Q3 2025 The Estée Lauder Co Inc Earnings Call
Speaker Change: Good day, everyone, and welcome to the Estee Lauder Companies Fiscal 2025 Third Quarter Conference Call. Today's webcast is being recorded. For opening remarks and introductions, I would like to turn the call over to the Senior Vice President of Investor Relations, Ms. Rainey Mancini
Speaker Change: Hello, on today's webcasters to fund a Lafabri president and chief executive officer, Anakhil Shrivastava, executive vice president and chief financial officer.
Speaker Change: Since many of our remarks today contain forward-looking statements, let me refer you to our press release and our report files with the SEC, where you'll find factors that could cause actual results to differ materially from these forward-looking statements.
Speaker Change: To facilitate the discussion of our underlying business, the commentary on our financial results and expectations is before we're structuring in other charges and adjustments disclosed in our press release.
Speaker Change: You can find reconciliation between Gap and Nongat Messers and our press release and on the Investors section of our website. As a reminder, references to online sales include sales we make directly to our consumers through our brand.com sites and do third party platforms.
Speaker Change: It also includes estimated sales of our products or retailers' websites
Speaker Change: Throughout our discussion, our profit recovery and growth plan will be referred to as our PRGP. 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 schedule for this webcast. And now I'll turn the webcast over to Stefan.
Stephane: Thank you, Rainy, and hello to everyone. It's great to be with you today to review our third quarter results. Share the progress that we are making on our View Theory Imagine Strategic Vision and discuss our fiscal 2025 outlook.
Stephane: Amid elevated microeconomic challenges, our commitment to transforming our operating model to be linear, faster and more agile as the most consumer-centric, fast-ish beauty company globally through beauty-reimagined as only deeper.
Stephane: The executive team, our Board of Directors and the organization, remain committed in restoring sustainable sales growth and achieving a solid double digit adjusted operating margin over the next few years.
First, let me briefly review our fiscal third quarter performance. [inaudible]
Stephane: Organic sales decline 9% as expected. Our business, excuse me, travel retail, decreased 3% organically a sequential improvement from the 4% decline in the third-second quarter.
Stephane: Travel Retail, Decline 28% organically, and it continues to shrink as a percentage of our business
Stephane: Diluted earnings per share decreased 33% for better than we anticipated in our look, showing
Stephane: Gross Marginne was a bright spot, expanding over 300 basis points to the fourth consecutive quarter as the BRGB continued to deliver meaningful benefits.
Stephane: Operating margin of 11.4% contracted 270 basis points, driven by increased consumer facing spending as volume delivery from the decline in travel with air was offset by PRGP benefits.
Stephane: We struck a good balance between reducing certain SGNA expenses and increasing consumer
Stephane: We pivoted quickly as volatility increased, choosing to spend less than what we expected of incremental consumer-facing dollars, showing new discipline in how we are operating our business as we focused on higher ROI opportunities.
Stephane: We've been laser focused on improving our retail sales trends and delivering a sequential acceleration in global retail sales growth, excluding travel retail.
Stephane: We outperform in the US, China, and Japan and a couple of emerging markets in Southeast Asia to gain share.
Stephane: This marks the first share gains in the U.S. in many, many years.
Stephane: For China, we have now gained share in three of the last four quarters and for Japan it is our fourth consecutive quarter of share games showing the tremendous strength of our brands in these key markets.
Stephane: Klinik, The Ordinary and Bumble and Bumble, Drove Games for the U.S.
Stephane: Clinique now at Gainshaire in 11 consecutive months through March La Mer, Estee Lauder, and
Through the beauty of Imagine Framework, we are focused…
Stephane: while also reigniting share gains in many more markets, including the UK, Korea, and Mexico. We have a lot where we have a lot more work to do. [inaudible]
Stephane: Next, let me turn to beauty-reimagine and discuss our progress across the five action planned priorities, beginning with the first. Accelerate, best in class, Consumer College
Stephane: If the consumer is under the retailer and provided it is brand building, we are moving there without debate. We will not let evolving channel preference be a disruptor to us like it has been in the past.
Stephane: During the third quarter and three four, we moved quickly across Browns and platforms. Let me give you a few examples.
Stephane: The ordinary launched in the US Amazon Premium Beauty store and the UK TikTok shop. The ordinary also expanded in Thailand, China and Turkey. In Southeast Asia, more brands launched on shopping and TikTok shop across various markets. [inaudible]
Stephane: As a result, in the fourth quarter, online organic sales group meet single digit driven by pure play and third-party platforms
Across your players. [inaudible]
Stephane: Our new brand storefront on the US Amazon premium beauty store, proper growth along with Jerry Notino and Zalando.
Stephane: For third-party platforms, strong performance on doing and team all in China was further amplified by Tiktok Shop and Sharpie's Triumph Globalis.
Stephane: We are incredibly pleased by the results we are delivering across Amazon premium beauty stores in the US and Canada, as well as TikTok shop in the US, UK and South East Asia.
Stephane: We are exploring expansion with these and other retailers, so more to come with this action plan priority.
Stephane: Moving to our second action plan priority, create transformative innovation and innovate across
Stephane: In the third quarter we introduced innovations aimed to new consumer acquisition at both the lower and higher end of our brand portfolio.
Stephane: Among the innovations, clinic new moisture surge active glow serum strategically priced to recruit at the time when consumers are more price sensitive.
Stephane: Demand of the new serum contributed to clinic-significant share gain in the US prestige serum subcategories.
Stephane: Estee Lauder, new double-wear concealer, realized strong attack, benefiting from and further amplifying the popularity of its namesake foundation.
Stephane: such that the franchise delivers share gains across the facial subcategory of U.S. prestige makeup.
Stephane: Mac had a blockbuster commercial innovation with a news collection bringing back fan favorite shades in leap along with creating new one and draw significant gain in US prestige
Stephane: For luxury brands, Lamé has successfully expanded its nighttime portfolio with the new night recovery concentrate to capitalize on its highly sought after rejuvenating night cream.
Stephane: Some fours new slim lip color shine lipstick, an entry luxury-wise thing, powerful, highly comparing to drive new consumer acquisition.
Stephane: The Innovation by Lamar and Tom Ford, Field Double Digit Organic Sales Growth in China for Idra
Stephane: In the fourth quarter, we are working hard to keep the momentum going. Always he out in China is newness from Lameh and Tom Fall.
Stephane: Building on the iconic success of Lamar's treatment lotion, the brand is launching the balancing treatment lotion designed for oily skin, capturing the multi-generational consumer
Stephane: Don't fall, Architecture, Soft Matt Blurring, Cursion Foundation, Achieve the top rank for new product launches in Cursion Foundation, Antimo in April .
Speaker Change: This month, Jomello London is introducing a body spray for Cypress and Red Vine to build upon the strong global momentum of its sense with men through new formats.
Speaker Change: Max Reposition, Studio Fixed out the plus foundation. We strategically lower the suggested retail price in the US and UK to get the euro product in more consumer hands at a more competitive pricing with the immigrants.
Speaker Change: Two-faced, new ribbon wrap lash mascara by a near-done AI-driven marketing launch, delivering a typical six-month creative process in just 16 days. This is one example of many where we are held while you're in AI through the organization.
Speaker Change: The ordinary is soon to launch UV filters SPF-45 serum as it reenters the high-growth sun care subcategorial skin care.
Speaker Change: Our third action plan priority boosts consumer-facing investment to accelerate new consumer acquisition. We increase consumer-facing investment at a greater rate of growth in the third quarter versus the second quarter.
Speaker Change: We concentrated our incremental investment primarily in China and the U.S.
Speaker Change: In China, this contributed to return to growth organically and at retail, while in the US we deployed multiple strategies of which some worked better than others. We are taking our learnings and holding our strategies in the fourth quarter.
Speaker Change: And we continue to invest in our free standing stalls, which drive brand equity and act as valuable media channels.
Speaker Change: We open nearly ten net new stores globally, light by Le Labo in the US and China. Le Labo leveraged this investment especially well, with strong double digit organic sales growth, going to both like the overall growth and expansion.
Speaker Change: Our fourth action plan priority, fuel sustainable growth through bold efficiencies
Speaker Change: In the third quarter, we made significant progress in the PRGP, which Akhil will describe.
Akhil Shrivastava: As of late April , as part of the PRGP's restructuring plan, we have approved initiatives to reduce
Akhil Shrivastava: With these actions, along with natural attrition, we are streamlining our minimum management position by 20% versus February 2024.
Akhil Shrivastava: Likewise, through our new flatter and more streamlined executive team, we draw the 30% reduction in expense, while also announcing it with new capabilities needed for the future.
Akhil Shrivastava: For procurement and outsourcing, which were two new BRGP initiatives announced in February 2025, we are moving swiftly to transform our sourcing models to drive efficiency of scale with top suppliers and to leverage external partners for select back office functions.
Our final action plan priority. Imagine the way we work.
Akhil Shrivastava: Our new executive team, with reduced layers, has been in place since April 1st.
Akhil Shrivastava: Brown, now old global strategy and innovation, while regions drive planning, scaling and go-to-market execution and function enable both.
Akhil Shrivastava: Beginning of fiscal 2026, the PLNL will be owned by the Regents, creating a greater degree of accountability and simplification
Akhil Shrivastava: Since February , we cascaded our beauty-imagined vision, strategized and aligned on the work ahead through global and regional town halls, in-person leadership meetings, and market visits in the U.S. Western Europe and Asia Pacific.
Before I close...
I want to speak briefly about our fiscal 2025 outlook.
Akhil Shrivastava: We expect the headwind we face in our travel retail business in the third quarter to be even greater in the fourth quarter Outside of travel retail we expect organic sales decline to moderate further and retail sales growth to continue [inaudible]
Akhil Shrivastava: One of the primary drivers of the gap between organic and retail is weakened consumer sentiment in the US and areas of Europe and prolonged weak consumer sentiment in China and Korea.
Akhil Shrivastava: This is resulting in tighter inventory management as retail have managed their working capital.
Akhil Shrivastava: With the strategic reset of our travel retail business well on the way to better reflect recent industry trends and market conditions and provide it there is a meaningful resolution of the recently enacted tariffs to mitigate potential related negative impact.
Akhil Shrivastava: We are confident in our ability to return to sales growth in fiscal 2026 [inaudible]
Akhil Shrivastava: Regarding the new ties, our sourcing and manufacturing are strategically regionalised around the world.
Akhil Shrivastava: Supply Chain Agility as always been and will remain a priority.
Akhil Shrivastava: This is a valuable asset. Although, there will still be pressures.
Akhil Shrivastava: We already increased North America production of US demand from its already high level
Akhil Shrivastava: And we also accelerated plans to increase volumes levels at our relatively new manufacturing facility in Japan to service our business in Asia Pacific.
Akhil Shrivastava: Our planning Japan is our ninth manufacturing campus globally as we have five in North America and three in Europe
Akhil Shrivastava: Inclusing, we are moving decisively and building momentum as we bring our beauty-imagined strategic vision to life across its five key priorities [inaudible]
Akhil Shrivastava: who are employees around the world. Thank you for making beauty or imagine a reality to have your significant contribution.
I will now turn the call over to Akhil.
Thank you, Stephane, and hello everyone!
Speaker Change: Thank you for joining us today. We remain focused on long-term value creation and are determined to better position the company for sustainable long-term growth, margin improvement and cash productivity. Encouragingly, we are starting to see progress on beauty-reimagined priorities.
Speaker Change: Reflected in the share gains in some key markets, gross margin expansion, capital optimization, and the execution on a PRGP restructuring program to become a leaner and more agile company.
Speaker Change: Looking at a third quarter results, organic net sales declined 9% and was within the Outlook range we gave in February . We delivered 65 cents EPS exceeding our outlook and operating margin was
Speaker Change: Now, let me take a few moments to highlight the progress we have made across key areas, and then I'll walk you through our full year outlook.
Speaker Change: On the top line, we are encouraged by the share gains we saw in the US, China and Japan this quarter and we are committed to doing this more sustainably and broadly in more markets around the world.
Speaker Change: On margins, for the quarter, we again expanded our gross margin by 310 basis points compared to last year.
Speaker Change: This reflects net benefits from our PRGP and was driven by operational efficiencies, the reduction in access, and obsolescence, and benefits from our strategic pricing actions.
Speaker Change: Over the course of the fiscal year, we have pulled down production in response to our decline in sales volume.
Speaker Change: As a result, we triggered a requirement this quarter to recognize certain manufacturing costs in period
Speaker Change: Rather than deferring them until the products are sold, you may recall that we took a similar
Speaker Change: The charge recognized last year was greater than the one we recognized this year, resulting in an year over year, net favorable impact of 140 basis points.
Moving to operating expenses. [inaudible]
OPEX increased 580 basis points.
as a percent of sales.
During the quarter [inaudible]
Speaker Change: This reflects continued investments to fuel growth in key areas of the business, this resulted in a 480 basis points increase in consumer facing investments
Speaker Change: With RPRGP, we also made progress to reduce non-consumer-facing costs year-on-year, but this increased as a percent of sales due to our sales delivery.
Speaker Change: Our effective tax rate for the quarter was 30.8% up from 30.5% last year, diluted EPS declined to
Speaker Change: For feeling now to our PRGP restructuring program, as of March 31st, we have recorded $498 million of accumulated charges under the program.
Speaker Change: Primarily in employ related costs. On the overall PRGP, we are executing with excellence and are making solid progress on initiatives that targeted pressure points in a business.
Speaker Change: The plans, net benefits grow growth margin expansion every quarter. We are building momentum and driving progress to reduce non-consumer-facing costs through op-ex efficiencies and our restructuring
Speaker Change: And given the heightened macro and geopolitical volatility, we are exploring additional PRGP savings to help mitigate some potential risks.
Speaker Change: This decrease is due to the decrease in earnings adjusted for non-cash items, greater restructuring payments 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, which drove very strong CFFO in the base period.
Speaker Change: We invested $395 million in capital expenditure down 44% compared to last year. The reduction was primarily driven by the prior year payments relating to the manufacturing facility in Japan.
Speaker Change: Before I turn, to Outlook, let me first address uncertainty around evolving trade policies and tariffs that is adding volatility to an already complex global landscape.
Speaker Change: As you know, we have been investing in the regionalization of our supply chain for the last several years, and we are using this new flexibility to help mitigate some of the impacts of the higher tariffs [inaudible]
Speaker Change: To provide some context on our exposure, about 75% of what we sell in the US is either sourced from our manufacturing plants in the US and Canada or covered under existing trade agreements.
from our manufacturing plants in the US.
Speaker Change: But we have strategies to potentially reduce that to below 10%, including leveraging products made in a manufacturing plant in both Japan and Europe . Similarly, in EMEA, about a quarter is sourced from a manufacturing plant in the US.
Estefan mentioned, our task force is closely tracking developments
Speaker Change: and evaluating a range of scenarios to help mitigate some of the impact of tariffs.
Speaker Change: Scenarios include optimizing a regionalized and third-party manufacturing network, leveraging available trade programs and executing further mitigation strategies over the next 12 months, including expanding our local sourcing.
Speaker Change: However, unless meaningful resolution of trade negotiations is achieved, we do anticipate the high rate of tariffs to have a material impact in fiscal 26
Speaker Change: We are also exploring additional PRGP savings and strategic pricing to help further mitigate some of these impacts. We are working to give you a comprehensive update on our terrorist mitigation plans during our August earnings call.
Speaker Change: Given that context, let me walk you through our specific outlook for the full year!
Speaker Change: We want to acknowledge the risks associated with the geopolitical landscape.
Specifically Tarris,
and the uncertainty of their impact on consumer sentiment.
Speaker Change: Its conditions worsen, particularly regarding Chinese consumer sentiment and the potential pressure on sales
Speaker Change: During the 618 Meteor Shopping Festival, the negative impact on a financial performance could exceed what we have factored into our current assumptions.
Speaker Change: In that case, achieving the outlook we are providing today may not be possible In February , we indicated that growth in a travel retail business would decline strong double visits in the second half of the fiscal year, and that we would maintain appropriate trade inventory levels
Speaker Change: Retail softness has persisted since then and we expect a steeper decline in net sales in the fourth quarter compared to the 28% we saw in the third.
Speaker Change: However, despite this pressure, we continue to align shipments with demand and still expect to end the year at appropriate inventory levels.
are resumption for the full year R.
Speaker Change: Total organic net sales to decrease in the range between 9 to 8% compared to last year. This reflects the continued
Speaker Change: as well as ongoing pressure in Asia Pacific. Despite the recent improvements we saw in a mainland China
Speaker Change: Rose margin of approximately 73.5%, an effective tax rate of 38% compared to 31% last year.
and EPS of $1.30 to $1.55.
Currency Translation is expected to value EPS by three cents
Speaker Change: Inclusion, we are proud of the meaningful progress we are making in executing our strategic priorities and remain confident in a beauty-reimagined vision.
Speaker Change: to restore sustainable sales growth and to achieve a solid double-digit adjusted operating margin over the next few years.
Speaker Change: Two are talented employees around the world. Thank you for your leadership and dedication. Together, we are a better position to become the best consumer centric company and a leaner, more agile business.
Speaker Change: That concludes the prepared remarks. I'll now turn it over to the operator to begin the Q&A session.
[inaudible]
Speaker Change: The floor is now open for questions. If you have a question, you simply press the star key followed by the digit one on your touchtone telephone.
Speaker Change: To ensure everyone can ask their questions, we will limit each person to one question [inaudible]
Speaker Change: Time permitting, we will return to you for additional questions. Just queue up again by pressing the star key and the digit one.
Speaker Change: Our first question today comes from Steve Powers with Deutsche Bank, please go ahead [inaudible]
Steve Powers: Oh, thank you very much. Good morning, everybody. Maybe the morning is the fun. I think this question is probably targeted for Akhil, but maybe for both of you. Just picking up on the commentary.
Late in your comments that you were targeting trade inventories [inaudible]
Steve Powers: Exiting Fiscal 25 to more or less align with Consumer Takeaway [inaudible]
Steve Powers: That's obviously been an ongoing project and it's become increasingly difficult [inaudible]
Speaker Change: So can you talk about whether you expect that to be true kind of across all categories and geographies or whether you see outliers, and then also kind of frame the risks around that outlook. You mentioned the June the 16th variable, but just in general your level of confidence that you can actually achieve that alignment. You mentioned the June 16th variable, but just in general your level of confidence that you can achieve that alignment.
Speaker Change: and specifically our biggest challenge was in travel retail and we have significantly improved [inaudible]
Speaker Change: Last school at the elevated levels of inventory, which by December , we had reduced significantly, and Stepan and I committed that we will maintain those levels and continue to work upon that.
Speaker Change: So, frankly, on travel retail, we are in a much stronger position. Now, given the retail ups and downs, this is a constant monitoring, which we are doing on a weekly monthly basis.
Speaker Change: Secondly, around the world, we are seeing retailers tightening their inventory, so we are adjusting accordingly, specifically in North America with some of the retailers having challenges, and that is reflected in our outlook. [inaudible]
Speaker Change: So, I would say that trade inventory is a challenge, a large part of it is significantly behind us and in every guidance we are giving we are trying to include the best of our knowledge and shipping to retail.
Speaker Change: However, we feel that based on what we see today, our guidance should reflect what we are seeing on the ground. We are seeing, we saw very strong results in Q3, specifically in China, which Stefan covered in detail in his commentary. We are seeing, we are seeing, we are seeing, we are seeing,
Speaker Change: It recognizes everything you see today. At the same time, it's hard to...
Thank you very much.
Very good, thank you both, appreciate it [inaudible]
Speaker Change: And your next question comes from Bonnie Herzog with Goldman Sachs, please go ahead [inaudible]
All right, thank you. Good morning everyone. Good morning everyone.
Speaker Change: While I recognize it's, you know, pretty early to talk about detailed guidance, I was...
Speaker Change: You know, that reasonable to assume similar trends persist, even as we think about your return to growth in the air. Thank you.
Speaker Change: Thank you, Bonnie, for the question. So let me take it from the top because you see it's a pretty large question because of what we see in the market and what...
Speaker Change: We see it on our performance. I think that just let me start with really, again, I'm incurring the fact that we are really confident.
Speaker Change: in returning to positive growth territory in fiscal 26. And that's what we are committing. And we are saying for several reasons, the first thing is that we are seeing significant mass market share gain in key market where we decided to focus the US.
China
Japan, obviously, we've continued great success.
Speaker Change: And we are gaining share of multiple brands in this market, in the US but also in
Speaker Change: China and in Japan, so we are aiming in this market, we are returning into positive territories, and that's really like the most important thing. In net sales, we are having sequential improvements from 22 to 23, travel retail has been de-risked.
Speaker Change: We are mentioning my opening remark that travel retail is now in the middle of China which is basically like taking 10 points.
Speaker Change: of the mix of business, the travel retail represented to our high-period.
Speaker Change: Think about it, this is really taking a lot of volatility out of our business
Speaker Change: And this is one thing that we've done strategically in the course of lacking of the past few months to just make sure that we can in a managed accordingly and really reflecting the consumer demand.
Speaker Change: I would say also, very importantly, the way we are driving the PRGP, you heard like, you know, Akhil and I in our prepared remark, we're making a lot of progress on the gross margin improvement from the reduction of our employee workforce, especially in the middle management. We are accelerating our outsourcing project, we are accelerating our procurement project, so all of that is just create a lot of efficiency in the model.
Speaker Change: And then I would say like you know the dive obviously is something that we are monitoring very carefully and we are expecting meaningful resolution but as a team we are taking really a lot of proactive decision to just make sure that we are mitigating as much as we can. And obviously we don't know what yet we are going to do.
Speaker Change: Mitigation will be from the outside world but we are taking the proactive action on what we can control and we believe at this point we have a lot of great action in place and we will continue through the PRGP to look at additional efficiencies.
Speaker Change: And then, the most important thing I would say, Bonnie, is like, you know, through beauty, you imagine.
Speaker Change: I think as a result we see all around the world the deserbility on our brum being very strong in China, in the US, in Japan, in many markets. We know that we are from progress to make like a collab in the UK and in many of our emerging markets and we are laser focused on with what we are learning and what is working in this key market to take some of the recipes and to just apply it everywhere around the world.
Speaker Change: So, with all of these elements in place, I would say we are really confident Now, there are certain number of things that are not under our control
Speaker Change: Their consumer confidence is continuing to be subdued in China. It's actually reduced in the US and in some areas of Europe . So we are monitoring very carefully what are the outside conditions versus what we can do. Bye.
Speaker Change: Showing, in this moment in time, despite some consumer subdued confidence in China and reduction in the U.S. wine plants.
Speaker Change: Our brands are moving in the right direction. You saw things like clinic, 11 quarter of the market share games in the U.S.
Speaker Change: In China, we have Estee Lauder, La Mer, Clinique, Le Labo, and I can go on brands that are gaining market share. So in China, in the last quarter, we've gained market share in all four categories.
Speaker Change: That's been a long time that we haven't been in this position. In the US we've gained market chain three of the four categories in the last quarter. So, all of these things are the elements that gives us confidence that we can return to growth next year. Obviously we are monitoring what is happening outside and we are putting mitigation plan in place as we go.
Okay, thank you.
Thanks, Bonnie
Speaker Change: And your next question comes from Lauren Lieberman with Barclays. Please go ahead.
Lauren Lieberman: Great. Thanks. Good morning. I know you talked about the morning that you're assuming some significant change in the current tariff regime, but I thought it'd be helpful to get a little bit more perspective on...
Lauren Lieberman: First, when you think you can be below 10% of products sourced from China in the U.S., I know of course you've got plans around the world but just curious the timeline to get there
Thanks.
Yeah, no, thank you, thank you Lauren, good to hear from you
Speaker Change: So, from China, we are confident by the end of the fiscal year. This fiscal year we will be able to just be around the 10%
Speaker Change: coming from the U.S. going to China. So, and obviously this will be the 90% plus. We'll come from our ability to just accelerate. All right.
Speaker Change: The output from our newly opened factory in Japan, Fakwa, which is like in open running. Obviously, we are obviously continuing to just have product coming from Europe and from Canada, which obviously will just be servicing China for instance when you're like in a product from the ordinary. And when it comes to the US...
Speaker Change: The majority of the 25% are really coming from Europe , so it's not that we have anything coming from, if the question is, do we have anything that is coming from China to the US? Very minimal. It's just not material in basically like in the total. So, in that sense, we believe that we are in a position today, thanks to these nine campuses that we have around the world, to mitigate the best we can. Obviously, I'm talking here about, like, finish goods.
Speaker Change: We have a certain number of things that we need to work from component and raw materials that is different but from a finished good standpoint, we are in a place today inside the end of the fiscal year, where we can mitigate large parts.
Speaker Change: of this site. To give you a stand, Lauren, since we started this task force in November from where we saw...
Speaker Change: When we were announced, to where we are today, we mitigated the excess of 40% [inaudible]
Speaker Change: of the initial impacts of the ties. And we continue to work through it. This task force is not going to go away. Obviously, there's a certain number of ties that we don't know where they were on up and we are monitoring that daily and we are very diligent with the team on just like, you know, doing the right thing on that force.
Speaker Change: I don't know, Akhil Shrivastava. So, only thing out at Stephane is that, hello Lauren.
Akhil Shrivastava: Our value that would be tariffable in this situation is Stephane explain would be quite low because of our network. We are having exposure probably in the industry, even of the lowest cross water. Of course, the high rate of tariff. [inaudible]
Akhil Shrivastava: It creates the exposure, and with all the trade talks going on, we do like everybody else, we are hopeful that there should be some resolution from that high level rates that we are seeing right now. But in terms of minimizing the flow.
Akhil Shrivastava: and putting it in the right places so that they are regionalized, we have actively working that and we have been working that for four or five months as our supply chain team has been looking at multiple scenarios including all the way to componentry.
Speaker Change: Do that in addition to what Stephane explains. So we remain confident in what we can control and of course are hoping for some continued resolutions as we are hearing more positive. Just one additional thing Lauren also what is important is we've the work that we are doing on the PR GP of improving the gross margin that gives us also more additional pricing power.
Oliver, Fick Spurser, that we could have.
Thank you so much.
Thanks a lot.
Filippo Salorni: And your next question comes from Filippo Saloni with City. Please go ahead.
Filippo Salorni: Hi, good morning everyone. I wanted to ask about the PRGP and broadly what are your expectations
Filippo Salorni: Relative to your total program. And then as you think about fiscal 206, Stephane you mentioned your evaluating other PRGP plans. So give us a little bit of sense of what other areas you will be looking in terms of potential savings. And then from our investments standpoint,
Filippo Salorni: Can you give us a sense of how much of their investment is expected on a net basis for the savings? Thank you
Filippo Salorni: Yes, thanks, Filippo. Akhil and I will tag team on this one so we can just add a little bit more flavor. So obviously, like I said, and like we both said in our preparation remark, we are very pleased, obviously, of the progress that we are making in the PRGP. If you remember, there was two phase to the PRGP, what we saw called internally the PRGP 1.0 and obviously the expansion of the PRGP. On the PRGP 1.0, we are very confident that we are...
Filippo Salorni: Like, you know, on targets, you know, for the year that is both, you've seen four quarter consequences.
Filippo Salorni: Obviously, with the main four being main four of what could happen with lacking of the type that we just discussed with Lauren a few minutes ago.
Filippo Salorni: Also, from an employee standpoint, we are delaying significantly the organization. I mentioned it in my remark, 26 over 2600 positions have been eliminated and will be at least 85% of this position will be living the building quite the end of the fiscal year. And obviously we continue to do so. Now, so I think from a fiscal 25, we are really on target, delivering our internal objectives on what we've committed.
Filippo Salorni: to you from a PRGist stand by. Now when it comes to the expansion of the PRGP that will go into fiscal 26 and beyond to create a lot more efficiency.
Filippo Salorni: We are laser focused in accelerating all the work that we are doing from an outside thing and we will come to you more into most likely the August
Filippo Salorni: Earning course to just give you more detail of how we are doing it, but today we are we're looking with like keep potential external partners on how we're looking at different services from HR services to financial services to marketing services and I could name them all so there's no
Filippo Salorni: Stone that we are living under when it comes to how and we can operate in the company in a much more agile and leaner way and also we are launching a we've launched actually a major procurement project that will give us a lot more.
Filippo Salorni: through the organization. So in that sense I'm really confident that we are in the right place to deliver the 1.0 and we have all the tools, all the partnerships and all the team that is really laser focused on accelerating it. The end results
Filippo Salorni: Filippo is the same one which is to deliver a solid double digit operating margin in the next few years and we'll do it. This is our commitment. I set it in the last call. I reiterated now this time today again because of everything that we are putting in place.
Thank you, yeah, so thank you Stephane, so Filippo.
Speaker Change: Hello there and two things right we are really leveraging this to fuel beauty reimagine which is the growth agenda and the solid double digit margin. So we are really thinking all of those things in those terms.
Speaker Change: Gross margin, we have already seen progress and we believe there is more room to go there and that's a goal based on the zero waste that Stefan talked about and what we have already demonstrated this year.
Speaker Change: Then, of course, the next big area is everything else other than Cox, which is OPEX, which you can do the math, that if we are at about 8 margin, with 73% growth margin
Speaker Change: We do have a significant amount of off-ex where the optimization is being worked on. The reason you are not seeing enough movement there because even though we are dropping the dollars we are on here, we are seeing sales delivery. And Stefan pointed out.
Stephane: That, as we return to growth, barring some of the tariffs context we talked...
Stephane: We should start to see with dollars already dropping on those off-exas, a significant movement on off-ex margins [inaudible]
Stephane: So, with the program touching all the way from discount, just as a reminder, on the sales growth margin on operational excellence, which we are driving, which you have seen the results.
Stephane: And all employee costs, we had doubled the restructuring, so we had communicated extra restructuring of benefits of 350 to 500 million when we communicated to you last time.
Stephane: and significant work on procurement for non-employed costs. So between all of that we are committed to our solid double digit margin progression and as you can see there is room in both in gross margin and of X and with a little bit of sales.
Stephane: Growth that we see we should start to see this work translate into in that direction in a very meaningful way.
Very, thank you very much.
Thanks, Filippo.
Speaker Change: And your next question comes from Peter Grom with UBS. Please go ahead.
Peter Grom: Thank you operator, good morning everyone. I hope you're doing well. So Thank you very much.
Peter Grom: I know this is a bit surprising, but is that a full year comment?
Speaker Change: Or is that just that you would anticipate returning to organic sales growth at some point in the year? And then totally getting that this is probably hard to answer just given the many movie pieces, you know, should the terrorists remain in place, you know, just can you provide any guardrails in terms of how this may impact your ability to return to growth. Thanks.
Thank you. Thank you. Thank you.
Speaker Change: Yeah, so I'll take the first one and I can't take the second one, so it's a high peter. Obviously, the comment on the return to positive growth is fiscal 26 comments, so it's too early for us to just give you a comment specifically by quarter. Obviously, we'll just give you a lot more visibility when the August call will be when we close this fiscal year and going to next year. But the comment is a full year. And again.
Speaker Change: And then I just want to reiterate, because we are seeing the sequentially improvement in the month.
Speaker Change: on our net sales from 32233, but also because we are already in positive retail territory when you exclude 12 retail.
Speaker Change: And if you remember Peter also, we can have a wide we are.
Speaker Change: Resetting our travel retail business to just be less volatile in the total business, we also are diversifying some pretty low base when we are going to go into 26 for travel retail.
Speaker Change: It's actually a high degree of confidence that we are just going to go into fiscal like in a 2016 course But obviously this is a yearly comment
Speaker Change: And we are laser focused to do it on the key regions, obviously the US, China, Japan, as I mentioned now already moving in the right direction with market share gain and we have a lot more work to do. I'm not yet pleased of the progress that we are making in the UK and in emerging markets and so on, but we are really clear task force without him to just make sure that we turn them around and we invest in every type of green shoot that we have into the market.
Akhil Shrivastava: and the ties having an impact on consumer confidence. And maybe Akhil, you just want to just know the materiality of the ties today. Absolutely. So, hi there, Peter.
Akhil Shrivastava: Our retail is growing XTR, and we are starting to grow share. So that's Ogre's wealth for the top line that Stephane talked about, and we are definitely basing some of the last periods of very difficult TR comparisons. We are starting to grow share, and we are starting to grow share.
Akhil Shrivastava: From a terrorist perspective, of course, the biggest watch out is for everybody. It's not, we are not unique in that. It's consumer sentiment, consumer sentiment in US, consumer sentiment in China.
Akhil Shrivastava: which is hard to predict. But what we are seeing is that our brands are continuing to be very strong. They are some of the most desirable brands in both in China and around the world.
Akhil Shrivastava: So we feel good in terms of, and frankly the talk has been more positive and more constructive even on the tariff area and those negotiations, so that gives us confidence.
Akhil Shrivastava: On cause side of tariff, of course at these high rates for any company doing any cross-border business, the impacts are not going to be small and we did say in a prepared comment that they can be materials.
Akhil Shrivastava: However, we are looking at three big things and I'll just, I think it's important to reiterate what Stephane has said. We are looking at one, making sure that the flow of goods is in the most least hariff lanes and we have the capability to do that.
Akhil Shrivastava: We are looking at pricing opportunities. We do have opportunities there and while being very surgical and keeping consumer confidence in mind, we will take action on that but we will do that if it's necessary. And that's not counted yet.
Akhil Shrivastava: Thirdly, we are looking at more PRGP opportunities as was asked.
because as we have executed well so far on PRGP,
Akhil Shrivastava: This is a new muscle organization as built and Stephen is driving this across the whole company internally and externally with other partners. So we see more opportunities to do things there as we build this new muscle which we have really progressed on in last year.
Akhil Shrivastava: So those would be some of the things we are looking at and some guardrails around how we will navigate.
Thank you so much. I'll pass it on
Thank you.
Speaker Change: And your next question comes from Darro Mohsenian with Morgan Stanley . Please go ahead.
Thank you for watching. Bye. Bye.
Take good morning guys
Good morning.
Speaker Change: You mentioned the share gains in the US, China, Japan, and the quarter. Clearly, there are also some areas of weakness, travel retail, the UK as you mentioned, some emerging markets. So, I was just hoping you could spend some time on...
Speaker Change: You know, how much progress you think you can make and share particularly in some of the laggard areas that haven't seen the recovery yet? Thanks.
Thank you.
Speaker Change: Thanks Dara for the, so let me just give you a little bit more flavor of also what is happening in the US, China, maybe like in Japan, so it's because it's very important I think I mentioned it briefly earlier. Thanks Dara.
Speaker Change: We are in a situation where we haven't gained market chain in the US in many many years like I said in the introduction Now we are resuming with market share again and we did it on three of the four categories
Speaker Change: The ordinary is back into market share gain also in the US but frankly like you know in many markets around the world and the ordinary is the number to run in skincare in the US like in a behind clinic. [inaudible]
Speaker Change: And I want to say also, which were very pleased to some of the progress that Mack is making and gain share and is the number two run in makeup in the US behind clinic. [inaudible]
Speaker Change: We know we have a lot more work to do on finances [inaudible]
We have an amazing portfolio of luxury grounds.
Speaker Change: Farms Rumalon, Tom Ford, Lullabo and so on, and Lullabo is going from strength to strength [inaudible]
Speaker Change: Gaining a market share and pretty much every market around the world, we want to just make sure that it's reflected on the total category also finances in the US, the way we've been able to do it in the last quarter in China, where we're gaining share in skincare, makeup, finances and air, we've at least eight brows. [inaudible]
Speaker Change: that are gaining market share, and I'm talking about not only some of our smaller brothers are talking about Lamey, I'm talking about Lauder, talking about Tom Ford, John Malone, and so on and so forth, that are all brands that are gaining share
What is giving me also some confidence?
Speaker Change: is when I look at Japan and Korea, we are the number one group in France, all of them. So when you talk about prestige and luxury, we become number one last year in Japan for calendar 24 and now we have three consecutive quarter of number one position in Japan and we also have this position of number one in Korea. So we know how to just like bring them. We're taking the learnings from what we are applying in Japan and in Korea.
We're bringing them to the US.
Speaker Change: And one of the big markets that we are now laser focused with the new leadership in place is the UK And frankly here we have so many great learnings of how we turn around the clinic, how we accelerating Estee Lauder, how we are like putting Mac in the right position to take exactly the learning and to deploy them into the UK. I have to say I'm not taking music in a few weeks [inaudible]
Speaker Change: as an indicator for the quarter but the beginning of April with what we see in retail is actually strong in the US is actually even stronger in China and it's showing some positive momentum in the UK and in some emerging markets. So we're taking these learnings and we're putting them into acceleration. Now obviously the last piece of the question is travel retail.
Speaker Change: Travel Retail, we are still anniversary some really big numbers and there's high double digit like you know, negative That being said, if I look [inaudible] I'm sorry, I'm sorry, I'm sorry
at Pineapple, We Are Seeing
Some not positive momentum, but momentum above the department.
Speaker Change: Meaning that there's indication that we are going back into some market share game within Hainan by being focused on driving retail. We have a new leadership organization in place.
Speaker Change: in Java Retail, which is doing a fantastic job that is really laser-focused on driving retail through eventing. Just to give you an example, last month, actually, the month of March or two months ago, we drove massive amount of events with the Estee Lauder brand, that is still one of the leading brand in Hainan today, and we were doing providing services.
Speaker Change: And the last point that I would put, like you know, is our ability to now move quickly, and I say there is no more debate, we move where the consumer is going, the move that we did on Amazon prestige beauty, the move that we've done on Shopify, the move that we are doing on TikTok shop back around the world, is also another indicator of our ability to just put our brand where the consumer is and really recapture our fair share of the market.
Thank you.
Great, thanks, guys [inaudible]
Thanks, y'all.
We have time for one more question.
Speaker Change: and it will come from Bryan Spillane with Bank of America. Please go ahead.
Brian Spillane: Hey, thanks operator and good morning everyone and thank you for a lot of disclosure today which is really helpful and just trying to understand the story as it evolves.
You know, I had a question about how you are balancing.
Brian Spillane: You know, a re-acceleration and sustained, you know, acceleration on revenues. So there's a lot of moving parts to your story right now and especially trying to reboot some brands.
Brian Spillane: Re-focus kind of the center of equilibrium geographically and at the same time chasing a margin target or pursuing a margin target. So can you just kind of give us some sense of how you're thinking about the choices that are involved in that and really safeguarding?
Brian Spillane: at the end of the day that we've got a model that will grow revenue which ultimately is more important than the large in target. Thank you.
Brian Spillane: And thank you for acknowledging also the fact that we're giving a little bit more visibility and now in time I want to be very close to give you more visibility as we go. There's a lot of volatility out there, but I think we are also much clearer and we're getting hopefully as you see today some positive momentum in many areas. Thank you very much.
Brian Spillane: At the end of the day, one of the things I've said in my remark is the big transformation that I'm driving with the team is also the clarity of who does what in the organization.
Brian Spillane: And I think you've helped me say clearly what is the role of the brand which is obviously driving the overall strategy that comes from the strategy from the company but obviously how do you apply it for every brand?
Brian Spillane: An accelerated number of innovation in the market, so we are laser focused on having our own stimulus innovation plan by brand that meets the consumer for trial and for long term acquisition also.
Brian Spillane: But at the same time, what is vertically the role of the regions and the affiliate ecosystem really to just really do the planning?
Brian Spillane: the execution and really meeting the consumers where they are. I think one of the biggest strand, the function, obviously, remains and will always be the enablers.
Brian Spillane: of this strategy and this execution and I think we are making a lot of forest through PRGP to just make sure that this...
Brian Spillane: Our all our functions are much more linear, faster and much more agile as the way we described it, hopefully in our supply chain and how we operating and we can just like you know navigate this moment in time. But I think the biggest change is where the responsibility of the PNL is ultimately and that will simplify and being able to just go much faster today to really deploy and allocate the fun appropriately where we are
Brian Spillane: And I think today, obviously, we have a certain number of guardrail and we're putting it in place. We couldn't change it in the middle of the cycle but when it comes to July 1st, the beginning of our new fiscal year, we are accelerating with this new model. So I would say, as we are pushing the transformation, we are delaying the organization. We are moving with outsourcing with speed. We are cutting costs through the organization, through the procurement project. We are clarifying who does what. And I think we're going to be able to do that.
swiveling around the world with like you know town halls
Brian Spillane: From the moment we did the last call at the beginning of February , two weeks ago, I think my fit hasn't touched the ground, but really making sure that we are very close to the organization, to make sure that what do we retain on our culture that makes us?
Brian Spillane: So unique, but what needs to be evil, and a lot of things that are... [inaudible]
Putting the accent on is this need to be ambitious.
Brian Spillane: to go for the new consumers, through beauty-reimagine, the consumer coverage, accelerating our innovation, and making sure that we have very much more agile in the way that we are boosting investment. I'm all for boosting investment.
Brian Spillane: Throughout, but I want to just make sure I'm driving the need to have the highest and best ROI through everything we do.
And then at the same time, what needs to change?
Brian Spillane: And this is the work we'll tell you a lot more when we come into August and beyond, which is all the projects that we are driving with outsourcing, which is going to fundamentally give us access to some of the best tools that are available and to just make sure that this company becomes successful.
The Must-at-Jailer The Must-at-Jailer
Brian Spillane: And the linear and the most agile company to really meet the consumer team and where they are all the world So I'm highly confident and I'm seeing it with our team I know the executive team is behind this vision I know the team is behind the vision I know the board of the director is behind the vision and we are basically like going with one mission is to reignite growth as a site now which is new [inaudible]
Akhil Shrivastava: As of next year, and obviously, there are no issues with strong top-of-the-git authority merging in the next few years, and Akhil will want to ask you things. Thank you, Bryan. That's a great question, and Stephen really covered it well. I wanted to give you just a few points to close it out.
Akhil Shrivastava: We, Stefan and I, as we are making meeting or people around the world, we are very clear, it's growth, margin cash.
Speaker Change: We are starting to see already the green shoots of growth. We are a business in China group. We are starting to see share growth in places where we haven't seen share growth. So we are starting to already tap into what's possible in terms of growing the company which is why it gives us the confidence. [inaudible]
Speaker Change: It's of course not visible because of some of the deleverage we saw on travel retail this year, but a lot of that is getting cycled out
Speaker Change: Thirdly, Stefan is fundamentally changing how we work. If you walk the hallways of a company and you look across, and especially the announcement of very clear delineation between brand, region and functions,
Speaker Change: That frees up resources because the way we work, so there is opportunity to drive margins and fuel the business but be very effective in this new way of speed, agility and clear empowerment and accountability on the day.
And then thirdly, as we work...
Speaker Change: to find the best processes with our external partners that we are discussing and ends to want to share that on shared services of Petra.
Speaker Change: There is opportunity on the cost side, and we are starting to see growth come through. And our hierarchy of value creation is very clear. It's growth, margin, cash. So you will see us invest.
Speaker Change: without any apology when the idea is right and drive that ROI. So hopefully that gives you the clarity on the playbook we are following.
Thank you for watching. Bye.
Speaker Change: That concludes today's question and answer session. If you were unable to join for the entire webcast, a playback will be made available at 1 p.m. Eastern Time Today, through May 15th.
Speaker Change: Please visit the Investor section of the company's website to view a replay of the webcast. That concludes today's Estee Lauder Conference call. I would like to thank you all for your participation and wish you all a good day!
Speaker Change: The following is a work of fiction. Any resemblance to persons, living or dead, is coincidental and unintentional.