Q1 2026 The Estée Lauder Co Inc Earnings Call
Good day everyone and welcome to the Estee Lauder Companies, fiscal 2026. First 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. Laraine Mancini.
Hello on today's webcast, our Stefan de la febbre president and chief executive officer and a kill. Chvasta 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. We will find factors that could cause actual results to differ materially from these forward-looking statements,
To facilitate the discussion of our underlying business, the commentary on our financial results and expectations is before restructuring and other charges and adjustments disclosed in our press release.
Unless otherwise stated, all organic net sales growth also excludes the non-comparable impacts of acquisitions, brand closures, and the impact of foreign currency translation.
You can find reconciliations between gaap and non-gaap measures in our press release and on the investor section of our website.
As a reminder, references to online sales include sales we make directly to our consumers through our brand.com site and through third-party platforms. It also includes estimated sales of our products through our retailers' websites.
Throughout our discussion, our profit recovery and growth plan will be referred to as our prg.
During the Q&A session, we ask that you please limit yourself to 1 question so we can respond to all of you within the time scheduled for this webcast. And now I'll turn the webcast over to Stefan.
Thank you, Rainey, and hello to everyone. It is good to be with you to discuss our first quarter result and share the great work. Our teams are delivering across the action plan priorities for beauty reimagine.
Let me begin with the first quarter. We delivered organic sales growth of 3%. A significant sequential acceleration from the 13%. Decline in the fourth quarter, we are pleased by the diversity of our performance.
As mainland China, contributed nicely to a return to growth.
The rest of our.
Improved sequentially, including High single digit growth in our priority emerging market led by Mexico, turkey and India's double digit growth.
And travel retail grew on a favorable comparable compared to last year. Low Bass.
We also got off to a strong, start to the fiscal year with significant Improvement in operating profitability.
This result reinforce the confidence we have in our fiscal. 26 Outlook, a pivotal step toward restoring, sustainable sales, growth and rebuilding, our operating margin to solid double digit in the next few years.
The first reaction plan priorities of beauty reimagine. Accelerate Best in Class consumer coverage create transformative Innovation and boost consumer facing investment increasingly amplifying each other to drive accelerating retail sales growth in key markets.
in China with significantly outperformed Prestige Beauty,
as our retail sales increased double digit ahead of Industry up, high single digit, 7 of Our Brands, grew double digit with Lola. Nearly triple digits.
Share in 5 of the last 6 quarters, which is unparalleled among the biggest Prestige Beauty players.
In US Prestige Beauty our retail sales. Growth accelerated sequentially in the quarter. We grew 8% in skincare versus the category up 6%. The ordinary drove our share in skincare. While we also gain share in her care, led by Aida.
Also, we maintain our Prestige Beauty share calendar year to date.
The Estelle order brand achieve its third consecutive quarter of overall share game in the US. Thanks to excellent uptake in Innovation, this quarter it, gain share in each of skin, care, makeup and farads.
Impressively we deliver strong unit. Share again in US, Prestige Beauty, demonstrating, our strategic action are driving new consumer acquisition.
In several of Western European markets. Prestige Beauty continues to see slow growth in some cases negative growth.
In France, the biggest category in Prestige Beauty, in Western Europe. We gain share in France and Spain.
For the UK, the largest market in the region and where Prestige beauty is much more resilient industry, sales growth re accelerated to nearly 10% and we realize the strong sequential improvement in our retail sales. Trends we still have much work to do in the UK but we are moving in the right direction.
Our improving retail sales performance in many key, markets around the world is a testament to our teams, incredibly strong execution of beauty reimagine starting with accelerating best-in-class coverage.
We are advancing with speed to reach consumers where they are, capitalizing on the learnings that we have had with Amazon in the U.S., Canada, and Japan. We opened an Amazon storefront in Mexico with Clinique and The Ordinary, and they still order in the U.K. with The Ordinary.
We announced our presence on Tik Tok shop, launching Clinic Mac and Dr. Jart in the US as well as the ordinary in Malaysia and Singapore. Impressively Mac was awarded Tik Tok shop. Top brand campaign in the world for 2025 in personal care and life recognized for the Stellar grand opening and tremendous initial success.
Our newest Tik Tok shop have served to strengthen. The performance across Channel given how consumer discover engage and transact.
This Collective action in our online consumer coverage, complimented, first quarter growth, from our existing presence on fast, growing retailers, like Teemo, JD doing, and notino.
As a result Global online. Organic sales growth accelerated to double digit from mid, single digit in the fourth quarter leading us to believe. We outperform Prestige Beauty in this strategic Channel.
For our European travel with their business. We make great progress in expanding our consumer coverage in fence through new retail, activation new doors, and upgrading the existing Fleet across our luxury portfolio.
This strategic expansion contributed to our double digit, retail sales, growth for finance, across several of our major retailers in the region for the quarter.
We also drove. Similarly strong retail sales growth in the America's travel retail for France in part from our own new distribution with duty-free Americas.
Looking at innovation.
Newness from Tom Ford. Killian Paris, Joe Milan London. And RMS kicked off France, who reached pipeline for fiscal 26.
These launches, some of which created Alo benefit on existing products, combined, with the label outstanding growth made fans, are best performing category Rising 13%.
We continue to expect France to be Prestige Beauties, fastest growing category for fiscal, 26 driven by luxury, the largest mix of our fans business and where we are the leader as well as over the next few years driven by both domestic markets and the travel retail Channel.
In Paris where our team will plan state-of-the-art technology, data-driven intelligence leveraging, Ai and all factive, expertise to craft the next generation of extraordinary sense. All while innovating much quicker than we have in the past.
Skin care, further drove our organic sales growth. In the first quarter, we had an exciting slate of innovation in high growth subcategory, and across Prestige price tiers, including breakthrough, launches in high acne and Longevity targeting, all age groups,
These introduction coupled with newness from earlier in the calendar year, contributed to skin Care's growth.
We continue to.
interfacing investment to drive, new consumer, acquisition focusing on high our opportunities like our brand building, freestanding stores, and demand generation media activation
We open 14, net new free standing store for our fans portfolio, including a row of New Boutique in New York city, so district for FedEx Mahal. Tom Ford, Jalen London and Kilian Paris.
We introduced stunning new campaign from Tom Ford debut of Black Orchid Reserve 2. I only wear Mark and La Mer, gives skin life.
And we are re-engaged in creating new consumer experience across travel retail. Corridors
To fuel.
Action priorities. We made great strides delivering on the promise of prg, which a will describe in more detail.
Finally, we are especially encouraged by the momentum we are building as we reimagine the way we work. Our fifth accent plan priority. Our new executive team is fully in place. Our 4 newly. Reorganized regions are fully operational and throughout the organization. We are empowering faster decision making
As you will recall, we committed in February to increasingly collaborate with Partners in areas of business where they can support us to become the best consumer Centric. Prestige beauty company in the world. We are therefore 3 to announce our new partnership with Shopify to modernize and scale our direct to Consumer business. In a phased approach, creating a best-in-class, Omni Channel consumer experience globally.
Looking ahead for the balance of the fiscal year. We continue executing on our action plan priorities, including investing in exciting early, deactivation and expanding consumer coverage.
yesterday, this include
Entering.
For at course, which allows us to better connect with younger consumer and accelerate M turnaround in the US.
Before I close, I want to share a few accomplishments from our just published fiscal 2025, social impact and sustainability reports.
Since we are not our first set of public goals. In 2019. We are proud to have achieved several of them across climate Water, waste sourcing ingredient transparency, and impactful social Investments.
In introducing additional 2030 goals. We are reinforcing our focus on women and girl advancement guided in Spirit by our founder, with a new commitment, to contribute to 50 million dollar to support health, education, leadership and Entrepreneurship.
In closing the first quarter marked, the beginning of our return to growth as anticipated for our fiscal 20126 Outlook.
While the macroeconomic environment globally continues to be dynamic with a variety of headwinds. And Tailwinds, we remain Vigilant and focus on achieving our ambition for beauty reimagine.
I am incredibly grateful to our employees around the world, who delivered a strong start to fiscal 2026.
And upward, I will now turn the call over to AIO.
Thank you, Stefan.
Hello, everyone, and thank you for joining us today.
Overall, we are encouraged with a return to growth and the Improvement in margins and cash flow results.
Thanks to the tremendous efforts of our teams globally.
Value creation and executing with excellence and urgency across the pillars of beauty reimagined.
Before I share an update on a reaffirmed full year outlook, I'll start with a quick recap of our first quarter results.
For more detail on a first quarter performance. Please refer to a press release issued this morning.
Starting with Organic net sales, we grew 3% compared to last year.
This was driven by a double digit growth in fragrance and low single digit growth in skin care.
Together. These led to high single-digit growth in both asia-pacific and Mainland China.
Sails from a makeup and hair care, categories declined, partially driving the low single digit, decrease in the Americas.
Turning now to margins.
Our gross margin expanded 60 basis points and was 73.3% in the quarter.
this was driven by sales growth as well as strong, net benefits from our prg reflecting operational, efficiencies lower promotional activity, and ongoing reductions in excess and obsolescence
These results more than offset the headwinds from inflation and foreign exchange transactions.
In terms of operating margin, we expanded 300 basis points to 7.3% compared to 4.3% last year.
This expansion, reflects, net benefits from a prg p.
Specifically, they drove a 3% reduction in non-consumer facing expenses, even with the normalization of employee incentive costs.
As a result, we were able to fund consumer-facing Investments, which increased by 4%
we are delivering on our strategic priority to improve operating margin for the full year as we strengthen overall cost, efficiency and leverage under our PRP
We are continuing to fuel consumer-facing investments that build brand desirability while maintaining discipline on non-consumer-facing expenses.
Our effective tax rate for the quarter was 40.5% up from 38.8% last year.
The quarterly rate is based on our estimated full year geographical mix of earnings.
And it is expected to improve in the second half of the year as profitability builds throughout the year.
In addition, the elevated rate includes the unfavorable impact associated with previously issued, stock-based compensation.
We are evaluating tax planning opportunities. Aligned with the Strategic changes. We have been making to our organizational structure and mix of business.
Our return to sales growth combined with strong cost efficiency and leverage more than doubled, diluted EPS to 32 cents up from 14 cents last year.
In terms of our overall PRP building upon the work we did last year, we are continuing to execute with rigor discipline and clear, purpose to optimize key elements across across structure.
We are driving momentum across the P&L, focusing on operational excellence to improve gross margin. We are streamlining our organization to enhance agility, effectiveness, and efficiency through ongoing restructuring.
And leveraging our comparative approach to procurement to reduce costs and maximize Roi across all areas of spend.
These efforts continue to advance our PRG initiatives, creating fuel for growth, improving profitability, and positioning the company for sustainable long-term value creation.
Proceeding now, to the restructuring component of our prg.
Through September 30th, we recorded 60097 million of total. Cumulative charges primarily in employee related costs.
Really reflects higher earnings as well as a favorable change in operating assets and liabilities despite an increase in restructuring payments.
We invested 96 million in capex. Prioritizing consumer facing Investments to fuel growth. While optimizing all other capex Investments for the quarter capex was down. 32% versus the prior year reflecting the phasing of projects with a fully Outlook to invest roughly 4% of projected sales in capex. We are maintaining a more efficient and normalized level of investment to drive long-term sustainable growth.
also, in the quarter, we paid 150 million dollars in deferred consideration, associated with the fiscal 2023, acquisition of the Tom Ford brand,
Turning now to Outlook we are reaffirming our fiscal 2026 full year outlook.
While we don't expect a linear path, given macro volatility and prior year comparisons are first quarter results.
Give us confidence as we remain focused on delivering a full year outlook.
In terms of organic net sales, we still expect flat to 3% growth for the full year. We anticipate stronger performance in the first half with favorable comparisons in asia-pacific driven by a Global Travel retail business as well as in mainland China.
We are seeing Improvement in consumer sentiment in mainland China.
Though, it remains subdued and has yet to fully recover from historical lows.
In our Global Travel retail business. We have good momentum in the west fueled by consumer facing Investments and distribution expansion. That said, persistent challenges in the East, continue to pressure retail sales. We expect these challenges to have a greater impact in the second half particularly as we faced tougher comparisons to last year.
When mainland China returned to growth and our Global Travel detailed business started shipping in line with retail.
Despite this anticipated variability, we are encouraged by the start of the fiscal year and by our return to growth.
Before I close, let me reaffirm our assumptions regarding evolving trade, policies and enacted tariffs.
Based on information available in net of our planned, mitigation actions. Through October 24th, we continue to expect tariff related, headwinds to impact profitability by approximately 100 million.
This does not include any subsequent or future changes.
The continued to evaluate additional strategies to further, mitigate these impacts including more PRP initiatives and potential pricing actions.
In closing, our Focus remains on being the most consumer Centric, beauty company and creating long-term value through sustainable growth margin Improvement and cash productivity.
To our teams around the world. Thank you. Your dedication to executing across all pillars of beauty. The imagined is reflected in our results and is driving a return to sustainable sales growth and rebuilding, or operating margin to solid double digit over the next few years.
That concludes our prepared remarks. I'll now turn it over to the operator to begin the Q&A session.
The floor is now open for questions.
if you have a question,
you may simply press the star key, followed by the digit 1 on your touchtone, telephone,
To ensure everyone can ask their questions. We will limit each person to 1 question.
Time permitting, we will return to you for additional questions.
Just cue up, again, by pressing the star key and the digit 1.
In our first question today, we will hear from Lauren Lieberman of Barclays. Please go ahead.
Move in volumes within um your overall organic sales growth. But I'd I'd love to just hear a little bit more about your perspective on um the importance of driving volume over time as part of the algorithm. Thanks.
Yeah, no, thank you, Lauren. I'll start. And maybe I can just like, you know, add some flavors to it. I think let me start from like, you know, the the, the the comment that I made on the US because like, you know, for us, we saw in the quarter significant s gain from a volume standpoint, which is been driven by several things. Some of the price adjustments that we've done with new launches, uh, in part of the beauty. Imagine all the new innovation that we've put forward. If you remember, I've clearly committed to make sure that we are the right price point at the right price band for every single of our 4 categories. And we've done that already with like, you know, product like Studio fix in Mac. But also, we've done it in over geographies, where we adjusted prices, uh, namely, uh, clinic in UK, where we have had great great success with the right positioning of, like the DML. But in the US, the most significant part for us was actually the market
Again in units that is showing that we are bringing new consumer to uh the company and to Iran and if you remember that's part of beauty, imagine it was very important for us that we are investing in the demand generation at the top of the funnel to just bring new consumer to Our Brands. So, I think we seeing the momentum from a unit standpoint. Going on, obviously is driven by, um, also macroeconomic trends that were, we see a lot more demand at the entry of prestige. And we've seen strong acceleration with the ordinary. We've seen a rebound also with Mac in the US and starting to see some momentum in many markets. So I think it's a combination Lauren of categories consumer demand also. But price point that we are driving throughout the organization and we believe that allows us to just bring a lot new consumer, uh, to the company.
Overall, and contributing to the market share, again, in many markets and the rebound. Uh, and, and the growth that we're seeing in the quarter. Yeah.
Thank you Stefan. Um Lauren as we have spoken fundamentally, the strategy is to start.
Winning more consumers. So as part of that, one of the things we have done, and Stefan has talked about it in many forums, is that we have looked at our pricing to be in the right bands in many core categories. We adjusted pricing, and we have seen overall unit response.
In addition, after many years of inflationary pricing, that we have done, we did take uh, uh, careful look at our overall portfolio and our pricing this year is lower than than overall in the prior years simply because of inflation is subsided and overall industry had taken a lot of pricing.
So we believe uh, of course our business is made up of many different categories. I mean make up and so it's hard to make unit comments. But with the 3%, organic sales growth and pricing, we believe is sub 2%, we expect to have unit growth, baring the mix. And of course, we are working to understand the drivers of unit mix and volume by business, where it makes the most sense because if our in our business between fragrance and and and skincare, it's hard to make an overall comment but our goal is to drive unit. A goal is to bring more consumers and we are starting to see positive results here. I hope that 1 just to add like a very a data point. That is important where we see the biggest move in terms of units is also in the perfume category for us.
And we've had a significant influx of innovation. And that's also like linked to what ailments and I said about accelerating Innovation. Accelerating Innovation at the right price point and we are seeing a lot more. Also smaller, sizing, driving the growth, over the world for perfume and this is 1 of the thing that we are seeing. And we are doubling down on accelerating going forward. Yeah, we return to unit growth. This quarter which is a great positive
Thanks so much.
Thank you, Lauren.
The next question comes from Dara Moinian of Morgan Stanley. Please go ahead.
Hey, good morning.
So uh, first just a short-term clarity.
Good morning.
At the high end, that implies the balance of the year, is more in line, with, with q1 or below if you use the lower end of guidance. So, just conceptually is that conservatism or early in the year, trying to understand if the q1 results gives you more optimism. Uh, particularly given the comments about a stronger first half, and then also just longer term, obviously solid share gains in mainland China. In the last few quarters, you've made a number of internal improvements. Just as you look out, longer term over the next few years, do you think those share gains can continue maybe give us a bit of a short-term report card on, what's driving that and how sustainable those factors may be. As you look out.
Yeah. Well, thank you. Thank you. Uh, a multiple problem question. Let me start maybe with Diane because I think it's going to be important to really understand like the impact of China also, like, you know, on the folio guidance and I'll stop and I K will uh, give some flavor about the balancing, you know, of, of our year. So for so, in China, we are really happy with our share again, as mentioned in our prepare remark. We are like, well ahead of the market and we are in double digit growth. We have 7 brands in double digit, and we have actually many more in positive for the quarter and that's been really encouraging because for us, it is no longer just growth on shoe brands, but it's basically across the portfolio across categories.
Employees. And like I said also in brick and mortar and online where we are getting significant share. So when I I see China, I see obviously um, a stabilization to a slight acceleration of the market that is mainly like, you know, driven by us, we're seeing a big of consumer confidence on the Chinese consumer starting to rebound, but don't get me wrong. It's still subdued compared to historical Peak, but we're seeing all of that moving in the right direction. But if you remember our balance between the first half, and the second half are very different because we're still lapsing in the first half of our fiscal year lower number both in China and travel retail. And in the second half, this is where we're starting to anniversary. The beginning of the recovery that we experienced last year in China, which obviously, we are early in the fiscal year and while we are the team extremely confident.
In our outlook for the year, we need to understand the beginning, the the the the, the, the balance between the 2, and I would say, few macro environment, things that are taken into consideration 1. There's still a lot of volatility, you know, out there and I said, like, you know, the environment is extremely Dynamic, trade policies. Are still there. Obviously, it's still very fluid as we saw, even in the middle of the night, things are like you know changing and 1 day is positive. Some days we have to just you know mitigate new news but we are
Navigating a lot of volatility, and there's still many areas of the world. Where, while we are seeing a recovery of consumer confidence, as I said, like in China, it is still very subdued in over areas, mainly in the west and in Europe. So all of that taking into consideration gives us that we still have to navigate early into the fiscal year, a great start, but a lot of volatility and I think what I wanted is accurate to just give a little bit more flavor. Also, how do we see the balance of the first half and the second half?
Yeah, thank you. Stefan.
There are, I mean, when we gave you uh, the full year guidance, it was a very thoughtful guidance, which was which allowed us to run our long-term play to start investing in a business start driving retail and really consistently doing the right thing to build retail.
So so that guidance was well done. We are pleased to see that we are progressing against that guidance.
However, to your question on why we are not changing reaffirming guidance. First of all, the macro environment continues to overall be challenging, we are pleased to see the progress in China. Uh definitely and and not only pleased to see the overall Market program are significant outperformance as Stefan called out in China. So we are happy to see that but when you look at the broader Beauty market around the world, there are pluses and minuses. So there's still
There. And, of course, we're also happy to hear the trade, uh, news this morning, but the environment continues to be overall, macro with significant variability. Secondly, our industry Outlook, we gave you was 2 to 3%.
Brochure. So, not only, we want to be in line with the market. We want to be ahead in key places as we have said. And then last point is our Cadence, our Cadence, as you can see, last year, our travel retail business was significantly lower in shipments in first off. And China also was having significant declines that is in our first half. So when we see the positives, this first quarter and what we expect in first half of the year, that will be helped by that base period. Second half base period would be more challenging in travel retail and China.
So that all of that was incorporated in our full year outlook, of course, we are not giving you specific quarter outlooks, but we expect quarter 2 to to to see similar type strengths. As we have seen, we have we have strong holiday plans. We are executing with excellence in all our markets. So there is definitely a front half backup story. But overall we are confident that we want to grow in line and ahead of retail which we said were 2 to 3 and and and that's why we kept the broader guidance because of the variability. So hopefully this gives you
Good perspective. And then we will continue to invest when we see the right opportunities, because we want this turnaround, that we are. Architecting to be sustainable for many, many years to come.
Right, that's helpful. Thanks.
Please go ahead.
Hi, good morning everyone. Um, I wanted to ask on margin obviously for 4 months in q1. Uh, both of the growth in operating margin line. Uh, can you just discuss your outlook for the year? Is it broadly unchanged? Most of the growth and operating margin and just uh the the the solid star doesn't give you more confidence in potentially being towards the higher end of those margin targets um just given the the strength of the business and also like the the news this morning on tariffs and then maybe just lastly what's embedded from our investment standpoint if you can talk about that as well. Thank you.
Thank you philippo. So overall, when we gave the guidance on margin, 9.4 to 9.9, it included that the gross margin will be likely flat to positive. We will offset the tariffs impact as as uh, within within the year on year and try to build a flat to positive growth.
Project. So a lot of our gross margin progress was going to come from sgna, which is what we demonstrated in q1.
So that's that. That's that's the overall picture. Which means as we said in a prepared remarks as well, that consumer facing we will invest which was your other question. So we invested in consumer facing positive and non-consumer facing was down which is creating the leverage. That's what you see saw. Play out in quarter 1. Of course, you have to remember that in quarter 1. There is not a lot of tariffs because these things come as a variance release. So, there is a lag between various happen and when, when when they hit a pnl so you should see that impacting gross margin in rest of the year starting from Q2, Q3 to Q4. So the guidance we gave on Gross margins still broadly stands today morning announcements
Are definitely a favorable. Welcome, they improve.
Things not only on tariffs, they improve things on consumer sentiment which is very important for all the businesses operating in both countries. So so that we take as a definitely as a positive, but that tariff amount dollars while we haven't run the math, it is not going to be material because we do not bring. I mean our manufacturing is not coming in from China. Here we do bring materials. So overall we, we stand by our margin progression. We we we, of course want to drive this margin progression, quarter on quarter, but but as we said, we, our goal is to deliver.
Put it on the year when we see an investment opportunity we will reinvest.
Feeling really confident because of the strong start of the fiscal year, especially with what we've delivered in q1. Because a lot of the action that we've put as part of beauty reimagine that it is consumer coverage, that is the acceleration and Innovation or as ail said, the fact that we've increased consumer facing investment by 4% in the first quarter are starting to just really activate the demand. And we've seen actually in many places as we discussed earlier with 1 of the questions, the unit growth going and I would say like, you know, just to give some sign of like, you know, additional confidence and Q2 is this big quarter in Beauty in general for us because we are going into 1111 you have like you know, Cyber Monday, you have the holidays. So this is just like 1 of the largest quarter. We are basically pleased with the beginning of the quarter. We have a very strong holiday programs that are in place and while it's too early to comment on 1111 in China golden week which was
Was the first week of October was really strong and we believe that we grow ahead of the market, again, in a very Dynamic China. Which, and actually the interesting also note, it was not only in China, Mainland, but we've seen actually a recovery of air traffic. Even in China, where air traffic was up 14% in Ireland, which drove a lot of strong demand that we were in double digit growth during golden week. So all of that gives us the confidence.
That we are off to a very strong start of the year. It is not about guiding an issue with shape or form Q2, but it is about saying that we're confident and we are reaffirming our guidance in the year. And as we are seeing all the benefits of Beauty reimagine, from a consumer of tracing, starting to pay dividend, then we will adjust the year accordingly.
Right, thank you so much.
Thank you.
The next question comes from Bonnie. Herzog of Goldman Sachs.
Please go ahead.
Thank you. Good morning.
I, um, I had a question on Asia travel. Retail, could you provide a just, I guess, a little more color on inventory levels and, and movements in the quarter. And then, overall, I guess, how would you characterize the demand backdrop and, you know, conversion trends that you're seeing within travel retail? I guess, I'm, I'm trying to get a sense of, you know, if we're past the trough, and when we should start to see, better conversion Trends, especially with some of the benefits of your activations, thanks,
No thanks, bye. I'll stop look. It's probably, there is still very volatile that that's where I would start basically like, you know, with the market and you've got our specifically questioned for TR Asia like, you know, in general, but TR West is actually in a good place and we're seeing a lot of positive, but let me focus on, you know, T East. Um, it's a tell of different cities because
Because, uh, I think we are starting to just, like, in a lapse. Some of like, you know, the worst decline, but let me divide Asia in silver bucket because we're seeing a lot of momentum, for instance, in travel retail, Japan, we were in double digit growth like, you know, in, uh, the first quarter, which was good, if you look at the rest of travel, retail it back, if you exclude China and Korea. We also believe that we are gaining share with some positive momentum, especially in the emerging market or Sharia. Now, when you look at the China ecosystem of travel retail and I reaffirm what we've said, we are back to the right level of inventory and we are managing the inventory based on the demand and this is it this is the way we are doing it for now and for the future and we are back in line to Industry penetration of travel without that we intend to maintain as long as the demand continues to be what it is.
What is interesting within the China ecosystem of travel with their we signed for the first time, as I said in the past question traffic starting to be positive again. In September, I was myself in Ireland few weeks ago and experience actually a high food traffic conversion. Money is still, slightly is still down. Yeah, I just don't want to just like, you know, say like conversion is picking up but we as the Stellar company are putting a lot in in place to drive retail activation, we are investing in
Anything for the quarter but I'm like you know, showing some a beginning of rebound, through strong retail activation on our part but also traffic, uh, you know, resuming and some level of conversion getting better when you provide the right experience to the consumer.
Yeah. And thank you Stefan and just to add to it, Bonnie, your comment on inventory. So, as we have consistently communicated, both Define. And I that look, our travel retail inventory, are now more right-sized relative to the retail. We are seeing and we are working to drive retail which, of course, as as you, um, asked, and Stefan commented, is coming back, but not everywhere. Overall, it's coming starting starting to come back in parts of travel retail. So, our inventory is, you should feel good. That our inventory is in the right range. Of course, we adjusted Up and Down based on the retailers working capital needs Etc. But there is nothing. That should concern, anybody that our travel retail inventories elevated or less, it's in the right place and it is significantly lower than where it was 1 year ago. Both in um absolute terms and uh and and ratios of
Forward-looking details. So we feel good about that which has really allowed us to focus on building the business and really managing it to retail and all of the points which Define made and on travel retail, we are starting to really double down in the West in America. So not only uh opposition of strengthen East but now we want to position ourselves in a much stronger way in the Global Travel retail.
All right. Thank you.
Thank you.
The next question comes from Steve Powers of Deutsche Bank. Please go ahead.
Great. Good morning, thank you. Um, Stefan you mentioned the morning, you've mentioned in the past uh you know, several times that you you felt coming into the role that you know, Estee Lauder just hadn't moved fast enough, um, into new channels to keep up with the consumer clearly. We've, we've seen lots of action in recent quarters to close that Gap, be it. Amazon shop at the east Southeast Asia, Amazon, or even the move to to Mac, uh, into Sephora.
Um, so I guess, you know, acknowledging that consumers will, you know, continue to move around, and you'll have to adjust. I'm curious as to what degree you think you still have opportunities to catch up and how that plays into future planning. Um, and, uh, and I guess a little bit of how that varies across regions, if you could. Thank you.
No, you know, I think Steve thank you. First of all, thank you for acknowledging that we are moving with speed, like, where the consumer is moving. I've made it very clear to you. And to my frankly, first of all, to the entire organization is, we're moving, where the consumer is moving. As long as where we go, we can build equity and desirability for our brand and this is what we've done today. Uh, like, uh, you actually yourself mentioned, we are in Amazon in the US in Canada, in Japan, in the UK in Mexico. And we're continuing to uh, uh, look for other places. We have like, you know, Tik Tok shop, which is really interesting for us because Tik Tok shop. Not only, I don't necessarily consider it as a channel. I consider it as really an ecosystem that allows us to recruit new consumers and we are able to retain them on the channel and on our channel. So uh it was also shop these in Asia. It was like, you know caca or also where we accelerated our brand.
Um, you know, Mac in the US uh with Sephora is a major step in the right direction, let alone also the partnership that we've announced 24 hours ago with Shopify. That is really going to allow us to be best-in-class. Direct to Consumer uh where we are really tackling all our online connection and freestanding store connection with this uh, really first in-class partnership that we've announced. So I think you are seeing
So, you're seeing us really moving quickly, and I can tell you, this is now deeply embedded in the organization, we are going fast. Uh, and uh, the new organization that we've put in place with the new 4, uh, cluster geographical region and the brand and who does what in the organization allows us, frankly to just move much faster through, uh, the organization and frankly deploy The Innovation, according to the need of the retailers where we move and deploy, much more sophisticated media targeting that allows us by age group, and by retail and by region to deploy our media. And to be to really go after the highest a possible.
So you can count on us to sing to see our brand being deployed again in more channel in the future. Uh, but again, as long as this channel, maintain preserve or elements, our brand Equity, so around the world
Cogs area allowing us to look at Opex area through the Enterprise business services work we have said. Procurement work continued restructuring. So we continue to believe in the significant long-term opportunity on SG&A, while your question is definitely related to the specific quarter facing. We believe there is significant opportunity, as both Stefan and has commented on expanding margin to solid double-digit over the next few years. So, and that is the work we are doing every day.
Focused on while of course, giving you good guidance on quarter and quarterly phasing, so the overall upside remains and we are working to bring that home every day, every month and and and Peter, what I would add to just Ikea just want you to just like you know, see obviously like you know what what I said like few few minutes ago, very strong confidence of where we started the year, okay? So we're starting we're off to a very strong start with the 3% growth and the 300 basis, point margin Improvement.
I'm absolutely a reinforced the fact that we are confident in delivering the guidance that we gave both on the top line, on the bottom line on, the growth, margin investing in Our Brands and Etc. What I'm actually really encouraged in what we're seeing is actually, the fast re acceleration of our retail in geography is like China, the ability to maintain our market share in the US, which is the first time in many, many years, as I mentioned many times, but also, our ability to just like, you know, grow in unit again, which means that we are bringing new consumer. Let alone we haven't really talked much about Innovation. We have a slew of innovation coming in if you want but we have a lot coming in Q2 and Q3 that we can discuss which is going to allow us to just connect with the consumer at different price point, different age group, different categories, every single of Our Brands and regions are working on deploying new innovation. So I think you are going to see a continuous acceleration of ourselves.
And the continuous rebuilding of the operating margin towards the guidance that we are giving for the year and towards the solid double digit operating margin for the future. And that's really what we are laser focused as a team at delivering sequential Improvement and proving the organization, and the world that we can do it sequentially. But in uh in a very strong fashion as demonstrated in the first quarter,
Great. Thank you so much. I'll pass it on.
Thanks Peter.
The next question comes from Chris Carey of Wells Fargo securities.
Please go ahead.
Hi, good morning, everyone.
Morning. Chris.
So I have a, uh, question.
that tracks well potentially with
How you answered the prior question?
I think, you know, as we look over the next few years toward, you know, solid double-digit margins.
There, there's a few different ways you can get there. Um,
Obviously, you know growing the top line is is Paramount. Perhaps you can improve gross margins, a bit. Um, or you can, you know, manage lower your cost structure over time. I I think I hear of course that you're you're certainly committed to staying
Well invested over over this time Horizon. So as to deliver, you know, the most important metric which is sustainable accelerating Revenue growth.
So can you just talk about uh perhaps your ability to um you know, sustain you know stable, let's call it sgna dollars over the next few years. Even while you'll be leading into consumer-facing Investments. I think sometimes with a cost Savings Program, uh, it's difficult to
Parse out, you know, the net numbers but just the ability to kind of hold stable uh cost even as you were investing and connected to that. You know, there's a there's a pretty significant uh earnings leverage opportunity and the tax rates. Um, you know, I get a ton of questions about this and candidly I don't always have great answers. Can you just give us a sense of how, you know tax planning will Factor over the next, you know, 3 to 5 years and and what the opportunities are. Thanks so much.
Yeah, no, thank you Chris. Let me take the first part of the question and then I can just go into into the tax.
Look, I think you you, you'll question kind of answer already a little bit where we're going, because if I just take it a little bit like, you know, from beauty, imagine we're doing all of the above, we're improving gross margin. And if you remember in fiscal 25, we met significant improvement in our gross margin. And this year, we say that we are maintaining it while absorbing the impact of like you know the type. But actually you said it Chris we're building a lot of Leverage in our gross margin for future because I've made it very clear that the Innovation that we're bringing to Market not only is at the right suggested retail price for the consumer but is also built to be accretive to the category where we are launching it that is skincare. That is makeup that is are or that is like you know perfume. So we are just like you know really making sure that we're building it. We've also demonstrated a significant uh discipline on the management of inventory.
Decrease it 3% in q1 and through the prg and I can't believe that it's the yeah. Like, you know, Chris you are like, you know, question number 7, we haven't even mentioned trgp up to this point but prg is here to create. Also, a lot of Leverage to reduce the penetration of sgna in our total pnl, and there's a strong discipline. Now the way that we are managing expenses and we are always putting expanse in favor of consumer facing to further accelerate the Top Line because with Topline we know we'll get more unit. We will get more leverage, gross margin will improve percentage of sgna, will go down and then we are able to ignite growth and obviously get a lot of Leverage from an operating margin. So we haven't really talked about the prb today, but prg is going in the right direction. Giving us actually the right momentum to invest in consumer facing.
And to delay here, the pnl of the organization to be much more agile to be faster, but more importantly also to create a lot more efficiency that is going to allow us to frankly go not only to maintaining share but to beat and to beat the market and to grow share in the future and to get a lot of Leverage so that's the way I would like you to see the piano and what we are building. And the momentum that we are there actually quite early into the process because we are not even at the
In your anniversary of the launch of beauty reimagine. We're only in the third quarter and a lot of progress have been made and it gives you kind of a sense of where and how the pnl is going to be built. Obviously tax is something that we are focused on as a k said and it's just going to say a few more word about it. Yeah.
Yeah. And and before I go into tax, I just want to add 1 thing on the margin part, which Stefan said, like with 3%, sales growth this quarter, you can see the leverage that we got. So there are multiple paths to the solid double digit, margin 1, like you said, gross margin where we ended last year at 74%, that still has significant upside on gross margin.
We and when you break our SGA in into consumer facing and non-consumer, facing
In non-consumer facing, we are already demonstrating significant cost reduction, and with a company that could be much bigger on sales that trend on non-consumer facing, we intend to continue.
even within consumer facing, we are bringing significant tools to drive Roi, so we intend to buy
Marketing inputs at much better price and much better Effectiveness. So not only we will improve uh non-consumer facing, we intend to improve consumer, facing investment Roi and a significant way. So there are 3 pronged ways to go from the current margin. We have to solid double digit in across all of those 3 pillars. As depart on tax rate we have commented on on our high tax rate we gave a guidance for 36% this year which should be lower than last year so it should start to move in the right direction but there is significant, we are not happy with this tax rate, it is driven by a geographical mix mix of earnings. We are looking through our PRP, structuring to look at tax planning opportunities.
A significant part of the business is international markets as you know, so that is driven by that plus the stock comp.
Effect negative effect of stock on previously has impacted us. So we we intend to give you more clarity as we work through this year and and drive this uh, favorability on on tax rate. I mean every point of tax rate gives us significant uh Improvement as you're pointing out and as I commented in last call this is clearly a piece of work. We are doing these things. Do take a little bit of time and have to be done, very methodically and and and in the right way, but this is a clearly
1 of our top priorities. So we expect to hear more from us in the coming calls.
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