Q4 2019 Earnings Call
Friends called.
Today's call is being recorded and the webcast.
For opening remarks and introductions.
I would like to turn it over to the senior Vice President of Investor Relations Ms. rainy months CD.
Good morning.
On today's call are appropriate for Brookfield freight <unk>, President and Chief Executive Officer, and Tracey Travis Executive Vice President and Chief Financial Officer.
Since many of our remarks today contain forward looking statements. Let me refer you to our press release and our reports filed with the FCC, where you 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. The net gain on liquidation of an investment in a foreign subsidiary goodwill and other intangible asset impairments.
Changes in contingent consideration the finalization of provisional charges related to the U.S. tax law enacted at the end of calendar 2017.
And the new accounting standard for revenue recognition.
On that sales growth numbers are in constant currency.
You can find reconciliations between GAAP and non-GAAP figures in our press release and on the investors section of our website.
During the Q and a session. We will ask that you. Please limit yourself to one question. So we can respond to all of you within the time scheduled for this call and now I will turn the call over to from retail.
Thank you Randy and good morning, everyone.
We delivered another outstanding performance in fiscal year 2019 is our strategy based on multiple engine of growth continued to be a winning model.
We have created more investment opportunities and improved our ability to quickly relocate to resources among different growth and.
Improved data analytics combined with our longstanding creativity hsu with our successful broader innovation and digital marketing, which led to double digit gains in net sales and adjusted earnings per share in all four quarters.
For the year sales grew 12% once again it Bob there eight global prestige beauty started the strengthening our industry leadership.
S climbed 21%, our second consecutive year old Dps growth over 20%.
We finished the year with strong fourth quarter results driven largely by the same geography, its brands and channels that fuels our performance in the previous quarters.
We also had a modest improvement in trend you know where U.S. business, despite a tough environment.
In fiscal 2020, <unk>, we expect another year of strong Bobby industry sales growth margin expansion and double digit EPS gains, we believe global prestige beauty, we remain one of the most exciting consumer product areas driven by strong demographic trends and desirable products and we we remain completely focused on the sector.
Our performance was not warranty considering the volatility and challenges in some of our most important markets.
As you know they included trade tensions uncertainty surrounding Brexit in the UK difficult environment in North America, we didn't create the competition is looming beauty states overall and certain department store challenges both in the U.S. and the UK.
Thanks to excellent execution, our talented employees worldwide manage it through these environment to deliver strong results.
Our broad based gains reflect diverse growth drivers the desirability of our high quality products compelling marketing and innovation successes.
In fiscal 2019, we continue to execute against our strategic priorities, which powered our highest seats.
Our skin care category was outstanding across brands markets and channels.
The growing number of middle class consumers in China, and other emerging markets embrace the prestige beauty and they were obviously users about what brands, we pay your eyes the investment in the fastest growing channels and try to retain and over line continued to grow strong double digits.
Our direct to consumer business accelerated.
Sales from new product innovation reached an all time high.
And our digital marketing and social media divisions were highly effective.
In addition, our sales growth was supported by more than 380 million of cost savings and our leading beauty forward initiative enabled us to invest more in advertising and other brands building areas three easy we'll give you more details about these initiatives in a few minutes.
Now I will highlight some of the factors that drove our improvements.
Our 10 year compass forecasted continuing strong demand for skin care and we matched our innovations to the biggest opportunities across consumer segment in China.
One of our strategic priorities is to reach a wider range of consumers and set a skincare launches, including Clinique I'd attracted younger and more diverse shoppers.
Our brands for short dropped a more diverse consumers through innovative marketing, our it's dilutive brand created locally relevant bilingual communications to attract Latino consumers in key U.S. markets. During one such campaign for the brands revitalizing Supreme last most stood iser seems to Latino consumers rose significantly and led to a 35% jump in seeds for that product.
Looking at our geographies.
Our strategy of serving the growing middle class C Mania energy markets with locally relevant products was highly successful.
Sales rose nearly all our emerging markets worldwide led by China, India, the middle East, including Turkey in Southeast Asia countries and as a group they grew over 30%.
Our growth in China was outstanding.
Older categories and channels grew in via surely older brands posted double digit gains.
Our online sales rose significantly in China, and we introduced our Tom Ford Beauty, and Jo Malone, London brands on chemo.
Tom Ford was our biggest launch to date on the block.
We continued to expand our business in the fastest growing channels during calendar 2018, our company became number one in prestige beauty in travel retail worldwide and throughout fiscal 19, we had broad based growth across our top brands regions and categories in the channel.
Growth was primarily driven by robust like the doors gains in a span that target to reach also contributed.
The prepaid business, where passengers can or that products online and beat them up at the airport Apone dad that Bob just order. It turn worse has taken off strongly three daily centered in Asia for now, but he is expected to grow worldwide.
Our underlying growth was also broad based.
And as Brent sides retailer sites and third party sites all grew double digits.
We increased our brand presence on select third party moulds and sides it our brands entering new markets.
The priority of our wireline business comes from our three largest markets the U.S., China and the UK. However in total our smaller online markets have become an increasingly meaningful contributor to growth.
Our online sales in countries, such as Spain, Greece, Israel, and India at expanding rapidly and hold great promise for the future.
Our online sales grew at least double digit you know that one of the approximately 50 markets, where we had by now E Commerce operations.
Our brains sites are more than a platform to sell products. They are valuable media properties. They collectively dropped it easier and more than 400 million visits, allowing our brands to engage we consume it to reach storytelling illiquid assets and high touch Expediencies. These bees equity and loyalty, which creates value that extends to say is inadequate channels.
Data driven marketing, we make decides even more compelling as we tailor our message is different to consumers.
Our brand side together with third party platform and our west freestanding stores in brick and mortar comprise our direct to consumer business, which rose sharply.
The three channels combined had approximately 1.3 billion visits last year, and we are leveraging them as equity building platforms.
Our product innovation was powered by capabilities, we have developed in data analytics and consumer insights combining data with our creative process resulted in terrific innovation success.
Our new product launches reached a record penetration about one third of nuts seeds.
In addition, the number of success launches increased as did our speed to market.
Our innovation was focused on Beacon Emoting touch wood products in large part supporting our hero franchises.
We continue to focus our advertising spending on digital marketing and social media to strengthen brand equity drive repeat baftas and generate trial.
Digital now comprises nearly 75% of our media spend it was highly effective for example in China. The Este Lauder brand was ranked a genius brand for the third straight year.
And the man was number one in global engagement in luxury skin care.
By making progress across our strategic priorities, we drove higher saves throughout our portfolio for the year brands, representing more than 80% or with total net sales posted increases as they attracted new consumers and improve retention rates three of our four largest brands. Each we'd say is well over 1 billion dollar grew strongly globally.
Fueled by its popular here a franchise is our largest brands Este Lauder had terrific success.
Our sales rose more than 20% for the second year.
With double digit gains in skin care and makeup it posted higher sales in all regions in the us ready for channels.
As a matter of products and digital communication attracted many new consumers it generated double digit growth in Navy region in Asia Pacific, which was the fastest growing top 10 brands in prestige beauty.
Strong innovation in products and marketing accelerate and Max blow by girls and needs makeup offsetting wet but equally well received in travel retail and all over in Asia.
Clinique focused innovation or most authorizes a high usage and high loyalty subcategory, which drove the brand skin care business higher in the region.
Two key launches, where clinique I D. A breakthrough innovation delinquency went to customize their most horizon and most are Serge I concentrate which helped the most assert franchise grow very strongly.
We also strengthened our portfolio of small and mid size brands in our luxury brands race ornate that strongly.
By focusing on developing high quality products communicating our brains out into 16 and strengthening our repeat purchase rates, we successfully scaled our brands and added $1.2 billion in incremental sales to the top line.
Strong demand enabled us to raise prices across our portfolio, which contributed two percentage points of sales growth.
During the year, we also committed to delivering greater value to our citizenship and sustainability programs, we announced new goals at our Investor day and are continuing to incorporate our efforts to out our brands regions and functions as well as on corporate level.
Recently, we added to incorporate the responsibility score card on our website to track our initiatives, we have been recognized for our achievements, including being named number one on Forbes list of the best employees for women and included him Byron's talk went on to sustainable companies.
We celebrated 25 years or Mac, Viva glam campaign, which has cumulatively raise the 500 million to help people with AIDS in I should be even more then went on to countries.
Finally, with our strong cash position and financial success, we raised the dividend by double digits for the 10th consecutive year.
Fiscal year 19 was a fantastic year, yet even more significant is the progress we made to see as we launched our current strategy a decade ago, Let me recap some of our key accomplishments since 2009, our net sales and more than doubled from 7 billion to nearly 15 billion.
Rising or an average of 8% a year, which is the top of our long term goal.
EPS growth averaged 21% two and a half times our sales growth.
Our strong global prestige beauty reached 15.3% up 2.3 points, making gas the clear global leader.
Our total shareholder return topped 1100%.
Total cash returned to stockholders exceed the 10.5 billion.
And cash flow from operations skyrocketed from 700 million to 2.5 billion.
In addition to these financial results, we found that diversified our business and B is there more flexible financial model, we developed processes to drive more collaborative teamwork and invested in human capital, including recruiting external talent to bring fresh perspectives.
Our workplace is now more diverse and inclusive we amplified our family values.
These changes have created a more streamline integrated organization and a stronger foundation that we believe will enable us to continue our growth trajectory.
As we start fiscal year 20, we are continuing to adopt our strategy to deflect they continuously changing environment, we plan to fuel our strengths in the brands categories channels and geographies that are performing well accelerate growth in areas that are underperforming to turn them around and we the guidance for about what compass and utilizing data and technology anticipate new opportunities and trends as they emerge and act on them quickly.
Our overreacting goal is to reach diverse global consumers of all ages and reinforce our connection with loyal users to do this we will prioritize growth in emerging markets and faster growing channels strengthen our hero franchises and create new ones engaged throughout social media and reach digital lapses and expand our omni channel capability to seamlessly connect our online and offline businesses.
In addition, we are striving to stabilize our North America business. Despite the current soft environment.
We believe our CNET TV to innovation, we continue to attract and retain consumers. Our innovation program is focused on expanding our hero franchises across our categories.
You know a lot of just one skin care. Some new products include Clinique smart clinical and indeed in most the rise of the visibility of risk out it rebound in mice and a reset concentrate initially loaded advanced night repair line. The luxury segment in skin care is among the fastest growing which is why our high end Tom Ford Beauty brands is launching skincare collection to complement its very popular makeup and fragrance lines and the man is launching a neck and nickel to concentrate.
And updating the regenerate in serum.
We expect to continue strong growth in China, and you know that emerging markets, including India, Turkey Southeast Asia as we tapped into the growing middle class with our desire to build brands. We will expand on line in these markets to reach consumers, who don't have brick and mortar distribution options and offer more locally relevant products. We believe China's growth we remain strong although we expect some deceleration from the rapid pace of the last two years.
But as China's growth moderates, we spread out that emerging markets to contribute more.
Likewise, we expect our travel retail business to continue to be a growth catalyst, but we are anticipating our growth rate to moderate.
We also are intent on turning around the parts of our business that aren't performing to our expectations prestige beauty in North America, and the UK remains some well soft, especially makeup where we are the leader that said, we aimed at improving our performance. This year as we find that rebalance our channel mix and win in key subcategories, we will build on our leadership position in prestige beauty by targeting a broader range of consumers within local areas and creating compelling campaigns.
As we embark on the second decade of our strategy. We are focused on we need to date, while at the same time continue transforming our business to lead in the future.
Maintaining our leadership in such a dynamic industry require constant reinvention, which has been a hallmark of our company for decades.
We are optimistic about the outlook for prestige beauty and foresee continued healthy growth thanks to favorable demographic, especially in emerging markets and they continue to shift from us to prestige.
As the best diversified tour player in prestige beauty, we are in a unique position to capture golly greater logos share.
No one in the less we are cognizant that into shorter economic social geopolitical uncertainties. Good him. Our result in closing I want to thank our leadership team and our highly talented employees all over the award for delivering such it to Refigure.
Throughout our brands and function our employees excel it in their roles and successfully navigated difficult environments. These kids differentiate our company and our people. It gives us a competitive advantage. We are proud that we have matched to celebrate a more importantly, we are excited about our bright future ahead.
Now I was told to occur the call over to Tracy.
Thank you for Brito and good morning, everyone.
As a reminder, my commentary today as adjusted for the items that Randy mentioned at the beginning of the call.
And now for the quarter result.
Net sales for the fourth quarter rose, 12% with strong growth in our international regions and growth across all product categories.
We saw a continuation of the outstanding growth in China and travel retail that we saw throughout the year and North America improved slightly.
Our Asia Pacific Region continued its strong net sales growth this quarter up 23% with all product categories rising double digits.
Nearly all markets grew and more than half of the markets grew double digit.
Regarding China, the continuation of robust growth reflects the superb execution of new innovation, along with strong digital advertising campaigns.
Nearly every brand rose strong double digits in China as did all channels.
Among the other large markets in the region.
Hong Kong Rose double digits in both chip, Japan, and Korea Rose mid single digits.
Net sales in our Europe , the Middle East and Africa region Rose, 20% led by a strong double digit increase in global travel retail international passenger traffic remains strong, particularly in Asia, and our travel seemed collections sold particularly well.
The EMEA region also benefited from strong growth in emerging markets led by Russia, Turkey and India.
The middle East Rose sharply following an inventory rebalancing in the prior year quarter.
Growth in Western European markets was mixed.
Increases in Italy, Greece, and France were partially offset by modest declines in the UK and Benelux.
Net sales in the Americas declined 4%, reflecting a slight improvement in North America trend compared to our prior third quarter.
[noise] prestige beauty overall in North America continued to be soft, particularly in the makeup category.
We achieved double digit net sales growth online with contributions from both retailer and brand sites, but were challenged in brick and mortar retail.
Latin America net sales declined as growth in Brazil, Colombia, and Peru was more than offset by declines in Mexico, Chile and Venezuela.
Skincare again led product category growth this quarter.
Net sales grew 19% with continued strong increases from the Estee Lauder and Lemaire brands globally.
Estee Lauder sales were driven by success in our hero franchises, notably advanced night repair nutritious perfectionists and micro essence, where the franchise benefited from the launch of its micro essence with the core affirming in Asia.
Lemaire had success from the relaunch of the concentrate and garnered increased awareness through its global blue hard campaigns supporting clean Ocean.
Net sales in makeup grew 8% led by strong demand in Asia and travel retail.
Many brands contributed to growth, particularly Tom Ford Beauty, Mac and too faced.
Tom Ford look when I make up drove growth in the brand launched a cushion compact foundation in China.
Supporting foundation as another strong pillar of growth for the Tom Ford brand.
Tom Ford Beauty is recent launch on chemo also contributed to makeup growth.
Mac resonated well across Asia, several AMEA market and travel retail and grew sharply in the middle East due largely to an anniversary ing in inventory reset in the prior year quarter.
Two faced growth was broad based geographically driven by the successful launch of Damn girl Mascara.
The brand also continued its global expansion, adding doors and travel retail in Hong Kong during the quarter.
Fragrance net sales rose 3%.
Higher sales of Tom Ford Jo Malone, and Lebow fragrances were partially offset by declines in certain designer brand fragrances.
Tom Ford signature fragrances maintained good momentum.
Joe Malone, London launch Frangipani fragrance with its blossom collection, and Labelle continue to selectively expand its global reach while maintaining strong like door growth.
Our hair care sales rose net sales rose, 1% higher net sales from Aveda Sham pure Rosemary meant and Cherry on the lines select new doors in Italy, and strong growth online were mostly offset by softer U.S. sales from bumble and bumble.
Our gross margin decreased 230 basis points compared to the fourth quarter last year, an increase of 10 basis points, excluding the change in accounting.
Favorable pricing and mix impacts were mostly offset by higher obsolescence and shipping costs to support the strong growth in Asia.
Operating expenses as a percent of sales improved 240 basis points or 50 basis points, excluding the impact of a new accounting standard.
Increases in advertising to support new initiatives were more than offset by savings in selling and store operations.
Operating income rose, 10% and operating margin increased by 10 basis points.
Excluding the impact of a new accounting standard operating income rose, 17% and operating margin improved by 60 basis points.
This was achieved even while making strategic investments to support a strong start to fiscal 20.
Diluted EPS of 64 cents increased 5% compared to the prior year and grew 8% in constant currency.
Earnings per share for the quarter included two cents of unfavorable currency translation.
Diluted EPS, excluding the impact of the accounting change was 68 cents.
An increase of 12% compared to the prior year or 15% in constant currency.
So that concludes remarks regarding our fourth quarter.
Let me now discuss a few highlights of our full year results.
Net sales grew 12% in constant currency growth was broad based as you have heard from furby from Fabrizio aside from the diverse growth by brand market and product category, our sales in virtually all channels grew.
Travel retail and online continued to deliver strong double digit growth further diversifying our overall distribution mix.
These channels now represent 23% and 15% of sales respectively.
Department stores globally represent 35% of sales today with North America Department stores, now, 13% of our global sales mix.
Our gross margin declined 200 basis points to 77.4%, but rose 10 basis points, excluding the impact of the accounting change favorable pricing and mix were partially offset by increased obsolescence.
Operating expenses as a percentage of sales improved 300 basis points or 70 basis points, excluding the impact of the accounting change.
Significant savings and efficiencies in our selling model allowed us to increase digital advertising social media and influence their outreach.
Our full year operating margin rose 90 basis points to 17, and a half a percent.
This margin included 20 basis points of favorable impact from the accounting change offset by 20 basis points of dilution from currency translation.
Our leading beauty forward initiative and ongoing cost savings initiatives contributed more than 380 million in savings, which fueled the strategic investments that will support our future growth.
We have continued to create more flexibility in our cost structure to reinvest in areas that support profitable growth mitigate risk and deliver margin expansion through greater leverage of our cost base.
Our effective tax rate for the year was 21.5% an improvement of 80 basis points over the prior year, primarily driven by the lower U.S. statutory rate.
Net earnings grew 17% to $2 billion and diluted EPS rose 18% to $5.34.
Earnings per share was negatively impacted by 19 cents from currency translation and positively impacted by four cents from the accounting change excluding both of these items earnings per share rose, 21% for the year.
In fiscal 19, 2019, we recorded approximately $190 million after tax or 51 cents per share in restructuring and other charges for our leading beauty forward initiatives.
As of June Thirtyth, we concluded the approval of all major initiatives under the program and we expect to substantially complete all of them by the end of fiscal 2021.
We now expect to incur charges of between 950, and 990 million before taxes and achieve annual net benefits of between 425 and 475 million before taxes.
Leading beauty forward has been an unqualified success the scope of the program grew overtime to approximately 70 initiatives and encompass most of the organization.
Some examples of the transformation achieved by leading beauty forward include.
Improved global customer care that Leverages, new technology, and enhance customer data to deliver a seamless cross channel brand experience and more personalized care.
Integrated shared services across the business through our one source service center, one source delivers a suite of services across HR legal finance and point of sale support.
Services are delivered through a mobile friendly portal for ease of use by employees around the world.
Modernizing the North America field organization to provide best in class consumer services and experiences and exceptional retail partnerships new centers of excellence together with new tools enable our field teams to spend more time in store to drive sales and coach talent.
And expanding indirect procurement efforts to new categories of spending and using ENHANZE technology to accelerate our savings opportunities.
These are just a few of the key wins today and they are not only producing expense savings, but changing the way we work to drive sales and improve the customer experience.
Moving on to cash flows cash generated from operations was slightly below last year at two and a half billion, reflecting our earnings growth and offset by higher inventory to support the rapid growth and longer lead time international markets. The timing of other working capital components and higher cash paid for taxes.
We utilized $744 million for capital improvements, primarily for consumer facing counters gondolas and e-commerce support as well as supply chain improvements and <unk>.
We return cash to stockholders at an accelerated pace.
We repurchased 11 million shares of our stock for 1.6 billion.
Twice as much as the prior year.
We paid $609 million in dividends, reflecting a 13% increase in our dividend rate.
So as Fabrizio said, we are obviously pleased and proud of our fiscal 2019 results and the momentum our overall business had throughout the year.
Looking ahead to our expectation over the next few years global prestige beauty has been exceptional in recent years and we expect it to rise again in the range of 6% to 7% annually over the next few years driven by a growing middle class globally with increasing disposable incomes.
Our net sales goal is to grow 6% to 8% annually with possibly 1% of the growth over three years coming from acquisitions.
Over the next three years, we continue to target average annual margin improvement of approximately 50 basis points and double digit EPS growth.
Now, let's take a look at our expectations for fiscal 2020 full year and first quarter as we enter fiscal 2020, we must consider the escalating macro issues that could have an impact on our business.
The ongoing tension and unresolved trading terms between the U.S. in China.
The looming concern and consequences of a hard Brexit in October and recent protests in Hong Kong and other markets are all examples of factors that could impact our fiscal 20 results.
For the year.
Net sales are forecasted to grow 7% to 8% in constant currency at the upper end of our long term goal of 6% to 8%.
Pricing is expected to contribute approximately two points to growth expanded targeted consumer reach is expected to add two to three points of growth and the strength of our existing business will account for the remainder.
Strong growth in travel retail in China is expected to continue yet moderate as we anniversary two years of extraordinary growth and with the increasing macro and geopolitical uncertainty.
We also aim to stabilize the brands and regions that were more challenging in fiscal 19 and position them for future growth.
All product categories are expected to grow again with greater balance in growth among the categories.
Based on June 28th spot rate of 114 for the Euro 127 for the pound.
And 688 for the one we expect currency translation to have a negligible impact on reported sales for the full fiscal year.
This will obviously change if the currency markets become more volatile.
We expect to deliver productivity savings of between two and two and a half a percent of sales, including benefits from leading beauty forward and our ongoing cost containment efforts.
These savings give us the flexibility to invest more in digital marketing and advertising to support innovation recruit new consumers and drive brand awareness as we expand our developing brands into new markets and focus more heavily on emerging markets outside of China.
With the leverage from strong topline growth and our ongoing cost saving programs.
We are well positioned to make needed investments for the future while also delivering margin expansion.
We estimate that the fiscal 2020 effective tax rate will be approximately 23%.
Diluted EPS is expected to range between 590 598 before restructuring and other charges. This includes approximately five cents of accretion from currency translation in constant currency, we expect EPS to rise by 9% to 11%.
In fiscal 2020.
We expect cash flow from operations of approximately 2.7 billion and capital expenditures of approximately 900 million or 5% to 6% of sales as we invest more in our supply chain enable enhanced consumer experiences and invest in facilities to optimize our work spaces.
Our sales in the first quarter are expected to rise, 9% to 10% both as reported and in constant currency.
We expect first quarter EPS of $1.56 to $1.59, including a penny of accretion from currency translation.
EPS growth in constant currency is forecast to rise by 10% to 12% for the first quarter.
In closing, while we are cautious about the increased macro tensions we remain confident about the continued momentum behind global prestige beauty and our ability to execute on our strategic initiatives.
We continue doing create increased flexibility in our expense base to invest behind the greatest opportunities. We have to continue to drive long term sustainable growth the flexibility in our PML and our increasing cash flow generation also position us well to navigate a more volatile environment.
And with that I'll conclude our prepared remarks, and we'll be happy to take your questions at this time.
[noise] the floor is now open for questions.
If you have a question you seem to depress the star key followed by did you get to one on your Touchtone telephone.
Sure everyone has the opportunity to ask questions. We will be made each person to one question, saying third meeting we will be referring to you.
For additional questions just skew up again by pressing the star key and did you get one.
Our first question today comes from Wendy Nicholson from Citigroup. Your line is open.
Hi, good morning.
I guess my question has to do with the U.S. business specific like everything else is just going so great, but it just seems that that business is stubborn in terms of turning around and growing for you.
So I guess number one specifically in your guidance for full year 2021 are you expecting what's baked into your outlook for the U.S. business, specifically and what do you think it takes to get growth not just for you, but the category. Overall are you taking too much pricing is there too much competition and you need to buy a bunch of smaller brands on do you need to exit more on department stores here, what do you what do you think fixes the problem there. Thank you.
Okay, Wendy so I'll start in terms of whats included in our guidance and I'll, let everything else speak about what we're doing to to improve the North America business. So in terms of our guidance. We are expecting a slight improvement from fiscal 19 in terms of in terms of North America remember that part of the challenge we had in North American fiscal 19 was the closure of on time, so that that certainly cost us about a point of growth in in North America, and we continue throughout the year to work on a number of different changes in our organization in order to position ourselves well for future growth, but it's obviously, a pretty a pretty dynamic environment in North America, given the soft traffic so with that I'll turn it over to Sabrina Yeah. Yeah. I think your question or when is what was the issue is Steve that we have 50% of business in North America in the past.
Parts to the market, which is under pressure intermodal load traffic and declining business and so what is happening is that as we get to the high growth areas is taking time, but equally stake in time, because youre already environment is very soft as you heard from every one.
In North America, just to give you an example.
Even our global travel retail business, which is going fantastically well in Asia and in Europe .
Is it flat to declining in the U.S.. So is really the U.S. environment overall, which is under pressure and that's why it is taking a bit more than what we want so what we have in mind for fiscal year 20 is a stabilization of our business. We believe first of all what we have seen some progress already in quarter, four where we started investing particularly or Mac and clinique and we have seen some sequential improvement also I want to underline that the launch of Don go look to phase in D.U.S. it make to face grow nearly 30% in a very tough quarter for makeup in the country. So showing the power of this brand.
And there are many other positive sign into slide you will read explained in the past, meaning our strategy too.
Well more to online content, which is growing body weight very well continue to build our specialty channel and obviously invest more in innovation, which is specific to the SAP capabilities, which are relevant in the U.S. and we're doing it is very well with some initial success. So in that I am very optimistic for the long term ability to make us a green growing business for us, but we'll be good one day. It will be helped by is not less soft environment to accelerate the speed of that process.
Our next question comes from the line of Dara Mohsenian from Morgan Stanley . Your line is open.
Hey, good morning, guys. So.
My question was around topline first I guess, just short term you highlighted the topline guidance for fiscal 2020 included a number of extra GE as risk factors in the us UK, Hong Kong and China.
Yet you are still at the high end of your long term sales growth outlook. So I was just hoping you could parse out a bit more detail for what you've assumed along those risk factors given some of them look like they could be sizeable and perhaps directly comment on Hong Kong. So far this quarter since thats played out to some extent.
And then second promote a longer term strategic standpoint on topline.
Weve clearly seen very strong growth rates for prestige beauty in China.
But a couple of years ago, we had seen an acceleration in the us prestige beauty market, particularly in makeup behind social media ecommerce sales et cetera.
Now that looks like it's it's rapidly dissipated so I'd just love to get your view on sustainability of the key growth drivers of prestige beauty in China and understanding the us is a very different market if that might have some application in China as you think about the growth rates longer term. Thanks.
Yes, let me start answering the second question is and I mean, I think you made the point that did did the award of mid cap.
Skincare is around the table at time, meaning that depending on consumer trends you could see and you could see growth in asserting cadre odeon either in a given market or not so the strengths of our strategy is exceptionally well we have defined as multiple engines of growth. So our ability to fast allocate resources into trends to what Teva is growing in a given moment. So when you S. was growing strongly makeup we leveraged that growth that die with Matt, particularly into the brands now we are leveraging the growth of skin care in Asia and as these trends will evolve gradually over the years, we will be able to focus on the fastest growing growth elements. So thats exactly at the heart of our strategy and at the heart of our resource reallocation strategy.
Said that at.
The growth of skin care in Asia is here to stay for the long term and again that could be moments of volatility in there depending on the situation around the markets, but is definitely a very strong long term trend because Asian consumers are very heavy users of skin care. They have very interesting high quality products and most importantly, the Asian consumer use skincare matched younger and so each consumer you conquer in skin care in Asia as a match Hyatt life value than what happens in other markets. So toward that's why this is definitely a long term trend as fast as the midcap situation in the us.
The makeup you situation is that the explosion on makeup into us. Some years ago was also driven by the disposal of social media and by the enormous availability of how to do videos and other sense all of its sad and online to millions of consumers. Now. This phenomenon is can now have reached a plateau and have realized that's wide now.
Makeup will need to continue growing based on the historical trends the body, we add the strongest plants, we have which is quoted your product quality innovation and continuous brand building. So.
In summary, I believe that the sustainability of the growth that you see.
Is there and Thats why we believe that our 6% to 8% overall long term growth is sustainable and will be sustainable for the long term.
And I would just add there.
In terms of how to think about our guidance for the year.
China and travel retail our expense expected to still grow double digit doesn't just not as strong a double digit as they've grown in the last couple of years. So again, reflecting some moderation on the comfort that we have in guiding at the higher end of our range is recognizing now.
Everything that Fabrizio just said in terms of the middle class and the growth of the middle class and the consumption behavior as it relates to prestige beauty. The fact that emerging markets now on and faster growing channels are a higher percentage of penetration of our business.
So we are benefiting more from the momentum.
Of of those markets.
And we are less exposed to some of the the slower growth channels in particular.
Then we have been historically, so yes, while a moderation is certainly.
The right the right guidance for us this year.
Given everything that's going on in the environment, we're still very comfortable with the 7% to 8% topline growth.
And our next question comes from the line of Carlyn Levy from Macquarie. Your line is open.
Thank you so much good morning, and congratulations on an exceptional decade. Thank you Carla Fabrizio team.
You know despite everything that's been going on China, Hong Kong, It's just unbelievable to see this mix management, that's just driving your business and I'm wondering Fabrizio if you could help us understand some of the actions, you're taking within China and Hong Kong.
To protect against any negative fallout from what's going on.
At a high level because.
Yeah, I mean, it obviously looks a little out of control from this side, but youre Hong Kong data was phenomenal everything looks great in your business. So just a little help on that would be great.
Yeah, I mean, we have taken we are learning from what we see and how we manage it relative limited young calling samples on conga at another moment of the protesting crashes few years ago as you remember in that moment coming out at the moment, we realized that we our own cone business was a bit more disposed to to tourist and not having enough high penetration on locally in the last years during the recovery of Hong Kong, We had actually readjusted that today, our business, you know conga, which by the way I'm, Carl including travel retail is it buys less than 4% of our business globally. At this point. It is also because of the strong growth of China and the others. That's the percentage today and and he is much more local than used to be so for example, how we are mitigating Hong Kong protest Reis is moments first is that we have seen that when the tourist don't shop, they shop somewhere else. So we are working to recur.
Over time to the potential lost some tourists in other market second today, we are the biggest share of local business and local business is less subject to this kind of a process because people still buy what they need to live in a normal way locally.
And so we are mitigating that with good local TV, the local marketing a locally relevant products.
And any in doing all of this we also have today the ability to reallocate resources to the trends many financial resource invest more or less in a given catering either area even by area in places like Hong Kong, we have the flexibility to invest more or less by area to give you. Another example, Macau is not affected in this moment by the turmoil on the business.
So that's the kind of things they make us more capable of mitigating volatility that we have been historically and it's all been developed strategically however, I want to close on My example are going to say our priority in this moment in Hong Kong is actually the safety of our employees and of our consumers and that's where we're focusing our effort and thats, where weve definitely manage our priorities in the market on China.
Clean China, we've been investing in China for the long term and we are in China for the long term, we have over 6000 employees basically 99.5% Chinese we have very local in everything we do we are locally relevant we have local activities.
Like any other area of the award we are a local relevant organization in everything we do.
And so we we mitigate.
The risks with local presence local relevancy and again with our ability to invest in the market. We are investing substantially in a in many many emerging markets, particularly in China and these investments are important to the countries we participate in.
So that's the way we are mitigating we are as a truly global company, which a local in every market we operate in and very respectful of every kind of consumer market dynamic we see around the world.
Our next question comes from the line of Steve Strycula from you'll be US Your line is open.
Hi, good morning, and congratulations on a good quarter.
Thank you.
So a quick question on the UK, we haven't spent as much time focusing in there, but just for context should we think about that being around 8% to 10% of company sales. What have you noticed anything in terms of changing consumer confidence in the local marketplace and how to how do you see sort of products and manufacture them for that region.
So first of all noise is less than 7% to 8% of the company is more in the range of 5% of the company sales since our UK business and and the potential impact of the how Brexit as of October as Crazy as planned is already included in our guidance.
And debts in fact, when all the risks that we see globally that we are including in our guidance.
And it is it has to do with the moderation of the growth in our guidance versus the current trend by quarter in the last year. So UK is earlier than we have very well organized in case of a hard Brexit we are ready to operate so we have done all the investment needed to make sure we are ready to operate our business in both situations.
And finally.
We believe that the UK will continue to be mitigated by the fact that the hot the hard Brexit risk, which has obviously a risk on local consumption on the other side as an impact on the currency that youre seeing which is benefiting the tourism and our sales to tourists in the UK, which is an offsetting factor that's why we forecast in moderation, but not dramatic.
Our next question comes from the line of Andrea Teixeira from JP Morgan Your line is open.
Hi, Hello, everybody and I Echo the congratulations to all on your resolve.
Oh, thank you.
Oh, good to pick them up right on the traffic a nickel version in travel retail, which I remember you discussed at the analyst day or that has been the culberson has being very strong but can you update us on the most recent trends and as a follow up to that we also saw an increase in any of them three and I understand that you always wanted to increase the service levels, especially because of the Gulf in Asia.
But isn't it also related to any deceleration or Oh safety inventory level given the volatility there. Thank you.
So you actually I'll start with the inventory so no it's not related to any recent deceleration it really is.
Because of two years of outstanding growth that we've had and where much of that growth has come from which is in a in Asia and and travel retail so that certainly.
Right raises our in transit in transit inventory levels and and certainly.
Raises our inventory level, you know inventory is and we've talked about it for a number of years. So the good news is we've been able to make a quite a bit of progress in terms of cash or cash generation and Ah in cash flow from from operating earnings.
Over a two year time horizon, even without having even without having benefits from from inventory.
Turnover, we've made a lot of progress in terms of the working capital elements of accounts payable in particular and you might recall that last year, our cash flow growth grew over 40%. So while it was flattish this year largely because of because of the inventory.
We have and are putting more sophisticated processes in place to improve the accuracy.
Of our of our forecasting.
And certainly looking at a at supply as well in terms of getting supply that closer to to demand in the future.
Yes, and then on travel retail is that first of all our travel retail business has been growing very strongly also last quarter, we saw no slowdown at retail.
And.
The growth has been as I said before we're very strong in APEC in EEMEA and actually that was a decline in the Americas and and the business is growing across all brands and the most important concept is that the same doors are the fastest growing bars to the business. So I would say that it is going because we have we are winning market share in same doors, we are adding new distribution, where relevant particularly new brands that we are deploying to the channel into the channel is requesting.
And.
Importantly, as you said, we are increasing conversion of traveler into into buyers into shelters that conversion will continue to improve we are not going to to give specific numbers on conversion, but continues to grow when are the key that either to a conversion is the success of the pre Taylor system, where consumers can order online and then take the products in the airports.
This is growing very well in Asia, particularly for the time being we forecast as it will be a global.
Methodology to buy in this channel in the future.
This is obviously driving conversion because consumers some consumers drive to deregulate or actuarial stressed that doesn't want to shop. They want to go to a loans or they want to do other things and the fact that you can buy online before going and then getting the Robert Ashley is increasing the amount of consumers, which are willing to buy something indeed.
And Thats one you had a big theme that we have driving we are doing to drive conversion is the advertising and in the airports and and Thats debt, that's very important and drives that obviously conversion, but the most important of all drivers are the investment we're making in the county of origin.
Of all our products you know the travelers the shop the best at.
Tend to be the one from energy markets are Chinese as we know, but Russian Brazilians middle Eastern so and that the hour in new investments and accelerating investment in emerging markets, such as India had positive impact on the fact that those travelers when they travel. They also want to buy the brands in there in that visiting airports or in BCD countries, where they go so the big the big driver is our increased investment in the country of origin, which is accelerating the pace of our travel retail business.
Our next question comes from the line of Ali Dibadj from Bernstein. Your line is open.
Hey, guys.
So so if I look at your guidance, 7% to 8% constant currency for 2020 on the topline and then 9% to 11% constant currency core on the P.S. line and I compare that to fiscal year 19, where it was 12% of the topline.
And a large gap, 21% growth on the PS line, excluding AOCI at all that stuff I go to 18, it was 13% of the topline and then 24% on the PS line.
So lots of leverage between the topline and the bottom line you know the big gap in growth for 18, and 19, but less so for 2020 and I just wanted to get a better sense of why that might be is it being careful of changes in the mix of the categories of geographies is it that you expect incrementally more investments and if so where.
And I, probably ask that in the context of.
Surely successful leading beauty forward.
Savings and continue ratcheting it up there. So that's kind of the shorter term part of that investment question, but then the longer term part is really just getting a sense of whether you think.
Your current broad investment levels, given how you've been able to kind of react more quickly to markets whether the current investment levels. You think are the right ones for your long term aspiration of continued market share growth in the category as the prestige beauty industry evolves. Thank you.
All right. So let me start and a and then Uh huh.
Okay, enjoying and you know really the difference I link between fiscal 19, where we grew top line at 12% and our fiscal 20, we're guiding 7% to 8% incremental leverage that we get on the incremental sales that four or five point of sales is highly accretive. So we you know and and one of the thing to your point that we've been working on under leading beauty forward is make sure that incremental sales you know are more and more accretive to the bottom line. So that that's really the difference in terms of the the margin expansion that a that we saw in fiscal 19 relative to what our guidance is in fiscal 20.
You know as it relates to our investment level you know, we certainly continue to invest to support.
We have a portfolio of 30 brands there at all different stages of development and we also have the emerging markets that we're investing in as well in terms of driving brand awareness and with consumers. So we certainly expect that a we want to have the flexibility when the opportunity is there to invest behind those brands and behind those markets from a growth standpoint.
But as Fabrizio said when the growth isn't there for whatever reason, we also have the flexibility to pull back and we have more of that flexibility today than we have had a previously.
But when you think about what we've done with our expense base over the last few years with our cost saving programs and with leading beauty forward we have significantly.
Diversified our portfolio, we've expanded into new channels of distribution and we've done that while continuing to drive margin those new channels of distribution required investment.
The same thing with new market as we've expanded brands into new markets. You know that too has required investment. So all of the work that we've done over you know the decade that Ah that's a ritzy I spoke about in his prepared remarks, I'm really has been quite remarkable in terms of our ability to manage manage to continue to drive margin continue to allocate more investments in the right areas to drive to drive top line growth going forward and a and we expect that you know that we will continue to be able to do that in the future yeah, and just that very clear, but you only think I would add to it on the investment side is that you know overtime, we have invested much modine, emphasizing and now I would say that every one of our brands has some investment depending on where they are how which passed all the investment this investment mainly now in digits over 75% pulled our investment now, adding digital social media.
Through answers and then revealing to be highly productive and now they're highly productive because we are doing a very good job in advertising quality on ash 15, targeting but frankly, they're very productive because we have learnt much better how to focus our investment where there is growth because when you expose your investment to growth. They have a much better rates of return and Thats what is happening in this room and that's what we manage daily we they adopt accuracy that frankly, we didn't have a variable in the past so and also want to end deadline. It's why we have increased our web division Tizing <unk>, we have kept our promotion flat.
And why we've increased our whether they're sizing kept both promotion flat. We have delivered 90 pulling some margin improvements showing that we have been capable of relocating cost and taking costs out of the six areas into the valuable areas, which again is one of the key driver of the flexibility again speaking about in resource allocation. So in that I personally believe that what we have done with the advertising investment in our PNM is one of the key driver of our recent acceleration and is going to be when are the key driver of our sustainable success in the future.
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Our next question comes from the line of Doran Lieberman from Barclays. Your line is open.
Great. Thanks, Good morning, Good morning, Lauren and I wanted to talk a little bit actually about leading beauty forward and and then also other kind of ongoing productivity efforts with which may not be under that that bucket, but I guess first would be that specific to leading beauty forward. I think savings came in ahead of guidance. This year, you've raised slightly the expected savings range versus what you've been articulated at the analyst day. So I wanted to hear a little bit about what's driving that upside surprise in leading beauty forward and then you mentioned the ongoing productivity also contributing.
In fiscal Twentys, if you could talk about areas, where that that work is coming through because I think for retail all the the points that that you've just made it around investing in new channels and new markets. There's also the other side of that equation, which is reaching a point, where you can kind of take resources away from some of the slower or no growth areas of the business.
So I wanted to talk a little bit about that that shift that I think is kind of at that inflection point. Thanks.
Okay. So let let me start in terms of in terms of the upside from leading beauty forward really it's the addition of new programs and so you know we also took the cost of the program up to your point Lauren along with the savings I'm expectations. So I'm as I said in my prepared remarks, the momentum that leading beauty forward has had over the three years that a that we've been managing the program has been quite strong and as we.
Look across our business and identify areas of a further opportunity for transformation.
That is really what has driven driven that success.
Everything from digitizing, our creative process with with some initiatives to the ones that I called out in in the prepared remarks like indirect procurement.
Shared services et cetera. So so that's that's really what a what has driven the upside of upside surprise in terms of future programs again, we still haven't reached the full potential of leading beauty forward from a savings standpoint next year will be a big year for completion of a lot of programs and then with the tail being in 2000, and a and 21.
And and so we'll see even greater savings that are that we'll realize from the program through those efforts.
And I just would like to add to the point that you said on on their sizing is that where where are we leveraging the cost where we are spending more in other strategy first of all our selling lines is going down and our cellulite is going down because we are doing some good work of rationalization and also because our channel mix require less centralized spending and more diverse does your spending today that was in the past. So that's been a big leading beauty for a suit posted this will eventually be weak second in the past our organization, which is so focused on managing by brand, which is the right thing to do forever because brands have to be attending a distinctive however in the past we have duplication in the bank coffee cost the window needed. So we need to managed by brand to France, not necessity the back and so we have done a big improvement density to beautiful rationalizing the back office cost and.
Limiting voting duplications third packages advertised as I said the rates of return of out of their size and given our ability to focus most on grow China et cetera has increased and we spend a lot in a piece and the rates of return and then Pete is improved and finally innovation you have seen the great innovation into return we are having innovation that we're spending innovation is not increasing at the same pace of our success innovation. So our ability to use that we've invested in creating the right down to our ability to focus innovation. This creates a better rates of return of our innovation investment at year end. Our company is really focused on delivering quality products to get high repeat rate and I come back to the last bond, which is our repeat rates are increasing and wed repeat rates. According to produce an increase in is a great great element of value creation over the long term and to allow us to invest wherever.
We will believe is appropriate to sustain future growth.
Our next question comes from the line of Little Bearish Parikh from Oppenheimer. Your line is open.
Good morning, Thanks for taking my question also congrats on the strong quarter.
Thanks you.
So I wanted to go back to your China business and I just wanted to get a sense of what you guys are currently seeing on the ground in China and whether with all these headlines and some of the geopolitical concerns are seeing more volatility in your business in China.
And then related to that just curious if you guys had been at all surprised by the continued resilience of the China business.
So the short answer is no we're not seeing any slowdown in China at this point in time in the fourth quarter, China as we commented in our prepared remarks was very very strong.
And I'm not surprised I mean, as I've been saying it loud and I believe I will explain in detail in Investor day, and the fundamentals for long term sustainable growth, we Chinese consumer absolutely there and they're super strong the middle class the demographic. The fact that the young consumers in China spend more than the older ones.
The huge opportunity we have in front of us on tier two and three cities, which is completely untapped Ashley I should say tier three and four cities, which is completely tapped at least numerically for luxury goods.
The fact that the system of that we added 121 CGEN then thanks to our online operations and remote sales to see and 650 cities. This dynamic make at China access consumers, even and even when the productivity of that specific Cds now rating in fact, the productivity of our stores in China is the best in the World and as you know a lot of our profitability has to do with the same door productivity and with single door productivity. So.
All these dynamics are here to stay and then our market share is improving just to be clear importantly, we gained 80 points or share.
With significant increases your market share Makola Mer, Tom Ford in China in the last year. So is there is clearly a very well oiled. The system now will the question of the moderation beyond the point that there is now a higher base and that we need to reflect the reality on that the question are there more issue is more about the questions out there interrupt the economic situation in China in terms of the trade sanctions and the impact they trained potential could that could have on consumption in China.
So there are economic and geopolitical reason why we spent the moderation and also because we believe that now the base of growth is super strong.
And we need to be realistic about the future, but as Tracey already said, we are completely convinced that there are the fundamentals for double digit growth in China, We Chinese consumers.
For the sustainable future.
The next question comes from the line of Bonnie Herzog from Wells Fargo. Your line is open.
All right. Thank you good morning.
I I just had a quick question for Tracy on capital allocation you know just looking at some of your metrics. It really does seem like you're in an optimal position here to either continue to step up shareholder returns or maybe execute on M&A. So curious as to you know, which you potentially see as most attractive today, you know given what you're seeing out there on the acquisition front. Thanks.
Yeah, no Bonnie. Thank you so in terms of capital allocation, yes, I mean, it's a decision that you know that we take along with our board every year in terms of the best uses of of our very strong cash generation last year. Obviously, we made the decision that we would step up share repurchase because that was the best return and certainly has has proven to be the case.
For US you know we.
It did take a pause last year as it related to new acquisitions, a I would say the valuations have gotten a bit a bit lofty.
And be you know our strategy on acquisitions, we don't need acquisitions to grow I did say in my prepared remarks that we would expect one point of growth to come from acquisitions over a three year time horizon, but the organic strength of our business is such that that certainly.
It also has a tremendous amount of momentum. So we have the benefit of looking for acquisitions that are.
Strategic to our portfolio, we look for white space opportunities as it relates to the acquisitions and acquisitions that obviously, we can get the right return on investment on so.
But.
But again the cash generation, if if there isn't an acquisition that that's out there certainly we re look at our cash distribution across dividends and share repurchase activity and make a decision accordingly.
Our next question comes from the line of Steve Powers from Deutsche Bank. Your line is open.
Hey, great. Thanks, Good morning, first just a bit of housekeeping follow up to I think Lawrence question, leading beauty forward charges came in.
Thanks, 65 to 80 million higher for the year than what you had guided at the end of the third quarter. So apologies if I missed it but just if you could highlight some of the drivers there that'd be great. But my real question is on your biggest brands and what you expect from them in 2020, maybe just a little bit more of a health check I guess from my perspective, Estee Lauder Lemaire, even back seen broadly healthy on a global basis, but I'd love.
A little bit more from you on how youre viewing them at any pockets of of higher opportunity that you see.
And then clinique, which sounded like a point of relative optimism at your Investor day back in March It just still seems a little bit softer so would love to get your views there as well and how you think the contribution of Clinique will compare in 2022 the year just completed thanks.
So starting with leading beauty forward you know as we came upon the end in the close of the program in terms of accepting new initiatives. We did have a number of new initiatives.
In the fourth quarter that were added to the program and again those initiatives are expecting to generate a.
An acceptable return we have return thresholds underneath the program so.
Some of those were in our retail area as it looked at you know as we looked at retail rationalization as well as as well as.
Some strengthening of our our freestanding store operations.
So and there were others as well that were added at the end of the year.
Yeah and terminal brands.
We spoke about the outdoor brands in the year.
When I said that three out of four we are growing to 80% of the.
Sales represented by brands were growing quarter four was actually an improvement. So what we said to the Investor day was actually happening quarter fourth quarter for all four of our largest brands had grown in constant currency.
Two rose double digits in order brands represent over 94% of sales grew in quarter four.
So we are really on a roll on all our brands portfolio and.
And as far as Clinique I remain optimistic.
For the brand first study division and then growth in the future and but we are going as we said clinique is growing in steps and now the priorities skin care, which is the base. The fundamental also in terms of profitability for the brand. So we are first building more stood Ais a skin care and then would pass through the rest and continue to build the brand using the same dynamic where you see on data brands.
Also keep in mind for clean either Clinique is the most disposed of our brands to North America, and North America is the softest market overall, particularly in the cap and in fact to Clinique makeup is one of the area that we have not yet turned around for that reason. So is all very specific very much. We are in line with our long term goals and whats happening than we have historically high brands also into mid mid mid group for example, Tom Ford Jo Malone headed to Refigure heading it to receive performance I personally believe that will be soon very top top big brands in our company so meaning that we go from mid those two big.
In the next years and even in hours Mone brands and new brands that are some high fliers stake laid a bowl it I've always one of the really high fliers in our young brand portfolio. So we had an extraordinary brand portfolio and I think we have learned how to continue building. It gets a lot of brand is on fire as I said in my prepared remarks, and we ask that.
The strength of our brands will continue to operate in fiscal year 20, any fiscal year to end do we expect some improvement in the areas, which are still to be improve as Tracy said, namely his clinic U.S. and Mac us. The two that we are focused on looking for improvements, but the rest is frankly on failure.
Our next question comes from the line of Erinn Murphy from Piper Jaffray. Your line is open.
Great. Thank you. Good morning, I guess my question was around T mall. It could you maybe reflect on what you think me Tom Ford launch so successful on that platform and then with less than 50% of your portfolio on T Mall any rollout plans in 2020 for other brands within your portfolio and how you think about it longer term and then just sorry Tracy one follow up I may have missed this in the U.S. can you talk about what you saw specifically with specialty multi thank you.
Okay.
Sorry, yes.
So chemo Liza is an exceptional Boston and that we are having very good business with than the strength. So T mobile is that and we control.
Our our business and the ability to deliver the right equity for the brands Indigo when you gave the tone phone launch.
Had an enormous amount of super outstanding quality creative assets produced for the launch of T mobile.
That created a lot of traffic and a lot of conversion from dish. It are two patches and that's what was driving the success of the creative assets that were done by that Tom for team together with the China team and obviously on the direction of the October four personally who is an amazing creative leader. This combination was very exciting for the Chinese consumers and so the results was high traffic higher conversion and that's what drove the success. So we're seeing more of this I think we have learned and together with our team and we're starting to see how to create the right level of traffic into its going to shop on tmall.
On the T. more platform also for the future and to your question of do we plan to launch more brands, yes in the future. We will launch more brands and defense also from the brands that we will launch in China in the future to continue building our Chinese portfolio.
And regarding specialty multi air and in the quarter in North America specialty multi was up about 1%.
And our next question comes from the line of Jason English from Goldman Sachs. Your line is open.
Hey, good morning folks congrats on a strong gear and thanks for squeezing me in.
Arnie Thank you.
You're welcome [laughter] two quick questions first building off.
The question on T Mall.
Given the control you have there.
Out of curiosity do you record the sales there at retail sales price or or wholesale.
And if if it's different than if it is retail is is there a mix benefit you're seeing and then second question is really on Holistically looking at the margin profile for next year.
At the mid point it looks like you're guiding so roughly 70 basis points or so of EBIT margin expansion based on my back of the envelope math.
Not far off of I think the underlying 90 that you achieved this year, but you're getting less productivity savings as a percentage of sales and you're expecting less leverage from the incremental sales the four points Tracy that you highlighted.
Suggesting there's some there's some other offsets there that are helping you deliver that robust growth.
Can you can you give us some more context in quantification around those thank you.
I'll start from the first question, what Tracy will answer the second is that so and we had a corner retail space.
And and you might be if any mark I spoke about I went direct to consumer business I want that integral instrument business pre teens for us and that is going to win business. He is our free standing stores is our blended call light is diluted count and the T mobile and other platforms. So I like where we are in control.
And that debt capacity business is growing and that part of the business I want to repeat that at 1.3 billion visitors in the year. So imagine the amount of data that we have the amount of the equity building communication that we can do and the impact positive impact of all of these owning in general what the consumer decide to buy even in other channels. So any now the situation in the course of the year. So is it is a very powerful dynamic that helps also our horses business.
And as it relates to the the productivity savings and a and the margin expansion you're spot on Jason I'm not surprisingly in terms of what we are initially expecting for margin expansion in in fiscal 20.
Again, having you know topline sales growth of 7% to 8% versus 12%. You know we are seeing less leverage based on sales, but still but still some some related to obviously, our our continuing cost savings and the ramping up more of leading beauty forward savings along with with other cost programs and then a little bit of mix benefit as well in order to drive that does that 70 basis points.
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And that's and that's concludes today's question and answer session. If you were unable to join the entire call equally back will be available at one PM Eastern time today through September 2nd this to hear a recording of the call. Please dial eight Fivefive 8592, 056, passcode 9999 upside for for that concludes todays Estee Lauder conference call I would like to thank you all for your participation and wish you all a good day.
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