: Amazon provides expanded consumer reach.

Fabrizio Freda: Lots of new consumer and we expect to recruit to engage and to educate new consumer that these new channel.

Fabrizio Freda: Amazon in this moment is a fast growing online platform in the U S and the premium beauty store has been clearly contribute to the overall market growth and particularly has been an important brand discovery.

Fabrizio Freda: Some consumers.

Fabrizio Freda: And also.

Fabrizio Freda: Also consumers to become new consumers to clinic and so D.

Fabrizio Freda: The early results are very promising.

Fabrizio Freda: And the first period has been extraordinarily positive, frankly, and we have expectation that this will continue and will accelerate over time. So part of your question, why was the right moment now? I think because now the model of Amazon has evolved to a situation where there is a better fit between the Clinique brands and the Amazon model.

Fabrizio Freda: The first the first period.

Fabrizio Freda: Has been extraordinarily positive frankly, and we have expectation that this will continue and will accelerate overtime.

Fabrizio Freda: So part.

Fabrizio Freda: Part of your question why was there a moment now I seen because now the model of Amazon has evolved in a situation where there is a better fit between the brands and the Amazon model.

Fabrizio Freda: The opportunity to communicate the heritage, the equity, the education, and the various ideas behind the science of Atiderma Clinique is now there, and so we believe the brand can express its fundamentals correctly on the platform. And the work that the Clinique team has done in providing amazing assets, quality of execution to achieve a very good quality expression of the brand on the platform has also reassured us that it is the right moment and is a very good fit. And, as I said, initial results are confirming that.

Fabrizio Freda: And the opportunity.

Fabrizio Freda: To communicate the heavy touch the equity allocation.

Fabrizio Freda: And davita use ideas behind the science of the Derma of Clinique.

Fabrizio Freda: Is now is now there and so.

Fabrizio Freda: We believe the brand can express these fundamentals correctly on the platform and the work that the Clinique team has done.

Fabrizio Freda: Providing amazing asset quality of execution to achieve a very good quality expression of the brand and the platform also reassured us that it is the right moment and it's a very good fit and as I said initial results are confirming that.

Fabrizio Freda: And our next question comes from Andrea to share from Jpmorgan. Please go ahead with your question.

Operator: And our next question comes from Andrea Teixeira from J.P. Morgan. Please go ahead with your question.

Andrea Faria Teixeira: Thank you. Good morning.

Andrea Faria Teixeira: Good morning, I have a question from a breakthrough and then one clarification for Tracy fabric.

Fabrizio Freda: I have a question for Fabrizio and then one clarification for Tracey. Fabrizio, I have a question on U.S. sales. If you are seeing any acceleration in shipments as you exit the quarter, it seems that the third quarter was still negative, excluding the strength in Brazil and Mexico. So I wonder if you can comment on how this innovation that you're putting in, more money behind Mac and Clinique, has been paying out as you exit the quarter.

Andrea Faria Teixeira: So I have a question on the U S sales, if you're seeing any acceleration in shipments as you exit the quarter it seems that the.

Fabrizio Freda: Third quarter was the show negative excluding this transient human Mexico. So I wonder if you can comment on how this innovation that you're putting in more money behind Mac and Clinique has been panning out as you exit the quarter and also a clarification for Tracy I. Appreciate all the details of the profit recovery into fiscal 'twenty five.

Fabrizio Freda: And also, a clarification for Tracey, I appreciate all the details of the profit recovery into fiscal 25. By my math, roughly the $700 million operating profit benefit at the midpoint, should we be thinking of this benefit being mostly spread with seasonality and excluding the shoulder quarters or mostly back half-weighted as you do this plan? Thank you.

Fabrizio Freda: By my math, roughly the 700 million dollar operating profit benefits at the mid point should we be thinking of.

Fabrizio Freda: This benefit mostly spread with seasonality and extra would need to show the quarters are mostly back half weighted as you do this plan. Thank you.

Speaker Change: So I'll take the last part of the question first we will give more guidance on on the calendar relation of the profit recovery plan in August we're still.

Tracey Thomas Travis: So I'll take your last part of the question first. We'll give more guidance on the calendarization of the profit recovery plan in August. You know, we're still, we're well into the finalization of some of those plans and making, taking some decisions within the next couple of months. So we'll be able to provide you with much better guidance on calendarization in the August timeframe. Yeah, I'm from the US.

Tracey Thomas Travis: We're well into.

Tracey Thomas Travis: The finalization of some of those plans and and making taking some decisions within the next couple of months and we'll be able to provide you with much better guidance on calendar renovation in.

Tracey Thomas Travis: In the August timeframe.

Fabrizio Freda: On the US, no, I think that actually the US in quarter three is growing. Sorry, North America in quarter three is going low single digit. And if you exclude the MAC loyalty program, actually it's getting closer to mid single digit.

Tracey Thomas Travis: Yeah on the U S.

Fabrizio Freda: No I think the I actually U S imports to treat is being growing low single digits in North America in quarter, three is growing low single digits and need to exclude the Mac loyalty program actually is getting closer to mid single digits. So is.

Fabrizio Freda: So there is growth in North America in quarter three. However, said this, there is softness in consumer sentiment at this moment, and market growth is moderating in North America. So obviously, there is pressure in many parts, particularly in certain channels. There is pressure.

Fabrizio Freda: There is growth in North America and of course the tree.

Fabrizio Freda: Said these there is softness in consumer sentiment in this moment, which is already in the market growth is moderating.

Fabrizio Freda: In North America, So obviously that is Russia opinion, particularly in certain channels.

Fabrizio Freda: There is there is pressure by the quarter three was it was in the right direction. It was in line with our goals and for US. The positive is that we had for example, a positive impact on Clinique on the part of March and in this past March already we saw the impact of that positive impact.

Fabrizio Freda: But the quarter three was in the right direction, it was in line with our goals, and for us, the positive is that we had, for example, a positive impact on Clinique during part of March. And in this part of March, we already saw the impact of that, the positive impact of that. If we, you can assume that we will have the impact of Clinique on Amazon for the full quarter four. This, for example, would be a positive element in the mix; we are sure of that.

Fabrizio Freda: Bed.

Fabrizio Freda: We do.

Fabrizio Freda: You can assume that we will lap in the full quarter for the infertile Clinique and Amazon for example would be a positive element in the mix we are sure of that.

Operator: And ladies and gentlemen, this will conclude today's question and answer session. If you were unable to join for the entire call, playback will be available at 1 p.m. Eastern time today through May 15th. To hear a recording of the call, please dial 877-344-7529 using passcode 575-8677. This concludes today's Estee Lauder conference call. I'd like to thank you all for your participation and wish you all a good day. You may now disconnect your line.

Speaker Change: Ladies and gentlemen, this will conclude today's question and answer session. If you were unable to join for the entire call a playback will be available at one P. M. Eastern time today through May 15.

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Operator: Seven seven.

Operator: That concludes today's Este Lauder conference call I'd like to thank you all for your participation and wish you all a good day.

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