Q2 2025 The Estée Lauder Companies Inc Earnings Call

<unk> opportunity to ask questions.

To ask a question you May press Star then one on your Touchtone phone and to withdraw your question. Please press Star then two.

Speaker Change: Please note. This event is being recorded I would now like to turn the conference over to MS. Rainey Mancini. Please go ahead.

Speaker Change: Hello on today's webcast, our Stefan <unk>, President and Chief Executive Officer, and <unk>, <unk> Executive Vice President and Chief Financial Officer since many of our remarks today contain forward looking statements. Let me refer you to our press release and our reports filed with the SEC, where you'll find factors that could cause actual.

Speaker Change: <unk> 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.

Speaker Change: Unless otherwise stated all organic net sales growth also excludes the non comparable impact of acquisitions divestitures and 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.

Speaker Change: As a reminder, our references to online sales include sales, we make directly to our consumers through our brand dotcom sites and through third party platforms.

It also includes estimated sales of our products to our retailers' websites.

Speaker Change: Our discussion of our profit recovery and growth plan will be referred to as our PR G. P. <unk>.

Stephane: 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 webcast and now I will turn the webcast over to Stephane.

Stephane: Thank you Amy and Hello to everyone. <unk> are pleased to be reviewed to date for our first earnings call as <unk> CEO of the Este Lauder companies.

Stephane: We're incredibly honored to lead our iconic company defined Bob Cole values and portfolio a bit off brands.

Stephane: I've met with many employees retailer's business partners investors and all of our stakeholders since being named CEO of three months ago, I am more convinced than ever our full no model are stronger.

Stephane: We have a strong foundation to leverage given our run equities high quality products and exceptional talents.

Stephane: Our focus is clear restore sustainable sales growth and that she was solid double digit adjusted operating margins over the next few years as we aim to become the best consumer centric prestige beauty companies.

Stephane: Let me begin by reflecting on the drivers of our challenged performance over the last few years.

Stephane: Before turning to how we plan to realize our ambition for a much improved results.

Stephane: Subdued consumer sentiment in China greatly pressure of the prestige beauty industry and our business.

Stephane: Given our strategy to lead strong share in prestige beauty with the Chinese consumer we were disproportionately impacted.

Stephane: At the same time, the increasing complexity of our organization coupled with a narrow focus on too few markets and channels to drive growth prevented us from tapping into the prevailing strength of prestige beauty around the world.

Stephane: This was especially true in North America.

Stephane: Simply said, we lost our agility, we did not capitalize on the higher growth opportunities quickly enough in channels markets midyear and prestige priced deals no fuel new consumer acquisition aggressively enough.

Stephane: We also did not deliver sufficient levels of AUM trone innovation in our time to market often put us behind the trends.

Stephane: This happened as prestige beauty become nimbler, driven by both incumbents and new entrants as we learn with our own in zebra, the ordinary along with faster moving consumers magnifying our issues.

Stephane: Compounding matters lower sales in higher margin areas of our business coincided with our overall expense base, becoming two loss as we invested in capabilities or ahead of growth that didn't materialize.

Stephane: Our bold new strategic vision of beauty re mentioned is designed to address these factors to restore sustainable sales growth and deliver a solid double digit adjusted operating margin over the next few years.

Stephane: We are re imagining our operating model to be leaner faster and more agile through the biggest transformation in our history to best serve consumers globally.

Stephane: Beauty re imagined as five action plan priorities to achieve our ambition.

Stephane: First.

Stephane: Accelerate best in class consumer progress, we're going to put the consumer at the heart of our business to.

Stephane: To do so we plan to rapidly expand our portfolio of presence in consumer preferred high growth channels markets midyear and price tiers to fully participate in the growth opportunities of prestige beauty.

Stephane: We have numerous area in which to capitalize geographically in the U S. The U K and emerging markets and by channel from travel retail in western markets through online platforms specialty multi globally and pharmacies in Europe by doing so.

Stephane: So we expect to better diversify our growth drivers.

Stephane: Second create transformative innovation.

Stephane: To deliver fast to market on trend innovation, we've a night awards in demand sub categories benefits and occasions. For instance, there are several dynamics subcategories in skincare like body of makeup like multi benefit lip products.

Stephane: And of fragrance like lifestyle form for our brands to either enter or expands.

Stephane: We will innovate across price tiers from entry prestige to luxury.

Stephane: Making sure to bring products to market at attractive price points for new consumer acquisition.

Stephane: As we look to step change our innovation, we are committed to tripling the percentage of our innovation that is launched in the last several year.

To address these factors to restore sustainable sales growth and deliver a solid double digit adjusted operating margin over the next few years.

Stephane: So.

Stephane: Boost consumer facing investments to accelerate new consumer acquisition.

Speaker Change: We are re imagining our operating model to be leaner faster and more agile through the biggest transformation in our history to best serve consumers globally.

Stephane: First and foremost we plan to do this by increasing visible advertising spending optimizing marketing programs and eliminating currency E&P spending that is unproductive.

Speaker Change: The beauty of our imaging as five action plan priorities to achieve our ambition.

Stephane: Moreover, this also includes greater investment in selling to support our freestanding stocks that are Asian.

Speaker Change: First.

Speaker Change: Accelerate best in class Consumer Congress, we are going to put the consumer at the heart of our business to.

Stephane: For our luxury and artisanal fragrance brands to drive growth.

Speaker Change: To do so we plan to rapidly expand our portfolio of presence in consumer preferred high growth channels markets midyear and price tiers to fully participate in the growth opportunities of prestige beauty.

Stephane: For.

Stephane: Fuel sustainable growth through bold efficiencies with todays announcement of our now expanded plc. Please.

Stephane: We've made significant progress to date in the piacente, having delivered over 60% of our fiscal 2025 objective in the first half of the fiscal year.

Speaker Change: We have numerous area in which to capitalize geographically in the U S. The UK and emerging markets and by channel from travel retail in western markets to online platforms specialty multi globally and pharmacies in Europe.

Stephane: This is primarily being driven by addressing elevated excess and obsolescence.

Stephane: Realizing strategic pricing through fuel discounts.

Speaker Change: By doing so we expect to better diversify our growth drivers.

Stephane: <unk> lowering professional service expenses and <unk>.

Stephane: We're restructuring our workforce.

Speaker Change: Second create transformative innovation.

Stephane: However, greater expense reduction is necessary, we have experienced further volume deleverage since the plan's inception, driven by moderated industry growth projection.

Speaker Change: To deliver fast to market on trend innovation with a night awards in demand sub categories benefits and occasions. For instance, there are several dynamics subcategories in skincare like body of makeup like multi benefit lip products.

Stephane: And geopolitical uncertainty as well as the company specific issues described.

Stephane: We must redesign our expense structure for an evolving mix of business to better align with prestige beauty growth drivers and given the significant changes in the travel retail industry.

Speaker Change: And of fragrance like lifestyle form for our brands to either enter or expand.

Speaker Change: We will innovate across price tiers from entry prestige to luxury.

Stephane: We are embarking on our biggest operational transformation in our company's history enabled by now and expanded plc. Please.

Speaker Change: Making sure to bring products to market at attractive price points for new consumer acquisition.

Speaker Change: As we look to step change our innovation, we are committed to tripling the percentage of our innovation that is launched in last several year.

Stephane: We are redesigning, how much and where we spun further rationalizing our non consumer facing investments and significantly evolving our operating model to be more efficient.

Speaker Change: Third.

Speaker Change: Boost consumer facing investments to accelerate new consumer acquisition.

Stephane: The new areas, where we don't see fine in adopting a more competitive approach to procure months, improving supply chain network efficiencies and outsourcing of select services, the ladder of which we plan to do with proven global partners.

Speaker Change: First and foremost we plan to do this by increasing visible advertising spending optimizing marketing programs and eliminating current A&P spending that is unproductive.

Speaker Change: Moreover, this also includes greater investment in selling to support our freestanding stocks that are Asian.

Stephane: Advancing well in the design of the outsourcing program with our potential partners.

Speaker Change: For our luxury and artisanal fragrance brands to drive growth.

Stephane: We are laser focused on the right sizing expenses with the dual mandate to meaningfully reinvest in consumer facing initiatives to drive topline growth and achieved a solid double digit adjusted operating margin over the next few years.

Speaker Change: Paul.

Speaker Change: Sustainable growth through bold efficiencies with todays announcement of our now expanded plc. Please.

Speaker Change: We've made significant progress to date in the piacente, having delivered over 60% of our fiscal 2025 objective in the first half of the fiscal year.

Stephane: And as we return to delivering sustainable sales growth, we will be positioned once again to realize operating leverage to further improve profitability.

Speaker Change: This is primarily being driven by addressing elevated excess and obsolescence realizing strategic pricing through you will discounts.

Stephane: We plan to give more detail on our growth algorithm. Once we have more fully operationalized the action plan priorities of beauty re imaging.

Speaker Change: Boeing professional service expenses and restructuring our workforce.

Stephane: Fixed <unk>.

Stephane: Imagine the way we work we are removing complexity and simplifying our organization in doing so we will provide for greater focus on exhilaration excellence for the consumer.

Speaker Change: However.

Speaker Change: Greater expense reduction is necessary, we have experienced further volume deleverage since the plan's inception, driven by moderated industry growth projection and geopolitical uncertainty as well as the company specific issues and described.

Stephane: Moreover, we are unbilled learning our smaller brands. So they can be more successful in a large organization, while driving greater benefits of scale for allows our brands.

Speaker Change: We must redesign our expense structure for an evolving mix of business to better align with prestige beauty growth drivers and given the significant changes in the travel retail industry.

Stephane: Okay.

Stephane: As we make these changes we will empower faster decision, making in part through a flatter and leaner organization.

Speaker Change: We are embarking on our biggest operational transformation in our company's history enabled by now and expanded piacente. Please.

Stephane: Yeah.

Stephane: The foundation of our beauty re imagine strategic vision is a new framework, where we are clear on our strengths. So that we can more optimally allocate resources, our strengths are where we will lead in excel.

Speaker Change: We are redesigning, how much and where we spun further rationalizing our non consumer facing investments and significantly evolving our operating model to be more efficient.

Run desirability consumer experience innovation quality and <unk>.

Speaker Change: The new areas, we have identified and are adopting a more competitive approach to procure months, improving supply chain network efficiencies and outsourcing offset <unk> services, the ladder of which we plan to do with proven global partners we have.

Stephane: <unk> execution.

In support of our strengths and for certain older areas of our business. We are hard wiring AI through the organization.

Stephane: We are in an exciting moment in time for the company, we have AI as we have been working with the best in class technology partners their resources technology and investments combined with our use cases and pulp oratory desktop our own labeling us to deploy AI.

Speaker Change: Advancing well in the design of the outsourcing program with our potential partners.

Speaker Change: We are laser focused on the right sizing expenses with the dual mandate to meaningfully reinvest in consumer facing initiatives to drive topline growth and achieved a solid double digit adjusted operating margin over the next few years.

Stephane: In a cost effective manner to drive efficiencies with high quality and differentiated outputs.

Stephane: As one example, we are leveraging AI to forecast our demand and planned for our material and production needs, which has resulted in our weighted average forecast accuracy, reaching new heights.

Speaker Change: And as we return to delivering sustainable sales growth, we will be positioned once again to realize operating leverage to further improve profitability.

Speaker Change: We plan to give more detail on our growth algorithm. Once we have more fully operationalized the action plan priorities of beauty re imaging.

Stephane: These better synchronize, our demand and supply and delivers significant improvement in inventories.

Speaker Change: Fixed <unk>.

Stephane: Added proof that the initiatives that we are deploying to restore stronger operating margins are sustainable.

Speaker Change: Imagine the way we work we are removing complexity and simplifying our organization in doing so we will provide for greater focus on exhilaration excellence for the consumer.

Stephane: We are ready to dramatically scale, the invigoration of AI into our workflows from product development to marketing supply chain back office and beyond to accelerate processes and improve decision making.

Speaker Change: Moreover, we are unbilled learning our smaller brands. So they can be more successful in a large organization, while driving greater benefits of scale for allows our brands.

Stephane: What's most exciting we expect AI to free up resources to unleash even greater creativity by our brand teams for their consumer.

Speaker Change: Okay.

Speaker Change: As we make these changes we will empower faster decision, making in part through a flatter and leaner organization.

Stephane: As part of the expanded <unk>. We also plan to work with over external partners to outsource areas of our business that are not call to where we want to lead in excel.

Speaker Change: The foundation of our beauty re imagine strategic vision is a new framework, where we are clear on our strengths. So that we can more optimally allocate resources, our strengths are where we will lead and excel run desirability.

Speaker Change: Since I became CEO, we've moved quickly to jumpstart deuterium imagine in my first 30 days.

Speaker Change: First we announced this morning, we reestablished a new consumer centric executive team through a combination of elevated top talent internally and recruiting externally.

Speaker Change: Consumer experience innovation quality and to our own execution.

Speaker Change: In support of our strengths and for certain older areas of our business. We are hard wiring AI through the organization.

Speaker Change: The new flatter leaner team structure and proven loans model are designed to significantly improve collaboration and speed of decision, making with clearer accountability across brands regions and functions in support of our action plan priorities.

Speaker Change: We are in an exciting moment in time for the company, we have AI as we have been working with the best in class technology partners their resources technology and investments combined with our use cases and proprietary data our own labeling us to deploy AI.

Speaker Change: Second.

Speaker Change: And as I said few minutes ago with strategically expanded PR GP, including its restructuring program with the full support of our board of directors.

Speaker Change: In a cost effective manner to drive efficiencies with high quality and differentiated outputs.

Speaker Change: This was a decision we did not take lightly as it will result in a reduction of several thousand additional positions.

Speaker Change: As one example, we are leveraging AI to forecast, our demand and planned for our material and production needs.

Speaker Change: Third we dramatically simplifies certain work streams across brands regions and functions to enable teams to focus more on external execution to drive sales growth.

Which as resulted in our weighted average forecast accuracy, reaching new heights.

Speaker Change: This better synchronize, our demand and supply and delivers significant improvement in inventories.

Speaker Change: As we exit Q beauty re imaging.

Speaker Change: Added proof that the initiatives that we are deploying to restore stronger operating margins are sustainable.

Speaker Change: We are embracing a test and learn mentality when we see an early win we will endeavor to move with speed to scale. It. Conversely, we will seek to move quickly to exit what's not working.

Speaker Change: We are ready to dramatically scale, the integration of AI into our workflows from product development to marketing supply chain back office and beyond.

Speaker Change: We are putting a new organizational structure in place to empower colleagues to act as owners as we improve communication accountability and collaboration to be more decisive and faster to action.

Speaker Change: Accelerate processes and improve decision making.

Speaker Change: What's most exciting we expect AI to free up resources to unleash even greater creativity by our brand teams for their consumer.

Speaker Change: Encouragingly as demonstrated in the second quarter, we have some momentum on which to build across the five action plan priorities of beauty already mentioned.

Speaker Change: As part of the expanded <unk>. We also plan to work with over external partners to outsource areas of our business that are not call to where we want to lead in excel.

Speaker Change: As we exit our best in class consumer coverage nine brands have now launched on the U S. Amazon premium beauty stores, including the successful launch of the ordinary in January.

Speaker Change: Since I became CEO, we've moved quickly to jumpstart deuterium margin in my first 30 days.

Speaker Change: First we announced this morning, we reestablished a new consumer centric executive team through a combination of elevated top talent internally and recruiting externally.

Speaker Change: Last month's Clinique was our first brand to launch on Amazon's top phones at which time. It also doubled down on its authentic dermatologist, Eric days with strong commercial execution across all channels.

Speaker Change: The new flatter leaner team structure and governance model are designed to significantly improve collaboration and speed of decision, making with clearer accountability across brands regions and functions in support of our action plan priorities.

Speaker Change: Even cleanings resounding success in the U S demonstrated by eight consecutive months of prestige beauty share gain through December at launch in Canada, Amazon premium beauty stores during the second quarter.

Speaker Change: Second.

Speaker Change: And as I said few minutes ago, we strategically expanded PR GP, including its restructuring program with the full support of our board of directors.

Speaker Change: Across markets in Asia Pacific, We continue to build our presence on tick Tock shop line and shortly with more brands launching in some markets on this high growth platforms.

Speaker Change: This was a decision we did not take lightly and it will result in a reduction of several thousand additional positions.

Speaker Change: We are thrilled that the ordinary is debuting in mainland China. This months with its proven disruptive launch strategy.

Third we dramatically simplifies certain work streams across brands regions and functions to enable teams to focus more on external execution to drive sales growth.

We also realized excellent results as we extended the reach of our luxury and artisanal fragrance brands with our experiential install offerings led by a low level and it has shown a buffer for the model as each delivered strong double digit organic sales.

Speaker Change: As we exit Q beauty re imaging.

Speaker Change: We are embracing a test and learn mentality when we see an early win we will endeavor to move with speed to scale. It. Conversely, we will seek to move quickly to exit what's not working.

Speaker Change: <unk>.

Speaker Change: As we deliver our plans to create transformative innovation Clinique, Este Lauder and la Mer strategic launches for the ninth time usage occasion demonstrate the gains we can deliver where we have the right to play and win in mainland China La Mer grew.

Speaker Change: We are putting a new organizational structure in place to empower colleagues to act as owners as we improve communication accountability and collaboration to be more decisive and faster to action.

Speaker Change: In the retail in contrast to the industry's decline in prestige skincare, driven by its new regimen naked night cream.

Speaker Change: Encouragingly as demonstrated in the second quarter, we have some momentum on which to build across the five action plan priorities of beauty already mentioned.

Speaker Change: Clinique CX, the brand's new advanced post prostate treatment franchise fault China.

Speaker Change: Further epitomised as our SPRI ships clinic CX debuted in November at the Chinese Dermatologist Association with medical device to classification after less than 12 months development from concept to launch.

Speaker Change: As we exit our best in class consumer coverage nine brands have now launched on the U S. Amazon premium beauty stores, including the successful launch of the ordinary in January.

Speaker Change: Last month's Clinique was our first brand two launched on Amazon's top fault at which time. It also doubled down on its authentic dermatologist, Eric days with strong commercial execution across all channels.

Speaker Change: We also announced the opening of a new biotech in Belgium in December and the collaboration with <unk> in January to sell their accelerate the company's cutting edge biotechnology innovations.

Speaker Change: Given cleanings resounding success in the U S demonstrated by eight consecutive months of prestige beauty share gain through December it launched in Canada, Amazon premium beauty stores during the second quarter.

Speaker Change: Finally, we saw the fruits of our labor when we boosted consumer facing investment to reach new audiences.

Speaker Change: As seen by Jo Malone, London significant growth with men in the second quarter.

Speaker Change: Across markets in Asia Pacific, We continue to build our presence on tick Tock shop line and sharpie with more brands launching in some markets on this high growth platforms.

Speaker Change: Before I close I want to speak briefly about our first quarter outlook.

Speaker Change: While we are not satisfied with our fourth quarter outlook is primarily reflects weak retail sales trends in our Asia travel retail business, which deteriorated in the second quarter driven by Korea.

Speaker Change: We are thrilled that the ordinary is debuting in mainland China. This months with its proven disruptive launch strategy.

Speaker Change: We also realized excellent results as we extended the reach of our luxury and artisanal fragrance brands with our experiential install offerings led by low level and it is shown that buffer model as each delivered strong double digit organic sales.

Speaker Change: While our retail sales trends in <unk> were still negative in the second quarter, they improved sequentially fueled by our retail activations.

Speaker Change: Yeah.

Speaker Change: For the third quarter, we expect overall soft retail trends to persist in Asia travel retail significantly for assuring our organic net sales. Despite the improvement we made with our in trade inventory levels in the first half of fiscal 2025.

Speaker Change: It's both.

Speaker Change: As we deliver our plans to create transformative innovation Clinique, Este Lauder and la Mer strategic launches for the ninth time usage occasion demonstrate the gains we can deliver where we have the right to play and win in mainland China La Mer grew.

Speaker Change: Which we intend to maintain a cross current levels.

Speaker Change: In order to reignite, our retail sales growth, we are strategically increasing consumer facing investments around the world in the third quarter.

Speaker Change: In retail in contrast to the industry's decline in prestige skincare, driven by its new regimen naked night cream.

Speaker Change: We expect the benefits of the Pls GP to both fund these investments and modestly offset the meaningful operating deleverage from the sales decline.

Speaker Change: Clinique CX, the brand's new advanced post prostate treatment franchise fault, China further epitomizes our SPRI shows Clinique CX debuted in November at the Chinese Dermatologist Association with medical device to classify.

In closing.

Speaker Change: While we have much work to do we are confident that beauty or imagine is the way to realize our ambitions to restore sustainable sales growth and.

And achieved a solid double digit adjusted operating margin over the next few years.

Speaker Change: Occasion after less than 12 months development from concept to launch.

Speaker Change: We also announced the opening of a new biotech being Belgium December and the collaboration with a night see in January to sell their accelerate the company's cutting edge biotechnology innovations.

Speaker Change: To our employees. Thank you for your passion and contribution at this pivotal moment in our company's history.

Speaker Change: I'm grateful for all the ideas that you've shared with me over the past months.

Speaker Change: And the outsized for what we can achieve together this is our shelf division.

Speaker Change: Finally, we saw the fruits of our labor when we boosted consumer facing investment to reach new audiences.

Speaker Change: I'll now turn the call over to <unk>.

Speaker Change: Thank you Stefan and Hello, everyone.

Speaker Change: As seen by Jo Malone, London significant growth with men in the second quarter.

Speaker Change: It's an honor to be with you today in my new role as CFO of the Este Lauder companies.

Speaker Change: Before I close I want to speak briefly about our third quarter outlook.

Speaker Change: I am energized to partner with Stephane as the boldly drive the execution of beauty re imagined our transformation strategic vision.

Speaker Change: While we are not satisfied with our first quarter outlook is primarily reflects weak retail sales trends in our Asia travel retail business, which deteriorated in the second quarter driven by Korea.

Speaker Change: While we've made progress but initiatives under RPI GP, we recognize there is still much to accomplish.

Speaker Change: As we collaborate with our global teams to simplify processes and execute with speed and agility. We are confident we can achieve a leaner cost structure through significantly expanding RP RGB.

Speaker Change: While our retail sales trends and none were still negative in the second quarter, they improved sequentially fueled by our retail activations.

Speaker Change: For the third quarter, we expect overall soft retail trends to persist in Asia travel retail significantly pressuring our organic net sales. Despite the improvement we made with our in trade inventory levels in the first half of fiscal 2025.

Speaker Change: We believe this evolution positions us to invest more in consumer centric activities that drive recruitment and fuel sustainable profitable growth and cash generation for the long term.

Speaker Change: Ill discuss this in more detail shortly but first let me recap our second quarter results covering overall performance organic net sales by region and product category margin cash flows restructuring charges and other items.

Speaker Change: Which we intend to maintain a cross current levels.

Speaker Change: In order to reignite, our retail sales growth, we are strategically increasing consumer facing investments around the world in the third quarter.

Speaker Change: We expect the benefits of the Pls GP to both fund these investments and modestly offset the meaningful operating deleverage from the sales decline.

Speaker Change: Organic net sales declined 6% at the high end of the outlook range. We gave in October.

Speaker Change: Adjusted EPS was <unk> 62 in the quarter exceeding our outlook.

Speaker Change: In closing.

Speaker Change: While we have much work to do we are confident that beauty or imagine is the way to realize our ambitions to restore sustainable sales growth and achieved a solid double digit adjusted operating margin over the next few years.

Speaker Change: This reflects better than expected gross margin expansion, given a higher than expected category mix in skincare.

Speaker Change: It also reflects disciplined expense management, while we continued to invest in consumer facing activities to support growth in key areas of the business.

Speaker Change: To our employees. Thank you for your passion and contribution at this pivotal moment in our company's history.

Speaker Change: Starting with our regions.

Speaker Change: I'm grateful for all the ideas that you've shared with me over the past months and.

Speaker Change: In Asia Pacific net sales decreased 11%.

Speaker Change: And the outsized for what we can achieve together this is our shelf division.

Speaker Change: Primarily driven by double digit declines in mainland, China, Korea, and Hong Kong SCR, mainly due to subdued consumer sentiment.

Speaker Change: I'll now turn the call over to <unk>.

Thank you Stefan and Hello, everyone.

Speaker Change: The decline in Korea also reflects our November 2024 exit of Dr. Jacques from the travel retail channel.

Speaker Change: It's an honor to be with you today in my new role as CFO of the Este Lauder companies.

Speaker Change: I am energized to partner with Stephane as the boldly drive the execution of beauty re imagined our transformation strategic vision.

Speaker Change: As well as the impacts of recent political and social unrest.

These declines were partially offset by double digit organic net sales growth in Japan.

Speaker Change: While we've made progress with initiatives under our GP, we recognize there is still much to accomplish.

Speaker Change: Domestic and traveling consumers.

Speaker Change: New to fuel growth across nearly all channels of distribution.

Speaker Change: We collaborate with our global teams to simplify processes and execute with speed and agility. We are confident we can achieve a leaner cost structure to significantly expanding our PAGP.

Speaker Change: Organic net sales in EMEA fell 6%. This reflects continued retail softness in our Asia travel retail business, which resulted in lower replenishment orders.

Speaker Change: Organic net sales were flat in the Americas. This was mainly due to the 1% decline in North America, where we still have relatively high exposure and slower growth channels.

Speaker Change: We believe this evolution positions us to invest more in consumer centric activities that drive recruitment and fuel sustainable profitable growth and cash generation for the long term.

Speaker Change: This was partially offset by double digit online sales growth, which included early shipments for the ordinaries launch in Amazon U S premium beauty store in January.

Speaker Change: Ill discuss this in more detail shortly but first let me recap our second quarter results covering overall performance organic net sales by region and product category margin cash flows restructuring charges and other items.

Speaker Change: Moving on to product categories organic net sales decreased 12% in skincare and 8% in hair care.

Organic net sales declined 6% at the high end of the outlook range. We gave in October.

Speaker Change: The challenges in Asia Pacific and our Asia travel retail business had the greatest effect on our skin care category.

Speaker Change: Adjusted EPS was <unk> 62 in the quarter exceeding our outlook.

Speaker Change: This more than offset the sales growth we saw in the Americas led by double digit growth from the ordinary.

Speaker Change: This reflects better than expected gross margin expansion, given a higher than expected category mix in skin care.

Speaker Change: In makeup organic net sales decreased 1%.

Speaker Change: It also reflects disciplined expense management, while we continued to invest in consumer facing activities to support growth.

Speaker Change: Collective decline from Palm for Mac and smashbox.

Speaker Change: More than offset the high single digit growth from Clinique launched last March and Amazon's U S premium beauty store.

Speaker Change: Areas of the business.

Speaker Change: Starting with our reagents.

Speaker Change: In Asia Pacific net sales decreased 11%.

Speaker Change: Fragrance organic net sales increased 2%.

Speaker Change: Primarily driven by double digit declines in mainland, China, Korea, and Hong Kong SCR, mainly due to subdued consumer sentiment.

Speaker Change: <unk> continued to excel with strong double digit sales growth across all geographic regions driven by hero products.

Speaker Change: And innovation.

Speaker Change: The decline in Korea also reflects our November 2024 exit of Dr. Jacques from the travel retail channel.

Speaker Change: Now turning to our margins for.

Speaker Change: For the quarter, our gross margin expanded 310 basis points compared to last year.

As well as the impact of recent political and social unrest.

Speaker Change: This reflects net benefits from a PR GP that drove the reduction in excess and obsolescence lower discounts benefits from our strategic pricing actions and operational efficiencies.

Speaker Change: These declines were partially offset by double digit organic net sales growth in Japan.

Speaker Change: Domestic and traveling consumers.

Speaker Change: <unk> to fuel growth across nearly all channels of distribution.

Speaker Change: Okay.

Speaker Change: Operating expenses increased 500 basis points as a percent of sales during the quarter.

Speaker Change: Organic net sales in EMEA fell 6%. This reflects continued retail softness in our Asia travel retail business, which resulted in lower replenishment orders.

Speaker Change: This reflects a 210 basis points increase in advertising promotion and innovation expenses.

Speaker Change: It includes our investments to fuel performance during holiday and key shopping moments and drive consumer engagement for new product launches.

Speaker Change: Organic net sales were flat in the Americas. This was mainly due to the 1% decline in North America, where we still have relatively high exposure and slower growth channels.

Speaker Change: We also saw an increase of 130 basis points from higher selling expense.

This was partially offset by double digit online sales growth, which included early shipments for the ordinaries launch in Amazon U S premium beauty store in January.

Speaker Change: This reflects higher cost to support key activations, including during holiday and our distribution expansion.

Speaker Change: And our sales deleverage offset the net benefits realized under the PAGP.

Speaker Change: Moving on to product categories organic net sales decreased 12% in skincare and 8% in hair care.

Speaker Change: Ill expand on this later.

Speaker Change: Operating income decreased 20% to $462 million.

Speaker Change: The challenges in Asia Pacific and our Asia travel retail business have the greatest effect on our skin care category.

Speaker Change: And our operating margin contracted 200 basis points to 11, 5% compared to 13, 5% last year.

Speaker Change: This more than offset the sales growth we saw in the Americas led by double digit growth from the ordinary.

In makeup organic net sales decreased 1%.

Speaker Change: Our effective tax rate for the quarter was 42, 6% compared to 37, 7% last year. The increase is primarily due to the unfavorable impact of previously issued stock based compensation and a change in our global.

Speaker Change: Collective decline from Tom for Mac and Smashbox.

Speaker Change: More than offset the high single digit growth from Clinique launched last March and Amazon's U S premium beauty store.

Speaker Change: Fragrance organic net sales increased 2%.

Mix of earnings.

Diluted EPS was <unk> 62.

Speaker Change: <unk> continued to excel with strong double digit sales growth across all geographic regions driven by hero products.

Speaker Change: Compared to 88 last year.

Speaker Change: As of December 31, we have recorded.

Speaker Change: $403 million of charges under our <unk> restructuring program.

Speaker Change: And innovation.

Speaker Change: Now turning to our margins for.

For the quarter, our gross margin expanded 310 basis points compared to last year.

Speaker Change: These charges, primarily relate to initiatives aimed at transforming various functions brands and regions.

This reflects net benefits from a PR GP that drove the reduction in excess and obsolescence lower discounts benefits from our strategic pricing actions and operational efficiencies.

Speaker Change: During the quarter, we recorded $861 million of impairment charges related to encore and too faced this reflects challenges in Asia Pacific and our Asia travel retail business Port Encore and continued underperformance.

Speaker Change: Yeah.

Operating expenses increased 500 basis points as a percent of sales during the quarter.

Speaker Change: Toothpaste.

Speaker Change: The increase in the weighted average cost of capital also contributed to the impairment charges for both brands.

Speaker Change: This reflects a 210 basis points increase in advertising promotion and innovation expenses.

Speaker Change: Moving now to our cash generation capex investments and dividend payments.

Speaker Change: Concludes our investments to fuel performance during holiday and key shopping moments and drive consumer engagement for new product launches.

Speaker Change: For the six months, we generated $387 million and net cash flows from operating activities compared to $937 million last.

Speaker Change: We also saw an increase of 130 basis points from higher selling expense.

Speaker Change: Last year.

Speaker Change: This reflects higher costs to support key activations, including during holiday and our distribution expansion.

Speaker Change: Lower net cash flows from operations this year as compared to last year is due to the decrease in earnings adjusted for noncash items and an unfavorable change in operating assets and liabilities.

Speaker Change: And our sales deleverage offset the net benefits realized under the PAGP.

Speaker Change: This includes the fact that last year, we made a very significant year on year reduction in our inventory.

Speaker Change: Ill expand on this later.

Speaker Change: Operating income decreased 20% to $462 million.

Speaker Change: We invested $273 million in capital expenditures compared to $527 million last year.

Speaker Change: And our operating margin contracted 200 basis points to 11, 5% compared to 13, 5% last year.

Speaker Change: The reduction in capital expenditures was primarily driven by the variety of payments relating to the manufacturing facility in Japan.

Speaker Change: Our effective tax rate for the quarter was 42, 6% compared to 37, 7% last year. The increase is primarily due to the unfavorable impact of previously issued stock based compensation and a change in our global.

Speaker Change: It also reflects the improvements we've made to optimize expenditures as we are determined to improve our free cash flow.

Speaker Change: Turning to dividends, we returned $366 million in cash to stockholders.

Speaker Change: Mix of earnings.

Speaker Change: Diluted EPS was <unk> 62.

Speaker Change: Looking ahead to harness the full growth potential of our strategic vision as we transform how we operate and invest in our business.

Speaker Change: Compared to 88 last year.

Speaker Change: As of December 31st we have recorded.

Speaker Change: We must boldly pivot with a consumer centric mindset focused on cost discipline, optimizing our resources for growth and fueling consumer facing investments to further ignite our brands.

Speaker Change: $403 million of charges under our <unk> restructuring program.

Speaker Change: These charges, primarily relate to initiatives aimed at transforming various functions bran and regions.

Speaker Change: Now I'm going to elaborate on OPI GP that is a critical enabler of this strategic vision.

Speaker Change: During the quarter, we recorded $861 million of impairment charges related to encore and too faced this reflects challenges in Asia Pacific and our Asia travel retail business Port Encore and continued underperformance.

Speaker Change: We have made significant progress in executing our plan thus far.

Speaker Change: While we remain on track to deliver the previously communicated one one to $1 4 billion in net benefits.

Speaker Change: Too faced.

Speaker Change: The increase in the weighted average cost of capital also contributed to the impairment charges for both brands.

Speaker Change: The current headwinds we are facing are now expected to partially offset these benefits.

Speaker Change: Moving now to our cash generation capex investments and dividend payments.

Speaker Change: To date, the net benefits, we have realized thus far have been more than offset by our operating deleverage.

Speaker Change: For the six months, we generated $387 million and net cash flows from operating activities compared to $937 million.

Speaker Change: Our profitability has been pressured by our sales volume declines mix ongoing inflation in our cost base network scaled in anticipation of growth that did not materialize.

Speaker Change: Last year.

Speaker Change: Lower net cash flows from operations this year as compared to last year is due to the decrease in earnings.

Speaker Change: We have also continued to invest in consumer facing activities and distribution expansion to fuel sustainable growth.

Speaker Change: Adjusted for noncash items, and an unfavorable change in operating assets and liabilities.

Speaker Change: This includes the fact that last year, we made a very significant year on year reduction in our inventory.

Speaker Change: To address these challenges and accelerate a return to sustainable sales growth and profitability. We have made the decision to further expand the PAGP, including its restructuring program.

Speaker Change: We invested $273 million in capital expenditures compared to $527 million last year.

Speaker Change: Anchored by the five key action plans defined discussed.

Speaker Change: The reduction in capital expenditures was primarily driven by the variety of payments relating to the manufacturing facility in Japan.

Speaker Change: The expanded peer GP is essential to our operational transformation.

Speaker Change: Fueling investments for growth not ahead of it.

Speaker Change: It also reflects the improvements we have made to optimize expenditures as we are determined to improve our free cash flow.

Speaker Change: We are focused on improving operational efficiencies optimizing our cost structure to be leaner and enhancing leverage across the business.

Speaker Change: Turning to dividends, we returned $366 million in cash to stockholders.

Speaker Change: Especially during periods of volatility and low sales growth.

Speaker Change: Looking ahead to harness the full growth potential of our strategic vision as we transform how we operate and invest in our business.

Speaker Change: This transformation enables us to reallocate resources, allowing us to better prioritize and increase consumer facing investments.

Speaker Change: We must boldly pivot with a consumer centric mindset focused on cost discipline, optimizing our resources for growth and fueling consumer facing investments to further ignite our brands.

Speaker Change: By doing so we are better positioned to address changes in our mix of business, rather driven by internal or external factors.

Speaker Change: Related we have made the difficult decision to expand our restructuring program with.

Speaker Change: Now I'm going to elaborate on <unk> that is a critical enabler of this strategic vision.

Speaker Change: With all initiatives under the program. We now expect a net reduction of 5000 807000 positions globally, including approvals to date.

Speaker Change: We have made significant progress in executing our plan thus far.

Speaker Change: While we remain on track to deliver the previously communicated one one to $1 4 billion in net benefits.

Speaker Change: Brewers for specific initiatives under this restructuring program in total are still expected to be completed by the end of fiscal 2026.

Speaker Change: The current headwinds we are facing are now expected to partially offset these benefits.

Speaker Change: And then now expanded restructuring program, we expect to take total charges of one two to $1 6 billion.

To date, the net benefits, we have realized thus far have been more than offset by our operating deleverage.

Speaker Change: And generate annual gross savings of 800 million to $1 billion before taxes.

Speaker Change: Our profitability has been pressured by our sales volume declines mix ongoing inflation in our cost base that was scaled in anticipation of growth that did not materialize.

Speaker Change: A portion of these savings is expected to be reinvested in consumer centric activities.

Speaker Change: And additional investments to fuel growth.

Speaker Change: We have also continued to invest in consumer facing activities and distribution expansion to fuel sustainable growth.

Speaker Change: The actions under the pier GP, including its restructuring program are expected to be substantially executed in fiscal 'twenty, five and 26 and completed in fiscal 2007, we.

Speaker Change: To address these challenges and accelerate a return to sustainable sales growth and profitability. We have made the decision to further expand the PAGP, including its restructuring program.

Speaker Change: We expect nearly all of the full run rate benefits to be realized during fiscal 2007.

Speaker Change: Overall, we aim to accelerate our return to sustainable sales growth.

Speaker Change: Anchored by the five key action plans.

Speaker Change: <unk> discussed.

Speaker Change: Deliver a solid double digit adjusted operating margin over the next few years.

Speaker Change: The expanded PAGP is essential to our operational transformation.

Speaker Change: Fueling investments for growth not ahead of it.

Speaker Change: We are moving with a sense of urgency to execute the action plans of beauty the magic to start delivering annual sales and margin improvement quickly.

Speaker Change: We are focused on improving operational efficiencies optimizing our cost structure to be leaner and enhancing leverage across the business.

Stefan: Stefan said, we plan to share more details once the beauty the imagine action plans are operationalized left.

Speaker Change: Especially during periods of volatility and low sales growth.

Stefan: Let me now discuss our outlook.

Speaker Change: This transformation enables us to reallocate resources, allowing us to better prioritize and increase consumer facing investments.

Stefan: We expect our business to continue to be challenged by subdued consumer sentiment in China, and Korea, pressuring Asia travel retail.

Speaker Change: By doing so we are better positioned to address changes in our mix of business, rather driven by internal or external factors.

Stefan: In light of this along with evolving global geopolitical uncertainty.

Stefan: We anticipate continued volatility and low visibility in the near term.

Speaker Change: Related we have made the difficult decision to expand our restructuring program with.

Stefan: As a result, we are only providing an outlook for the third quarter.

Speaker Change: But all initiatives under the program. We now expect a net reduction of 5000 807000 positions globally, including approvals to date.

Stefan: We expect a strong double digit sales decline in our global travel retail business in the second half of the fiscal year.

Stefan: This reflects shipments based on our expectation of persistent industry retail softness and incremental pressure from the change in selling policies at several Korean retailers.

Speaker Change: <unk> four specific initiatives under this restructuring program in total are still expected to be completed by the end of fiscal 2026.

Stefan: Additionally, recall that we resumed replenishment orders in the third quarter last year, making for a difficult comparison.

Speaker Change: And then now expanded restructuring program, we expect to take total charges of one two to $1 $6 billion and.

Stefan: However, we are encouraged that for the second quarter, our retail trends, while still negative improved sequentially in both mainland China and globally, excluding travel retail.

Speaker Change: <unk> annual gross savings of 800 million to $1 billion before taxes.

Speaker Change: A portion of these savings is expected to be reinvested in consumer centric activities.

Stefan: We anticipate our retail sales trends, excluding travel retail to significantly improve in the third quarter as we increased consumer facing investments.

Speaker Change: And additional investments to fuel growth.

Speaker Change: The actions under the PAGP, including its restructuring program are expected to be substantially executed in fiscal 2005, and 2006 and completed in fiscal 2007, we.

Stefan: Given that context, let me walk you through our specific outlook for the third quarter.

Stefan: We expect organic net sales for our third quarter two decreased 10, two 8% compared to last year as I. Previously mentioned this is primarily driven by a strong double digit decline in our global travel retail business and the rest of the business. We expect the net sales decline to moderate.

Speaker Change: We expect nearly all of the full run rate benefit to be realized during fiscal 2007.

Overall, we aim to accelerate our return to sustainable sales growth and deliver a solid double digit adjusted operating margin over the next few years.

Stefan: <unk>.

Stefan: Currency translation is expected to negatively impact reported net sales by two percentage points.

Speaker Change: We are moving with a sense of urgency to execute the action plans of beauty the magic to start delivering annual sales and margin improvement quickly.

Stefan: For the third quarter, we anticipate moderate gross margin expansion.

Speaker Change: <unk> said, we plan to share more details once the beauty re imagined action plans are operationalized lead.

Stefan: Reflecting a tailwind from the NPD charge last year, which was triggered by the previous pull down of production we.

Speaker Change: Let me now discuss our outlook.

Stefan: Also expect continued benefits from the PR GP as an offset to our expected sales volume deleverage and continued consumer facing investments.

Speaker Change: We expect our business to continue to be challenged by subdued consumer sentiment in China, and Korea, pressuring Asia travel retail.

Speaker Change: In light of this along with evolving global geopolitical uncertainty.

Stefan: We expect our third quarter effective tax rate to be approximately 36% compared to 35% last year.

Speaker Change: We anticipate continued volatility and low visibility in the near term as.

Stefan: Increase primarily reflects the estimated change in our geographical mix of earnings.

Speaker Change: As a result, we are only providing an outlook for the third quarter.

Stefan: We expect third quarter adjusted EPS of 20 to 30.

We expect a strong double digit sales decline in our global travel retail business in the second half of the fiscal year.

Stefan: Primarily driven by the expected strong sales decline in global travel retail.

Speaker Change: This reflects shipments based on our expectation of persistent industry retail softness and incremental pressure from the change in selling policies at several Korean retailers.

Stefan: Currency translation is expected to dilute EPS by four.

Stefan: In closing, we acknowledge that we have a lot of hard work ahead, but we are empowered by our beauty re imagined vision.

Speaker Change: Additionally, recall that we resumed replenishment orders in the third quarter last year, making for a difficult comparison.

Stefan: With its mandate to pivot broadly with a consumer centric mindset speed and agility.

Speaker Change: However, we are encouraged that for the second quarter, our retail trends, while still negative improved sequentially in both mainland China and globally, excluding travel retail.

Our confident and better positioned to accelerate our return to sustainable sales growth and long term profitability.

Stefan: On behalf of Stephane, and our new leadership team.

Speaker Change: We anticipate our retail sales trends, excluding travel retail to significantly improve in the third quarter as we increase consumer facing investments.

Speaker Change: I want to extend a heartfelt gratitude to our talented employees around the world too.

Speaker Change: Together with you we are driving the critical transformation to unlock the full potential of our beloved company.

Speaker Change: Given that context, let me walk you through our specific outlook for the third quarter.

Speaker Change: We expect organic net sales for our third quarter two decreased 10, two 8% compared to last year as I. Previously mentioned this is primarily driven by a strong double digit decline in our global travel retail business and the rest of the business. We expect the net sales decline to moderate.

Speaker Change: That concludes our prepared remarks, I'll now turn it over to the operator to begin the Q&A session.

Speaker Change: Thank you we will now begin the question and answer session.

Speaker Change: To ask a question you May Press Star then one on your Touchtone phone.

Speaker Change: If youre using a speakerphone please pick up your handset before pressing the keys.

Speaker Change: Sure.

Speaker Change: Currency translation is expected to negatively impact reported net sales by two percentage points.

Speaker Change: If at any time. Your question has been addressed and you would like to withdraw. Your question. Please press Star then two and at this time, we'll pause momentarily to assemble our roster.

Speaker Change: For the third quarter, we anticipate moderate gross margin expansion.

Speaker Change: Reflecting a tailwind from the inferior charge last year, which was triggered by the previous pull down of production.

Speaker Change: And the first question will come from Bryan Spillane with Bank of America. Please go ahead.

Bryan Spillane: Thanks, operator.

Speaker Change: We also expect continued benefits from the PR GP as an offset to our expected sales volume deleverage and continued consumer facing investments.

Speaker Change: Good morning, everyone.

Bryan Spillane: Thanks for all the detail.

Bryan Spillane: Very very helpful and I know, there's a lot that you've got going on.

Speaker Change: But Stefan maybe just to step back for a SEC.

Speaker Change: We expect our third quarter effective tax rate to be approximately 36% compared to 35% last year.

Speaker Change: As we were I was just reading through the press release this morning, and listening to the prepared remarks, some of what I'm hearing or what it comes across as Theres, some prioritization happening, meaning by changing the organization structure internationally, it's going to create I think more focus in some of those regions that.

Speaker Change: The increase primarily reflects the estimated change in our geographical mix of earnings.

Speaker Change: We expect third quarter adjusted EPS of 20 to 30.

Speaker Change: Primarily driven by the expected strong sales decline in global travel retail.

Speaker Change: Maybe needed them.

Speaker Change: And in that light can you talk a little bit about the portfolio I know theres been some new stories about the potential to maybe sell some brands but.

Speaker Change: Currency translation is expected to dilute EPS by four.

Speaker Change: Absent that just.

Speaker Change: In closing, we acknowledge that we have a lot of hard work ahead, but we are empowered by our beauty re imagined vision.

Speaker Change: How are you looking at the portfolio and prioritizing where the investments go and maybe there are certain brands or categories that Youll Youll run more for cash just trying to get a better understanding of maybe how you are looking at the portfolio itself and prioritizing.

Speaker Change: With its mandate to pivot poorly with a consumer centric mindset speed and agility.

Speaker Change: Thank you Brian.

Speaker Change: Our confident and better positioned to accelerate our return to sustainable sales growth and long term profitability.

Speaker Change: Thank you very very good question.

Speaker Change: To discuss the first of all your question is on the organization. Obviously you saw as part of the press release, we put out. This morning, obviously, the the change in the evolution of organization first and foremost this organization was fall through to be leaner and.

Speaker Change: On behalf of Stephane, and our new leadership team.

Speaker Change: I want to extend a heartfelt gratitude to our talented employees around the world took.

Speaker Change: Together with you.

Speaker Change: We are driving the critical transformation to unlock the full potential of our beloved company.

Speaker Change: Faster obviously, we are if you look at the organization that three block one about the regions one about the brand and what the operation. We've really looked at every single of DNA to be able to just like to note <unk> faster and to deploy and execute the <unk> strategy in a much faster way.

That concludes our prepared remarks, I'll now turn it over to the operator to begin the Q&A session.

Speaker Change: Thank you we will now begin the question and answer session.

Speaker Change: Previous point, Brian the realignment of the regions across four clusters allow us to have a much more focused one on the Americas looking at it on the total region one in Asia with the integration of travel retail as part of this region, which allows us to our like much further and grow.

Speaker Change: To ask a question you May Press Star then one on your Touchtone phone.

Speaker Change: If youre using a speakerphone please pick up your handset before pressing the keys.

Speaker Change: Anytime Youre question has been addressed and you would like to withdraw your question. Please press Star then two and at this time, we'll pause momentarily to assemble our roster.

Speaker Change: Better alignment between the local market in travel retail on the activities that we're going to run then you have also the entire alignment of the EMEA UK and the newly created emerging market. We've said it for a long time emerging market is a key focus of oxidation growing.

Speaker Change: And the first question will come from Bryan Spillane with Bank of America. Please go ahead.

Bryan Spillane: Thanks, operator.

Speaker Change: Good morning, everyone.

Speaker Change: Thanks for all the detail.

Speaker Change: Very very helpful and I know, there's a lot that you've got going on.

Speaker Change: So, creating the new organization that allows us to focus on markets, such as India Middle East Southeast Asia, and you name it will allow us to really capture the fast growing middle class in these markets and to position our bromine every key market and obviously, China gets elevated in reporting directly to me obvious.

Speaker Change: But Stefan maybe just to step back for a SEC I.

Speaker Change: I guess as we were I was just reading through the press release this morning, and listening to the prepared remarks, some of what I'm hearing or what it comes across as Theres, some prioritization happening, meaning by changing the the organization structure internationally, it's going to create I think more focus in some of those regions that.

Speaker Change: Based on this.

Speaker Change: Strategic important and frankly, the continuous importance of the market in the long term outlook of China that is very good.

Speaker Change: Maybe needed them.

Speaker Change: And in that light can you talk a little bit about the portfolio I know theres been some new stories about the potential to maybe sell some brands, but absent that just.

Speaker Change: When it comes to the portfolio of brands that you've discussed obviously, we are what we are doing is that we are conducting on a regular basis, a full analysis of where our brands needs to just lagging a deploy and well theyre strikes. Please we undertake always every year a full portfolio review evolve.

Speaker Change: How are you looking at the portfolio and prioritizing where the investments go and maybe there are certain brands or categories that Youll Youll run more for cash just trying to get a better understanding of maybe how you are looking at the portfolio itself and prioritizing.

<unk>.

Speaker Change: And we do it with the board and we do it also with every single of our brands.

Speaker Change: Thank you Brian.

Speaker Change: Thank you very very good question.

Speaker Change: Discuss the first of all your question is on the organization. Obviously you saw as part of the press release, we put out. This morning, obviously, the the change in the evolution of organization first and foremost this organization was flowed through to be leaner and <unk>.

Speaker Change: We look at categories, we look at the region. We look at zero product, we look at new innovation, and where we want to accelerate them and make sure that we transform.

Speaker Change: One we expedite what works and that's what I said in my prepared remark, we want to pivot and to be much more agile stop what is not working in broadband in the region.

Speaker Change: <unk> obviously, we are if you look at the organization that three block one about the regions one about the brand and what the operation. We've really looked at every single out DLA mode to be able to just like act faster to deploy and execute the beauty of <unk> strategy in a much faster way.

Speaker Change: Ask that our innovation going forward as part of the second pillar of nuclear imaging, which is the creation of this transformative innovation plan that will allow us to accelerate it.

Speaker Change: And all of that that will allow us to really deploy our brand with a lot more agility based on the run the organization. The original organization and at the same time. These full review that we are doing on every single of our brown on ongoing basis and frankly, the last part I would say we are committing to drive the maximum value.

Speaker Change: To your point, Brian the realignment of the regions across four clusters allow us to have a much more focused one on the Americas looking at it on a total region one in Asia with the integration of travel retail as part of this region, which allows us to have like much further and go.

Speaker Change: For each of our brands in each of our regions around the world.

Speaker Change: Greater alignment between the local market in travel retail on the activities that we're going to run then you have also the entire alignment of the EMEA UK and the newly created emerging market. We've said it for a long time emerging market is a key focus of Occidental isn't growing.

Speaker Change: The next question will come from Lauren Lieberman with Barclays. Please go ahead.

Lauren Lieberman: Great. Thanks, good morning, everyone.

Speaker Change: I was curious Stefan if you could talk a little bit about how you manage the pace of reinvestment because I noticed once or twice during the prepared remarks, you discussed one of the challenges in the past was investing ahead of the curve investing for growth that didn't materialize.

Speaker Change: So, creating the new organization that allows us to focus on markets, such as India Middle East Southeast Asia, and you name it will allow us to really capture the fast growing middle class in these markets and to position our bromine every key market and obviously, China gets elevated in reporting directly to me.

Speaker Change: But at the same time, we need to keep reinvesting right. So I mean, Kim my ear is that do you like the difference between one and the other is just a matter of success rate in ROI right. If the sales had materialized those investments would not have been deemed unsuccessful. So.

Speaker Change: It varies on this.

Speaker Change: <unk> important and frankly, the continuous importance of the market in the long term outlook of China that is very good.

Just need a little help in understanding that that.

Speaker Change: When it comes to the portfolio of brands that you've discussed obviously, we are what we are doing is that we are conducting on a regular basis, a full analysis of where our brands needs to just liking or deploy them well. They are trying to as we undertake always every year a full portfolio review evolve.

Speaker Change: Change in approach on spending ahead of sales growth versus spending to drive sales growth.

Speaker Change: Thank you Laura and then great to hear from you.

Speaker Change: So.

Speaker Change: On the prepared remarks, what I said, what we did in the past is obviously, we've invested ahead of growth in our capabilities. We did a lot of investment as you may recall in term of manufacturing that work in terms of system operating model.

Speaker Change: Rob.

Speaker Change: And we do it with the board and we do it also with every single of our brands.

Speaker Change: We look at categories, we look at the region. We look at zero product, we look at new innovation, and where we want to accelerate them and make sure that we transform.

Speaker Change: Innovation centers around the world for us to be able to just make sure we meet the consumer and being able to just like you know deliver with a more regional manufacturing.

Speaker Change: One we exited what works and that's what I said in my prepared remark, we want to pivot and to be much more agile.

Speaker Change: Manufacturing network, what im referring to in terms of investment is really much in line to the beauty reemerging.

Speaker Change: What is not working in broadband in the region.

Speaker Change: The exit our innovation going forward a part of the second pillar of nuclear imaging, which is the creation of this transformative innovation plan that will allow us to et cetera.

Speaker Change: <unk>, which is investing in consumer facing so it's really much shifting our investment going forward to be where the consumers are investing in the right media platform being in the right distribution network. We have the right innovation. So in some way is reducing our investment in <unk>.

Speaker Change: And all of that that will allow us to really deploy our brand with a lot more agility based on the broad organization. The original organization and at the same time. These full review that we are doing on every single of our blood on ongoing basis.

Speaker Change: G&A and accelerating all investment in consumer facing like advertising like promotions that we have in any given market depending on the profile of each of the brands. So the commitment is for US too as you sold a profile of Q2 and Q3.

Speaker Change: Frankly at the last part I would say we are committing to drive the maximum value for each of our brands in each of our regions around the world.

Speaker Change: Is really to invest in our brands and consumer facing to really be able to accelerate retail. That's the sense of duty re imaging is to be able to free up the resources in the P&L to allow us to invest in consumer facing to reignite.

Speaker Change: The next question will come from Lauren Lieberman with Barclays. Please go ahead.

Lauren Lieberman: Great. Thanks, good morning, everyone.

Lauren Lieberman: I was curious Stefan if you could talk a little bit about how you manage the pace of reinvestment because I noticed once or twice to the prepared remarks, you discussed one of the challenges in the past was investing ahead of the curve investing for growth that didn't materialize, but.

Speaker Change: Retail and our commitment is to have strong retail growth to reveal strong double digit organic.

Speaker Change: Operating margin, but at the same time for us to grow both market. Our ambition is definitely to gain market share in the key market in the key brands and key categories around the world and as we said it previously our strategy is to rebalance the world to access this growth in the <unk>.

Speaker Change: But at the same time, we need to keep reinvesting right. So I mean to my ear is I feel like the difference between one and the other is just a matter of success rate and our ROI right. If the sales had materialized those investments would not have been deemed unsuccessful. So I just need a little help in understanding that that change in approach on.

Speaker Change: Yes.

Lauren Lieberman: Spending ahead of sales growth versus spending to drive sales growth.

Speaker Change: <unk> is to us we need to invest in consumer facing and just like in order to make sure that we can exit and to date, we have always be some strong momentum as we see.

Lauren Lieberman: Thank you Laura and then breakthrough here from you.

Lauren Lieberman: So.

Lauren Lieberman: On the prepared remarks, what I said, what we did in the past is obviously, we've invested ahead of growth in our capabilities. We did a lot of investment as you may recall in term of manufacturing that work in terms of system operating model.

Speaker Change: Various places such as like a campaign that we've done with Este Lauder on Thursday night football campaign in the U S are also Jo Malone men's campaign, but we said we were going to accelerate the capture of new consumer and we did an amendment we have like tremendous growth in this category.

Lauren Lieberman: Innovation centers around the world for us to vehicle to just make sure we meet the consumer and being able to just like you know deliver with a more regional.

Speaker Change: At the same time also Clinique, we've said it over and over again with the move that we did close two in March of last year, we've been able to capture lapsed consumer or a new consumer through the expansion into Amazon premium beauty stores and as a result, we have had eight months of consecutive market share.

Lauren Lieberman: Our manufacturing network, what im referring to in terms of investment is really much in line to the beauty reemerging.

Lauren Lieberman: Vision, which is investing in consumer facing so it's really much shifting our investment going forward to be where the consumers are investing in the right media platform being in the right distribution network. We have the right innovation. So in some way is reducing our investment in <unk>.

Speaker Change: Gains in the U S market. So all these seven months gives us the confidence to really invest in our brands in the right geography, but also where we have some successes around the world. So the investment is more going for targeting again, the consumer acquisition and to be able to reach.

Lauren Lieberman: G&A and accelerating all investment in consumer facing like advertising like promotion that we have in any given market depending on the profile of each of the brands. So the commitment is for US too as you sold a profile of Q2 and Q3.

Speaker Change: Nice overall growth.

Speaker Change: Okay.

Speaker Change: I would add a few things Lauren.

Speaker Change: We are making a clear distinction here between consumer facing and fixed cost. So as Stefan said on consumer facing a lot more discretion with lot more variability and lot faster learning to quickly pivot our plants in the past, we made some investment which are big bets and fixed costs and capabilities.

Lauren Lieberman: <unk> is really to invest in our brands and consumer facing to really be able to accelerate retail.

Lauren Lieberman: The sense of duty re imaging is to be able to free up the resources in the P&L to allow us to invest in consumer facing to reignite, our retail and our commitment is to have strong retail growth to reveal strong double digit organic.

Speaker Change: Then you are stuck with them and Thats. The big distinction, we are making and pouring all our investments to drive the business and constantly pivot.

Speaker Change: And that's what we'll keep driving regularly month by month quarter by quarter and constantly pivot.

Lauren Lieberman: <unk>.

Lauren Lieberman: Operating margin, but at the same time for us to grow both market. Our ambition is definitely to gain market share in the key market in the key brands and key categories around the world and as we said it previously our strategy is to rebalance the world to access this growth in <unk>.

Speaker Change: Okay.

Dana Telsey: The next question will come from Dana Telsey with Telsey Group. Please go ahead.

Speaker Change: Hi, good morning, everyone.

Speaker Change: Finally, if you think of the new initiatives.

Lauren Lieberman: West from East to West, we need to invest in consumer facing and just like you know to make sure that we can exit and today, we have always be some strong momentum as we see.

Speaker Change: Hi, as you think of the new initiatives, you're putting in place with the beauty re imagined as we go through the next year or two years, what are the markers you're looking for to show the proof points that it's working and how you're thinking about the travel retail channel.

Lauren Lieberman: In the various places such as like a campaign that we've done with Este Lauder on Thursday night football campaign in the U S are also Jo Malone men's campaign.

Speaker Change: Okay.

Speaker Change: Thank you.

Speaker Change: Well. Thank you. Thank you Donna.

Lauren Lieberman: We said we were going to accelerate the capture of new consumer and we did it in men and we have a tremendous growth in this category.

Speaker Change: Look there's five pillars to our beauty or imaging visa and <unk>, we are tracking and we are creating actually a wasteful way electrical tracking and follow every single of our action to just make sure that everything we do is going to deliver on this promise that we're making today the first.

Lauren Lieberman: At the same time also Clinique, we've said it over and over again with the move that we did close two in March of last year, we've been able to just capture lapsed consumers new consumers through the expansion into Amazon premium beauty stores and as a result, we have had eight months of consecutive market share.

Speaker Change: One is the consumer Congress, what I mean about consumer coverage is our ability to just capture the constant mill as well. They are we know we didn't make fast move in terms of new distribution when the consumer what's moving and that's what we've demonstrated with the move that we've made a few months ago with Amazon.

Lauren Lieberman: In the U S market. So all these certain months gives us the confidence to really invest in our brands in the right geography, but also where we have some successes around the world. So the investment is more going for targeting again, the consumer acquisition and to be able to reach.

Speaker Change: And many of those like sharp tick tock shop in Asia, and even in the U S. So we are going to really measure of how quickly we move in this channel and how much we can capture lapsed consumer but also new consumer the second thing is our credit our transformative innovation I'm committed with the team to <unk>.

Lauren Lieberman: Nice overall growth.

I would add a few things Lauren.

Lauren Lieberman: We are making a clear distinction here between consumer facing and fixed costs. So it's defined set on consumer facing a lot more discretion with lot more variability and lot faster learning to quickly pivot our plants in the past, we made some investment which are big bets and fixed costs and capabilities.

Speaker Change: Really accelerate innovation in a dramatic way to meet the consumer we have many great example, already like La Mac Clinique Este Lauder in the U S and in China, but also throughout all of our foreign spun you should think about it is unlikely in a low level going from strength to strength has been also about their ability to deploy.

Lauren Lieberman: Then you are stuck with them and Thats. The big distinction, we are making and pouring all our investments to drive the business and constantly pivot and that's what we'll keep driving regularly month by month quarter by quarter and constantly pivot.

Speaker Change: The right innovation in the rideshare roughly around the world. The first thing is what we discussed in the prior question is the consumer facing so making sure that we are going to track like Ikea site months after months quarter after quarter. The retail non investment on every single investment, we're making consumer facing and web.

Lauren Lieberman: Okay.

Dana Telsey: The next question will come from Dana Telsey with Telsey Group. Please go ahead.

Speaker Change: Becoming more and more sophisticated in leveraging insights levered.

Dana Telsey: Hi, Good morning, everyone. Stefan if you think of the new <unk> Yep, Hi, as you think of the new initiatives, you're putting in place with the beauty re imagined as we go through the next year or two years. What are the markets. You are looking for to show the proof points that it's working and how.

Speaker Change: Leveraging data to meet the consumers, where they are and Hardwiring AI through the organization not only will allow us to become better and supply chains like highlighted but also to use AI to better target consumers, we have the right assets, but the right media targeting around the world.

Dana Telsey: Are you thinking about the travel retail channel as we move through that thanks.

Speaker Change: The fourth one which is the <unk> allows us to.

Yeah.

Doug: Well. Thank you. Thank you Doug.

Speaker Change: Obviously, you've reduced the SG&A free up like the necessary investment to invest in innovation and advertising and at the same time resume and restore the solid double digit authority margin in next two years.

Speaker Change: Look there's five pillars to our beauty or imaging vision.

Speaker Change: On <unk>, we are tracking and we are creating actually a wasteful way electrical tracking and photo every single of our action to just make sure that everything we do is going to deliver on this promise that we're making today.

Speaker Change: And the last thing, which we are going to truck in OLED trucking inside the organization is the simplification of ways of working.

Speaker Change: First one is the consumer coverage, what I mean about consumer coverage is our ability to just capture the consumer as well. They are we know we did make fast move in terms of new distribution when the consumer what's moving and that's what we've demonstrated with the move that we've made a few months ago with Amazon.

Speaker Change: I made it clear in our Mario gardening might.

Speaker Change: My prepared remarks, sorry.

Speaker Change: We become we left we lost agility. The agility came from the complexity of the organization. My commitment is to simplify the ways of working and that we can track kick in with trucking everyday already by simply reducing the number of meeting internally to focus more externally.

Speaker Change: And many of us like sharp tick tock shop in Asia, and even in the U S. So we are going to really measure of how quickly we move in this channel and how much we can likely know capture lapsed consumer but also new consumer the second thing is our credit our transformative innovation I'm committed with the team to.

Speaker Change: I personally spun the months of December to meet with every single retailer in North America, and some around the world Im about to embark in multiple travels around the world. We meet with our partners' readout of et cetera to be laser focused on making sure that we are reignite retail so I would say in that we have.

Speaker Change: Really accelerate innovation in a dramatic way to meet the consumer we have many great example, already like La Mac Clinique Este Lauder in the U S and in China, but also throughout all our foreign spun you should think about it even in a low level going from strength to strength, it's been all about their ability to dip.

Speaker Change: Very clear tracking a very clear vision and these beauty re imagine vision has been deployed through the new executive team and throughout the organization and we will continue to be deployed as we speak to make sure that we all speak the same language with one clear object too, which is again to rebuild strong retail growth.

Speaker Change: The right innovation in the rideshare roughly around the world.

Speaker Change: First thing is what we discussed in the prior question is the consumer facing so making sure that we are going to track like Ikea site months after months quarter after quarter. The retail non investment on every single investment, we're making consumer facing and we're becoming more and more sophisticated in leveraging insights.

Speaker Change: Grow above market and to gain share and to resume strong double digit operating margin.

Speaker Change: And so in your question is your second part of the question on travel retail travel retail remains an important part of the business, but it is very clear that we are reducing overall the dependency on travel retail and reducing the volatility of our vault business that being.

Speaker Change: Leveraging data to meet the consumers, where they are and hard wiring AI through the organization not only will allow us to become better and supply chains.

Speaker Change: So I want to just be clear travel retail is an important channel for us to recruit and retain consumer and in many instances are certainly you've seen it is the window of creating run desirability for our brand around the world. We know like the rest of the organization we didn't capture growth.

Speaker Change: But also to use AI to better target consumers, we have the right.

Speaker Change: But the right media targeting around the world.

Speaker Change: The fourth one which is the <unk> allows us to.

Speaker Change: Obviously, you've reduced the SG&A free up like the necessary investment to invest in innovation and advertising and at the same time resume and restore the solid double digit authority margin in next two years.

Speaker Change: Enough with travel retail in the west so while we are reducing dependency in travel retail in the east.

Speaker Change: We are also seeking new opportunities in the west with new brands and new categories that we have in our portfolio that we can deploy in a much faster way and create greater impact.

Speaker Change: And the last thing, which we are going to track in OLED trucking inside the organization is the simplification of ways of working.

Speaker Change: I made it clear in our myocardial.

Speaker Change: My prepared remarks, sorry, we.

Speaker Change: Thank you.

Speaker Change: We become we lost we lost agility. The agility came from the complexity of the organization. My commitment is to simplify the ways of working and that we can track kick in with trucking everyday already by simply reducing the number of mid teen internally to focus more externally either.

Speaker Change: The next question will come from Dara <unk> with Morgan Stanley. Please go ahead.

Dara: Hey, good morning.

So at the moment a lot of time on the execution plans with the reorganization that detail is very helpful. I was just hoping also to get a bit more perspective from you on the softer cultural changes among the workforce that are needed behind the organizational changes the cultural points, you're most focused on emphasizing.

Speaker Change: Some of these fund the months of December to meet with every single retailer in North America, and some around the world Im about to embark in multiple travels around the world, we meet with our partners retailers et cetera to be laser focused on making sure that we are reignite retail so I would say in that we have a very.

Dara: Over the next few years.

Dara: And just also how important is bringing in outsiders, whether it's to management, which appears limited so far even use of consultants and external help.

Speaker Change: Clear tracking a very clear vision and these beauty re imagined vision has been deployed to the new executive team and throughout the organization and we will continue to be deployed as we speak to make sure that we all speak the same language with one clear object to you, which is again to rebuild strong retail growth.

Dara: As you look to sort of implement these detailed plans that you have outlined.

Dara: Well. Thank you all our love. This question, obviously cultural change is going to be critical because it has to be completely honest Armstrong spun. This vision of beauty re imagine we'll be able to execute it as a team we can meet behind one of basically the vision, which we are and that's the reason why we did.

Speaker Change: Grow above market and to gain share and to resume the strong double digit operating margin.

Speaker Change: Floyd this new executive team.

Speaker Change: <unk> already announced this morning, and I have spoken to every single leader on all of them are committed behind it it is about.

Speaker Change: And so in your question is your second part of the question on travel retail travel retail remains an important part of the business, but it is very clear that we are reducing overall the dependency on travel retail and reducing the volatility of our vault business that being said.

Speaker Change: We will love. This competitors, we know that cultures is like you know very important our values will remain extremely strong and we are actually also realizing are recognizing where our strengths are and this is the reason why I mentioned in my prepared remarks that we are bringing.

Speaker Change: I want to just be clear travel retail is in Boston channel for us to recruit and retain consumer and in many instances are certainly you've seen it is the window of creating run desirability fall broadly around the world. We know like the rest of the organization we didn't capture growth.

Speaker Change: Some external partners to help us in this transformation.

Speaker Change: A lot of electing our great partners that have done that multiple times and we are recognizing like today, we need some help in this execution of the <unk> and I'm really committed with the vision. We have other strip of the bulk of this report of the executive team that we are going to continue to build on our culture and our values and.

Speaker Change: <unk> with travel retail in the west so while we are reducing dependency in travel retail in the east.

Speaker Change: We are also seeking new opportunities in the west with new brands and new categories that we have in our portfolio that we can deploy in a much faster way and create greater impact.

Speaker Change: This company when more agile than has ever been before I mentioned. It also we are going through the biggest operational transformation in our history. This is going to take a lot of hard work. This is going to take partners outside that are going to help us and guide us, but I know ultimately that every single.

Speaker Change: Thank you.

Dara: The next question will come from Dara <unk> with Morgan Stanley. Please go ahead.

Dara: Hey, good morning.

Speaker Change: First on that I spoke into too in this company to date within their stellar company is absolutely committed to chunk is absolutely committed to just bring speed and agility and everything that we're doing so we can rebuild this company to the rightful place that it belongs which is really at the top.

Speaker Change: So at the moment a lot of time on the execution plans with the reorganization that detail is very helpful. I was just hoping also to get a bit more perspective from you on the softer cultural changes among the workforce that are needed behind the organizational changes the cultural points, you're most focused on.

Dara: Rising over the next few years.

Speaker Change: Sure.

Speaker Change: Dara I would add one thing and then of course, that's defined talked about.

Dara: And just also how important is bringing in outsiders whether it's.

Speaker Change: Really the what he is asking us to do as leaders to support and this is really built a culture of three things that I would take away a very importantly from what is telling us.

Dara: Management, which appears limited so far even use of consultants external help as you look to sort of implement these detailed plans that you have outlined.

Dara: Okay.

Dara: Well. Thank you all our love. This question, obviously cultural change is going to be critical because it has to be completely honest and transparent. This vision of beauty re margin, we'll be able to execute it as a team we committed behind one basically the vision, which we are and that's the reason why we deployed this new.

Speaker Change: One each one of our owners and leaders and really.

Speaker Change: Empowered and accountable secondly, the consumer is at the heart of everything we do whatever be youll function whatever be you'll work wherever you want in the company and then thirdly, a clear focus on value creation and long term value creation, while navigating some of the challenges in these things are as a leadership team. We all are owning it along with our employees.

Dara: Our executive team.

Dara: Already announced this morning, and I have spoken to every single leader on all of them are committed behind it it is about.

Speaker Change: Around the world.

Speaker Change: Great. Thanks.

Dara: We will love. This competitors, we know that cultures is like you know very important our values remain extremely strong and we are actually.

Speaker Change: The next question will come from Oliver Chen with TD Cowen. Please go ahead.

Oliver Chen: Hi, Stefan in the kiln as you think about prestige.

Oliver Chen: What's your thoughts on the future of prestige in terms of hybridization masstige and injectables in the broader sense of what the consumer.

Dara: So realizing are recognizing where our strengths are and this is the reason why I mentioned in my prepared remarks that we are bringing some external partners to help us in this transformation. There are a lot of like to know great partners that have done that multiple times and we are recognizing like today would need somehow in this execution of the <unk>.

Oliver Chen: Thanks for it doesn't think about what prestige means.

Oliver Chen: Also on your innovation pipeline, which look.

Oliver Chen: Quite exciting.

Oliver Chen: It might be nearer term versus longer term.

Dara: And I'm really committed with the vision, we have other support of the bulk of this report of the executive team that we are going to continue to build on our culture and our values and make this company when more agile than has ever been before I mentioned. It also we are going through the biggest operational transformation.

Oliver Chen: There's many great things that are underway.

Oliver Chen: And as we think about the operating margin the recipe for.

Oliver Chen: Expansion back to history.

Oliver Chen: <unk>.

Oliver Chen: Five that I'm sure, it's a combination of fixed cost leverage as well as innovation. Thank you.

Dara: In our history. This is going to take a lot of hard work. This is going to take partners outside that are going to help us and guide us, but I know ultimately that every single person that I spoke into too in this company to date within their stellar company is absolutely committed to chunk is absolutely coming.

Speaker Change: Thank you Olivia I'll stop in <unk>.

Oliver Chen: A bit more.

Speaker Change: Flavor to the margin so, let's just start from the top or like your your question about the outlook of the market frankly, the long term fundamentals of the beauty market are very very strong and remains strong remember we play in the areas where middle class is extremely important to future.

Dara: It is to just bring speed and agility and everything that we're doing so we can rebuild this company to the rightful place that it belongs which is really at the top.

Speaker Change: Growth in Middle class is continuing to rise in many markets around the world that it is in the east that is in the west in many markets around the World. We also I believe at a moment in time, we are leaving.

Speaker Change: Dara I would add one thing and then of course, that's defined talked about I.

Speaker Change: I mean really the what he is asking us to do as leaders to support and this has really built a culture of three things that I would take away a very importantly from what is telling us.

Speaker Change: Later fortunate in terms of distribution expansion.

Speaker Change: Buyers.

Speaker Change: Being completely redefined when it took it comes to like distribution and Howard where you can product with our consumers as we demonstrated we go from our own freestanding stores, we brought them back to the level of Jo Malone, but at the same time. We also like you know able to operate in channels like Amazon premium beauty.

Speaker Change: One each one of our owners and leaders and really.

Speaker Change: Powered and accountable secondly, the consumer is at the heart of everything we do whatever be youll function whatever be youll work wherever you are in the company and then thirdly, a clear focus on value creation and long term value creation, while navigating some of the challenges in these things are as a leadership team. We all are owning it along with our employees around.

Prestige that allows us to connect with the pumps tumor and seek new consumer and continue with this principle of recruiting and sourcing.

Speaker Change: Mass markets into prestige and luxury where we are.

Speaker Change: On the water.

Speaker Change: Great. Thanks.

Speaker Change: And I would say the first thing and very important thing is this ability to connect with consumers faster and in an even closer with than we've ever done it before so the combination of these three elements I really believe that shows great potential.

Speaker Change: The next question will come from Oliver Chen with TD Cowen. Please go ahead.

Oliver Chen: Hi, Stefan in the kiln as you think about prestige.

Oliver Chen: Just your thoughts on the future of prestige in terms of hybridization masstige and injectables in the broader sense of what the consumer thinks.

Speaker Change: On the industry and as part of the beauty Reemerging. Finally, we are also focused on capturing this part of the business that we haven't had access to in the distribution, but also at the same time, how we're going to target consumers better because our phone them alturas from our portfolio.

Oliver Chen: Thanks for it doesn't think about what prestige means.

Oliver Chen: Also on your innovation pipeline, which look.

Oliver Chen: Quite exciting.

Oliver Chen: It might be nearer term versus longer term.

Oliver Chen: So there's many great things that are underway.

Speaker Change: Is strong we just need to make sure that our brands with the right innovation is going to be visible to the consumer. So every investment we make from the M to M connect from what they see and where they shop and the ability for us to just likely not capture that in a very agile and very quick weight.

Oliver Chen: And as we think about the operating margin the recipe for.

Oliver Chen: Expansion back to history.

Oliver Chen: <unk>.

Oliver Chen: Five that I'm sure, it's a combination of fixed cost leverage as well as innovation. Thank you.

Oliver Chen: Thank you Olivia I'll start in our silicon.

Oliver Chen: A bit more.

Speaker Change: Around the World, obviously, youre talking about pricing pricing is also challenged because of the bias that I have.

Oliver Chen: Flavor to the margin so, let's just start from the top or like your your question about the outlook all right. Another market Friday, the long term fundamentals of the beauty market are very very strong and remained strong remember we play in the areas where middle class is extremely important to future.

Speaker Change: As transformed completely from a distribution standpoint, we have brands like la mailed. It continues to go from strength to strength being able to just grow and significantly gained share in markets like China in the last quarter and at the same time you have the ordinary which is by definition the brand that is really capturing at the <unk>.

Oliver Chen: Growth in Middle class is continuing to rise in many markets around the world that it is in the east that is in the west in many markets around the World. We also I believe at a moment in time, we are leaving.

Speaker Change: Of priorities a lot of consumers as demonstrated by our ability to move.

Speaker Change: Huge amount of unit in the multiple points of distribution and we are very excited with the launch earlier. This week of the <unk> zone, because it will allow us to just likely to capture.

Oliver Chen: Later fortunate in terms of distribution expansion.

Oliver Chen: Buyers.

Oliver Chen: Being completely redefined when it took it comes to like distribution and Howard where you can product with the consumers as we demonstrate as we go from our own freestanding stores, we brought them back to the level of Jo Malone, but at the same time. We are also able to operate in channels like Amazon premium bridges.

Speaker Change: Greater number of consumers and that we can.

Speaker Change: Aspire to do it in many places around the world. So what I would say we have a portfolio that is well diversified from the top of luxury to the entry of prestige. We have a world of beauty that I believe is well positioned to continue to grow based on this indicator of growing middle class new distribution in <unk>.

Oliver Chen: Prestige that allows us to connect with the pumps tumor and seek new consumer and continue with this principle of recruiting and sourcing.

Oliver Chen: Mass markets into prestige and luxury where we are.

Speaker Change: The ability to connect with the consumer in a much more tailored and personal way than ever before.

Oliver Chen: And I would say the first thing and very important thing is disability to connect with consumers faster and in an even closer with than we've ever done it before so the combination of these three elements I really believe <unk> shows great potential for the overall in the industry and as part.

Speaker Change: Thank you thank you Sir.

Speaker Change: Hello and liver.

Speaker Change: So Stefan touched upon our sales growth and then of course as we look we are driving the three critical things for long term value sales growth margin and cash flow.

Speaker Change: And from a margin perspective, you saw that our margins are in the single digit right now.

Oliver Chen: The beauty of re imagine finally, we are also focused on capturing this part of the business that we haven't had access to in the distribution, but also at the same time, how we're going to target consumers better because our home and motor are strong our portfolio is strong we just need to make sure that our brands.

Speaker Change: We have demonstrated a clear right to improve gross gross margin over last few years and there is still lot more work to do here and we are confident based on the work we have already done and what we see ahead.

Speaker Change: <unk> zero based mindset and the supply chain efficiency, we can make significant progress here so that would be a critical building block as we go towards solid double digit margin in next few years within Opex.

Oliver Chen: We have the right innovation is going to be visible to the consumer. So every investment we make from the M to M connect from what they see and where they shop and the ability for us to just likely not capture that in a very agile and very quick weight.

We are you saw that we have increased we have doubled the restructuring program. So that's a significant increase in the employee cost.

Speaker Change: Around the World, obviously, youre talking about pricing pricing as also challenged because of the bias that I have.

Speaker Change: Opportunities that wouldn't be there secondly, as Stefan crowded out we are step changing our work on procurement, which means every single line item of our expense is as an opportunity to improve so that's the second big pillar and the third big pillar of shared service, where we have done work in the past few years.

As transformed completely from a distribution standpoint, we have brands like la mailed. It continues to go from strength to strength being able to just grow and significantly gained share in markets like China in the last quarter and at the same time you have the ordinary which is by definition the brand that is really capturing at the downstream.

Speaker Change: But we have an opportunity to step change with some of the leading partners around the world. So with all of those building blocks. We remain confident that we can move towards a solid double digit margin in next few years and of course, we will share with you more details in the upcoming.

Speaker Change: Prestige is a lot of consumers as demonstrated by our ability to move.

Speaker Change: Huge amount of units in the multiple points of distribution and we are very excited with the launch earlier. This week of the ordinary up Amazon because it will allow us to just likely to capture.

Speaker Change: For us.

Speaker Change: Okay very helpful. Thank you one quick follow up M&A, Stephane and I feel like there are a lot of good founder led brands and innovation happening everywhere. How are you going to think about M&A within your culture or not in terms of as you look forward to new opportunities.

Speaker Change: Greater number of consumers and that we can.

Speaker Change: Aspire to do it in many places around the world. So what I would say we have a portfolio that is well diversified from the top of luxury to the entry of prestige with a world of beauty that I believe is well positioned to continue to grow based on this indicator of growing middle class new distribution in the.

Oliver Chen: I think Oliver on the M&A as part of our strategy, we are laser focused with deteriorate margin too.

Oliver Chen: Reignite growth in the rebuild profitability and that search we are in obviously our portfolio is key as I said, we have some strengths that we need to accelerate and we have areas, where we know we need to transform and this is what we are going to tackle in the next few months to really making sure that we are putting every single.

Speaker Change: The ability to connect with the consumer in a much more tailored and personal way than ever before.

Thank you thank you Sir.

Oliver Chen: Hello Oliver.

Speaker Change: So Stefan touched upon our sales growth and then of course as we look we are driving the three critical things for long term value sales growth margin and cash flow.

Oliver Chen: Of all beauty for Brahma in the right position to really accelerate and contribute to the overall growth of the company. When it comes to M&A, we will come to you in the future adult Muesli every time that there is an opportunity we have a team with great team that is looking at what is available but it has to be looked at.

Speaker Change: And from a margin perspective, you saw that our margins are in the single digit right now.

We have demonstrated a clear right to improve gross gross margin over last few years and there is still lot more work to do here and we are confident based on the work we have already done and what we see ahead.

Loans of one is it complementary to the portfolio is it going to add one thing and at the same time, we need to just also manage and balance all whole balance sheet or in the near term.

Speaker Change: Four zero based mindset and the supply chain efficiency, we can make significant progress here. So that would be a critical building block as we go towards solid double digit margin in next few years within Opex.

Oliver Chen: Yes, the only thing I would add is.

Speaker Change: You saw that we have increased we have doubled the restructuring program. So that's a significant increase in the employee cost.

Oliver Chen: Okay.

Speaker Change: Thanks for leaving that I would add is that we clear priorities to de lever in the short term our balance sheet and then of course, we are brand builders and we want are constantly looking at opportunities, but in the near term as Stefan outlined our priority would be to deleverage the balance sheet.

Speaker Change: Opportunities that wouldn't be there secondly, as defined called out we are step changing our work on procurement, which means every single line item of our expense is as an opportunity to improve so that's the second big pillar and the third big pillar of shared service, where we have done work in the past few years.

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

Speaker Change: But we have an opportunity to step change with some of the leading partners around the world. So with all of those building blocks. We remain confident that we can move towards a solid double digit margin in next few years and of course, we will share with you more details in the upcoming.

Speaker Change: Great. Thank you so much.

Speaker Change: You had mentioned a lot about increased complexity of the prestige beauty portfolio clearly lots of changes both domestically and globally over the last couple of years.

Speaker Change: Presumably you've gone to your key retailers in your early days as CEO can you elaborate on your.

Speaker Change: You were discussing with them.

Speaker Change: For us.

Speaker Change: And then also.

Speaker Change: Okay very helpful. Thank you one quick follow up M&A stuff on and they kill like there are a lot of good founder led brands and innovation happening everywhere. How are you going to think about M&A within your culture or not in terms of as you look forward to new opportunities.

Speaker Change: The game plan to capture more of the consumer in Asia, especially given their increased willingness to accept local brands in the premium segment. Despite obviously very significant investments that you've made and then lastly in western markets, what youre doing to differentiate yourself versus your competition and in key categories. Thank you.

Speaker Change: I think Oliver on the M&A zero part of our strategy. We are laser focused with deteriorate imagine to really reignite growth in the rebuild profitability in that search we are in obviously our portfolio is key as I said, we have some strikes that.

Speaker Change: So.

Speaker Change: So all of you.

Speaker Change: If I'm clear on the question you're asking is obviously like from what are we doing from a differentiation obviously to win and I think the <unk>.

Speaker Change: Second pillar of nuclear imaging with the transformative innovation stimulus plan and the way that we are putting out there is really for us to be able to connect with the consumer in a greater way and in a faster way.

Speaker Change: We need to accelerate and we have areas, where we know we need to transform and this is what we are going to tackle in the next few months to really making sure that we are putting every single of our beautiful brand in the right position to really accelerate and contribute to the overall growth of the company. When it comes to M&A, we will come to you in the future.

Speaker Change: As committed we are going to triple the number of launches that we're going to bring to market within less than a year that allows us. When you think about this overall acceleration of innovation to better tailor innovation by retailer to connect with the consumer at different places around the world and they are clear retailer.

Speaker Change: But obviously every time that there is an opportunity we have a team with great team that is looking at what is available but it has to be looked with the lengths of one is it complementary to the portfolio is it going to add one thing and at the same time, we need to just also like you know manage and balance.

Speaker Change: Finally from our own direct to consumer.

Speaker Change: The partners that we are working that are defined to be more about the trial and where Christmas when some or all of those are much smaller <unk> retention and recruitment. So we are really tailoring not only an innovation plan to accelerate but also an innovation plan that allows us to be able to react to an.

Speaker Change: Total balance sheet.

Speaker Change: In the near term.

Speaker Change: Yes, the only thing I would add is.

Speaker Change: Only thing that I would add is that we clear priorities to de lever in the short term our balance sheet and then of course that we are.

Speaker Change: <unk> fragmented distribution around the world that allows us to just capture all the consumers. So I would say in this one complexity can be managed as long as you have the right innovation that goes to the right consumers in the right distribution and now into the part of the first beta of Youtube imagine is to meet the con.

Speaker Change: Brand builders and we want are constantly looking at opportunities, but in the near term as Stefan outlined.

Speaker Change: <unk> would be to deleverage the balance sheet.

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

Speaker Change: Well they are we have the right product, but also at the right price point and I think this is one of the new amendment that we are bringing to just make sure that yes, <unk> can play in the price tier where they are but do you have multiple brands that have the right to play at different price points of prestige and luxury.

Olivia Tong: Great. Thank you so much.

Olivia Tong: You had mentioned a lot about increased complexity of the prestige beauty portfolio clearly lots of changes both domestically and globally over the last couple of years.

Olivia Tong: Presumably you've gone to your key retailers in your early days as CEO can you elaborate on your on your discussions with them.

Olivia Tong: And then also.

Speaker Change: And Thats, what we intend that youre going to see a lot more innovation coming payload by consumer by distribution by price point across frankly, all the four categories that we operate in and the many subcategories that we see going in the future.

Olivia Tong: The game plan to capture more of the consumer in Asia, especially given their increased willingness to accept local brands in the premium segment. Despite obviously very significant investments that you've made.

Olivia Tong: And then lastly in western markets, what Youre doing to differentiate yourself versus your competition.

Olivia Tong: Key categories. Thank you.

Speaker Change: So I hope it answers your question on lithium.

Olivia Tong: So.

Olivia Tong: So all of you.

Speaker Change: This will conclude our question and answer session as well as our conference call for today. Thank you for attending today's presentation. You may now disconnect.

Olivia Tong: If I'm clear on the question you're asking is obviously like from what are we doing from a differentiation obviously to win and I think the <unk>.

Olivia Tong: Second pillar of nuclear imaging will be transformative innovation stimulus plan in a way that we are putting out there is really for us to be able to connect with the consumer in a greater way and in a faster way.

Olivia Tong: Committed we are going to triple the number of launches that we're going to bring to market within less than a year that allows us. When you think about this overall acceleration of innovation to Bella Terra innovation by retailer to connect with the consumer at different places around the world and there are clear retailer.

Olivia Tong: Finally from our own direct to consumer through the partners that we are working that are defined to be more about the trial and where Christmas when some or all of those are much smaller about like renewal retention and recruitment. So we are really tailoring not only an innovation plan to accelerate but also an innovation plan.

Olivia Tong: That allows us to be able to react to an increased fragmented distribution around the world that allows us to just capture all the consumers. So I would say in this one complexity can be managed as long as you have the right innovation that goes to the right consumers in the right distribution and now into the <unk>.

Olivia Tong: Part of the first beta obviously re imagined is to meet the consumer where they are we have the right product, but also at the right price point and I think this is one of the new amendment that we are bringing to just make sure that yes, <unk> can play in the prices where they are but you have multiple brands that have a right to play at different price.

Olivia Tong: Since of prestige and luxury and Thats, what we intend and youre going to see a lot more innovation coming payload by consumer by distribution by price point across frankly, all the four categories that we all garden Inn and the many subcategories that we see going in the future.

Olivia Tong: So I hope it answers your question Olivia.

Speaker Change: This will conclude our question and answer session as well as our conference call for today. Thank you for attending today's presentation. You may now disconnect.

Speaker Change: Yeah.

Speaker Change: [music].

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: Okay.

Okay.

Speaker Change: Yes.

Speaker Change: [music].