The paragraph introduces The Estée Lauder Companies' Second Quarter Fiscal 2025 Earnings Release and Conference Call. Rainey Mancini, who leads the call, introduces the key speakers: CEO Stéphane de La Faverie and CFO Akhil Shrivastava. It is noted that the discussion will include forward-looking statements, with disclaimers about potential differences in actual results. The financial results to be discussed exclude restructuring and noncomparable impacts. Details on GAAP and non-GAAP measures are available in the press release. Online sales definition and the Profit Recovery and Growth Plan (PRGP) are highlighted. Attendees are asked to limit themselves to one question during the Q&A session. Finally, Stéphane de La Faverie addresses the audience, marking his first earnings call as CEO alongside CFO Akhil Shrivastava.

The CEO of a prestige beauty company reflects on the challenges faced over the past few years and outlines a clear focus on restoring sustainable sales growth and achieving a solid double-digit adjusted operating margin. The company experienced difficulties due to subdued consumer sentiment in China, organizational complexity, and a narrow focus on select markets and channels, which hampered its ability to leverage global trends in prestige beauty. These factors, along with slow consumer acquisition and innovation, resulted in lost agility and missing growth opportunities, particularly in North America. The company now aims to address these issues and enhance performance as it strives to become a leading consumer-centric prestige beauty company.

The paragraph discusses a new strategic vision, "Beauty Reimagined," aimed at addressing lower sales and high expenses by creating a leaner and more agile operating model. The plan focuses on five priorities: expanding consumer presence in high-growth channels and markets, enhancing transformative and fast-to-market innovation, and diversifying growth drivers. The strategy includes broadening the portfolio across regions like the U.S., U.K., and emerging markets, and by various sales channels, to achieve sustainable sales growth and a solid double-digit operating margin in the coming years. The company also aims to rapidly innovate in specific beauty subcategories and price tiers to attract new consumers.

The paragraph outlines a strategic plan to boost consumer acquisition by increasing advertising spending and optimizing marketing, while also investing in luxury fragrance stores. It discusses the goal of achieving sustainable growth by enhancing efficiencies through an expanded PRGP, which aims to cut costs and address financial challenges due to slower industry growth and geopolitical uncertainties. The company plans to redesign its expense structure, focusing on more competitive procurement, improved supply chain efficiency, and outsourcing some services to global partners. This is part of a major operational transformation to align with changes in the travel retail industry and prestige beauty growth.

The company is focused on optimizing expenses and reinvesting in consumer initiatives to drive growth and achieve a strong operating margin. By simplifying the organization and empowering faster decision-making, they aim to enhance execution and benefit from scale. The company’s strategy, "Beauty Reimagined," emphasizes strengths like brand desirability and innovation. They are integrating AI with leading technology partners to improve forecasting, efficiency, and output, exemplified by enhanced demand forecasting accuracy.

The paragraph discusses the company's strategies to enhance operations and drive growth. It highlights plans to integrate AI across workflows, from product development to marketing, to improve efficiency and decision-making. AI is expected to free up resources for greater creativity. They aim to outsource non-core business areas and have restructured the executive team to improve collaboration and accountability. An expanded PRGP restructuring program will result in job reductions but is backed by the Board. Simplifying workflows will allow more focus on external execution and sales growth. The company is adopting a test-and-learn approach to quickly scale successful initiatives while abandoning ineffective ones.

The company is implementing a new organizational structure to enhance communication, accountability, and collaboration, empowering employees to make quicker decisions. They have seen progress in their five action plan priorities, highlighted by the successful launch of nine brands on Amazon Premium Beauty stores in the U.S., including The Ordinary and Clinique. Clinique achieved significant success in the U.S., leading to its launch in Canada. The company is expanding its presence on platforms like TikTok Shop, LINE, and Shopee in Asia Pacific, and The Ordinary is entering the Mainland China market. Their luxury fragrance brands, Le Labo and Editions de Parfums Frédéric Malle, have experienced strong growth. Strategic nighttime product launches by Clinique, Estée Lauder, and La Mer have shown success, with La Mer performing well in Mainland China despite a declining prestige skincare market.

The paragraph discusses Clinique CX's launch in China as part of the brand's new post-procedure treatment line, alongside the opening of a BioTech Hub in Belgium and collaboration with MIT to enhance biotechnology innovations. It notes a strong performance from Jo Malone London with male consumers but highlights concerns about weak retail sales trends, particularly in Asia's travel retail market, influenced by declines in Korea. Despite sequential retail sales improvements in Hainan, overall soft trends are anticipated in the third quarter, pressuring organic net sales. To counteract this, the company plans to increase global consumer-facing investments. The aim is to leverage these investments, supported by PRGP funds, to revive retail sales growth and ultimately achieve sustainable growth and a strong operating margin in the future.

In the paragraph, the author thanks employees for their contributions and introduces Akhil Shrivastava as the new CFO of The Estée Lauder Companies. Akhil discusses the company's strategic vision, Beauty Reimagined, and the progress and need for further efforts in the PRGP initiatives. The focus is on simplifying processes to achieve cost efficiency and investing in consumer-focused activities for sustainable growth. Akhil then provides a recap of the second quarter results, highlighting a 6% decline in organic net sales and an adjusted EPS of $0.62, which exceeded expectations. This performance reflects better margins and expense management, while noting a sales decrease in the Asia Pacific region due to weak consumer sentiment in Mainland China, Korea, and Hong Kong SAR.

The paragraph discusses the financial performance and sales trends across different regions and product categories for a company. In Korea, sales declined due to exiting Dr.Jart from the travel retail channel and political unrest, while Japan saw strong growth. EMEA's sales dropped by 6% due to weak Asia travel retail, and sales in the Americas were flat, offset by strong online sales growth. Skin and Hair Care experienced sales declines, notably due to challenges in Asia Pacific, but Skin Care in the Americas saw growth led by The Ordinary. Makeup sales dropped slightly mainly because declines in certain brands overshadowed Clinique's growth. Fragrance sales rose by 2% with strong performance from Le Labo. Despite these mixed results, the company's gross margin improved by 310 basis points due to various factors, though operating expenses rose as a percentage of sales.

The paragraph discusses financial changes and challenges faced by a company. Advertising, promotion, and innovation expenses increased by 210 basis points, with additional costs for selling activities rising by 130 basis points to support key activations. Despite these investments, operating income dropped by 20% to $462 million, with the operating margin decreasing from 13.5% to 11.5%, partly due to a higher effective tax rate of 42.6%. Diluted EPS fell to $0.62 from $0.88. The company recorded $403 million in restructuring charges under its PRGP program, aimed at transforming functions, brands, and regions, and $861 million in impairment charges for TOM FORD and Too Faced due to challenges in Asia and underperformance, respectively. Net cash flows from operations decreased to $387 million from $937 million due to decreased earnings and unfavorable changes in operating assets and liabilities, alongside last year's significant inventory reduction.

The company reduced capital expenditures from $527 million to $273 million this year due to completed payments for a manufacturing facility in Japan and efforts to optimize spending. They returned $366 million to stockholders as dividends and are focused on improving free cash flow and consumer-focused investments to drive brand growth. Despite aiming for $1.1 billion to $1.4 billion in net benefits from their strategic vision, they face challenges from sales volume declines, inflation, and an overestimated growth cost base. They continue investing in consumer activities and plan to expand their PRGP, including a restructuring program, to address these issues and enhance sustainable growth and profitability.

The company is focused on improving operational efficiencies and optimizing costs to better allocate resources toward consumer investments, especially during volatile periods. They have expanded their restructuring program, expecting a global reduction of 5,800 to 7,000 positions, with total charges of $1.2 billion to $1.6 billion. Projected annual savings are $800 million to $1 billion, some of which will be reinvested. The restructuring is expected to be completed by fiscal 2027, aiming for sustainable sales growth and improved operating margins. They anticipate challenges due to weak consumer sentiment in China and Korea affecting Asia travel retail.

The company anticipates continued volatility and low visibility in the near term due to global geopolitical uncertainties and changes in Korean retail policies. Consequently, they provide only a third-quarter outlook, expecting a strong double-digit decline in global travel retail sales for the second half of the fiscal year. Despite negative trends, retail performance excluding travel retail improved in the second quarter and is expected to further improve in the third quarter with increased consumer investments. Overall, third-quarter organic net sales are projected to decrease by 8% to 10% compared to last year, with a two percentage point negative impact from currency translation. While the travel retail segment declines, other areas will see moderated sales declines. The company anticipates modest gross margin growth and a higher effective tax rate of approximately 36%, up from 30.5% last year, due to changes in the geographical earnings mix.

The paragraph discusses the company's outlook and strategic vision. It anticipates a third-quarter adjusted EPS between $0.20 and $0.30, affected by a decline in global travel retail sales and a $0.04 EPS dilution from currency translation. The company is focused on a "Beauty Reimagined" vision, emphasizing a consumer-centric approach, speed, and agility, to drive sustainable sales growth and long-term profitability. Appreciation is extended to employees for their role in the company's transformation. During a Q&A, Bryan Spillane from Bank of America inquires about the company's priorities and organizational changes. He specifically asks Stéphane about the potential sale of certain brands and how the company is prioritizing investments across its portfolio.

In the paragraph, Stéphane de La Faverie explains the recent organizational changes aimed at making the company leaner and faster. The organization is structured into three main blocks: regions, brand, and operations, which helps in effectively implementing the Beauty Reimagined strategy. The regional realignment includes four clusters: the Americas, Asia (incorporating travel retail), EMEA with the U.K., and a newly created emerging markets category. This structure focuses on high-growth areas like India, the Middle East, and Southeast Asia to capture the expanding middle class. Additionally, China is given elevated priority due to its strategic importance and positive long-term outlook, with direct reporting to de La Faverie.

The paragraph discusses the company's approach to managing its portfolio of brands, highlighting their regular and thorough analysis of brand deployment, strengths, and innovation. They conduct annual portfolio reviews with the Board, evaluate categories, regions, hero products, and new innovations, and focus on accelerating what works while stopping what's ineffective. This is part of a transformative innovation plan aimed at improving agility and maximizing brand value globally. Following this, Lauren Lieberman from Barclays poses a question about managing reinvestment pace, noting previous challenges with investing ahead of growth and emphasizing the importance of achieving a successful ROI.

In the paragraph, Stéphane de La Faverie explains a shift in investment strategy, moving from investing ahead of growth to focusing on consumer-facing investments to drive sales growth. Previously, the company invested heavily in manufacturing and operational capabilities to prepare for growth, but now they plan to allocate resources toward advertising, promotions, and the right distribution networks. This "Beauty Reimagined" vision aims to boost retail sales by reallocating funds from SG&A to consumer-focused areas, with the goal of achieving strong retail growth, enhancing operating margins, and gaining market share in key markets and categories.

The paragraph discusses a company's strategy to shift growth from the East to the West by investing in consumer-facing initiatives. It highlights successful campaigns with Estée Lauder, Jo Malone Men's, and Clinique, which have led to market share gains in the U.S. The company emphasizes distinguishing between consumer-facing and fixed costs, aiming to maintain flexibility and adaptability in investments to drive growth. Akhil Shrivastava stresses the importance of quickly pivoting plans with discretionary consumer-facing investments, as opposed to the inflexibility of fixed costs. The focus is on continuous growth through targeted consumer acquisition and agile investment strategies.

The paragraph features a conversation between Dana Telsey and Stéphane de La Faverie regarding the "Beauty Reimagined" initiative. Stéphane outlines that the initiative is based on five key pillars, with a focus on measurable outcomes. The first pillar is consumer coverage, which involves capturing consumers in various channels, including recent expansions into platforms like Amazon and TikTok Shop, to target both new and lapsed consumers. The second pillar is transformative innovation, aimed at accelerating product innovation across brands, such as La Mer, Clinique, and Estée Lauder. The third point emphasizes the importance of consumer engagement and tracking progress regularly.

The paragraph discusses the company's strategies for enhancing its consumer-facing investments by leveraging AI and data insights to improve supply chain efficiency and consumer targeting. It highlights the importance of the PRGP initiative in reducing SG&A expenses and supporting innovation and advertising to achieve strong operating margins. Additionally, the company is focused on simplifying internal processes to regain agility by reducing meetings and emphasizing external engagement. The executive team is executing a "Beauty Reimagined" vision, aiming to revitalize retail growth, surpass market performance, and expand market share while maintaining strong margins. The paragraph also references ongoing efforts in travel retail.

The paragraph discusses the role of travel retail in the business, highlighting its importance for recruiting and retaining consumers as well as fostering brand desirability globally. While there is a reduction in dependency on travel retail in the East due to insufficient growth capture, there are efforts to seek new opportunities in the West with new brands and categories for a quicker and greater impact. The conversation then shifts to a question about the necessary cultural changes within the workforce to support organizational changes, emphasizing the importance of transparency and commitment to the shared vision of "Beauty Reimagined." Bringing in external help and possibly new management is also discussed as part of implementing these plans.

The newly appointed executive team, announced this morning, is deeply committed to transforming the company while maintaining its strong culture and values. The company's CEO highlights the importance of external partners to aid in this significant operational transformation, emphasizing the need for speed and agility. Akhil Shrivastava adds that all leaders are encouraged to foster a culture of ownership, empowerment, accountability, and prioritizing the consumer in every function to restore the company's top position.

The paragraph discusses the strong and promising future of the beauty market, emphasizing its long-term potential. Stéphane de La Faverie highlights the significance of the growing middle class in various global markets, both in the East and the West, as a key factor in driving future growth. Additionally, there is an opportunity for distribution expansion, with redefined buyer roles and new ways to connect with consumers. The focus on value creation and operating margin expansion is also touched upon, with a combination of fixed cost leverage and innovation contributing to progress.

The paragraph discusses how the company is successfully leveraging various distribution channels, such as freestanding stores and platforms like Amazon Premium Beauty, to connect with consumers and enter the prestige and luxury beauty market. It highlights three key strategies: operating in diverse channels, targeting new consumers, and enhancing consumer connection. The company emphasizes its strong fundamentals and brand portfolio, with a focus on making the brands visible through innovation and agile global distribution. It notes the impact of pricing challenges due to changes in distribution and mentions successful brands like La Mer and The Ordinary as examples of growth and market share gain, particularly in China.

The paragraph discusses a company's growth strategy following the launch of The Ordinary on Amazon, aiming to capture more global consumers. The company has a diversified portfolio ranging from luxury to prestige beauty products, targeting a growing middle class. It focuses on long-term value through sales growth, margin improvement, and cash flow. Currently, the margins are single-digit, but with initiatives like zero-waste and supply chain efficiency, the company aims for double-digit margins. The paragraph also mentions increased operational expenses due to restructuring and opportunities to enhance procurement and shared services with global partners.

The paragraph discusses the company's strategy for achieving a double-digit margin in the coming years, emphasizing growth and profitability through strategic M&A (mergers and acquisitions). Stéphane de La Faverie explains that the focus is on enhancing the existing brand portfolio and ensuring that any acquisition is complementary. Akhil Shrivastava adds that while the company is open to opportunities, its immediate priority is to reduce debt and manage the balance sheet. The commitment is to carefully evaluate potential acquisitions with a focus on strengthening the portfolio while balancing financial responsibilities.

Stéphane de La Faverie discusses strategies for differentiating the prestige beauty portfolio and capturing more consumers, particularly in Asia and Western markets. He highlights the company's "Beauty Reimagined" plan, which focuses on transformative innovation and increasing the number of product launches. This strategy aims to connect with consumers more effectively and rapidly by tailoring innovations to specific retailers. The plan also addresses the challenge of fragmented global distribution and focuses on both trial and recruitment, as well as retention and recruitment, to capture a broader consumer base.

The paragraph discusses the strategy of managing complexity in the beauty industry by delivering the right innovations to the right consumers through appropriate distribution channels. The company aims to meet consumer needs with the right products at suitable price points, offering various brands that cater to different levels of prestige and luxury. As part of their Beauty Reimagined initiative, they plan to introduce more tailored innovations across all their categories and subcategories. The speaker concludes by expressing hope that they addressed Olivia's question before ending the session.

This summary was generated with AI and may contain some inaccuracies.