The paragraph is an introduction to The Estée Lauder Companies' Fiscal 2025 Third Quarter Conference Call. The Operator welcomes participants and introduces Rainey Mancini, the Senior Vice President of Investor Relations, who mentions that forward-looking statements will be discussed, referencing the company's press release and SEC filings for details. Financial results will be discussed excluding certain charges and adjustments, with reconciliations available online. Online sales include direct sales and those through third-party and retailer sites. The Profit Recovery and Growth Plan (PRGP) will be discussed, and the Q&A session will be limited to one question per person. Stéphane de La Faverie, the President and CEO, is then introduced.

The paragraph provides an overview of the company's third quarter results and strategic direction amid challenging economic conditions. The company is focused on its "Beauty Reimagined" vision to create a leaner, faster, and more agile model. In the third quarter, organic sales declined by 9%, with travel retail dropping 28%, while sales excluding travel retail improved slightly. Despite a 33% decrease in diluted earnings per share, disciplined expense management led to better-than-expected results. The gross margin improved significantly, although the operating margin decreased due to increased consumer spending offsetting benefits from operational improvements. The company is reducing certain expenses while boosting consumer-facing investments, adapting to market volatility, and aiming for higher ROI opportunities. It remains dedicated to improving retail sales trends globally.

In the paragraph, the company highlights strong market performance in the U.S., China, Japan, and some Southeast Asian emerging markets, marking significant share gains in these regions. Product lines such as Clinique, The Ordinary, and Bumble and bumble contributed to U.S. gains, while La Mer, Estée Lauder, and TOM FORD were key in China and Japan. Through the Beauty Reimagined framework, the focus is on strengthening these gains and expanding in other markets, such as the U.K., Korea, and Mexico. The company is implementing a five-action plan to enhance consumer reach, quickly adapting to consumer preferences across brands and platforms. This includes launching The Ordinary in the U.S. Amazon Premium Beauty store and expanding across various online platforms like Shopee and TikTok Shop, leading to mid-single-digit growth in online organic sales.

The paragraph discusses the strong performance and strategic initiatives of a company's third-party platforms and luxury beauty brands. Sales were bolstered by platforms like Tmall, TikTok Shop, and Shopee globally. Significant achievements were noted in Amazon Premium Beauty stores in the U.S. and Canada, as well as TikTok Shop in the U.S., U.K., and Southeast Asia. The company aims to expand with more retailers and focuses on innovation across a range of prestige price tiers. New product introductions like Clinique's Moisture Surge Active Glow Serum and Estée Lauder's Double Wear Concealer have captured consumer interest and driven market share gains in the U.S. prestige categories. M·A·C reintroduced popular lip shades, and La Mer and TOM FORD expanded their luxury offerings, contributing to organic sales growth, particularly in China. The company plans to continue its growth momentum into the fourth quarter with new product releases.

The paragraph discusses various strategic initiatives by beauty brands to enhance consumer engagement and market presence. La Mer is launching a new Balancing Treatment Lotion for oily skin, while TOM FORD's foundation secured top ranks in Tmall's product launches. Jo Malone London is introducing a body spray to expand its fragrance line. M·A·C has reduced the retail price of Studio Fix Powder Plus Foundation to improve accessibility against indie brands. Too Faced accelerated its marketing process through AI for its new Rebel Rock [ph] Lash Mascara. The Ordinary plans to reenter the suncare market with a new SPF-45 serum. The company prioritizes increasing consumer-facing investments, primarily focusing on China and the U.S., to drive growth and opens new retail stores, led by Le Labo's successful expansion and sales growth in both markets.

The paragraph outlines the company's strategic actions aimed at promoting sustainable growth through improved efficiencies. It details the progress made in the PRGP restructuring program, including the reduction of over 2,600 positions and a 20% cut in middle management. The new executive team, effective from April 1st, has achieved a 30% expense reduction and is focused on global strategy and innovation. Procurement and outsourcing models are being transformed for better efficiency, and the P&L will be managed regionally for increased accountability. The company's "Beauty Reimagined" vision is being aligned globally and regionally. The fiscal 2025 outlook anticipates challenges in travel retail but expects a moderation in organic sales decline and continued growth in retail sales, despite weak consumer sentiment in the U.S.

The paragraph discusses the company's strategic adjustments in response to weak consumer sentiment in Europe, China, and Korea, and the impact of recent tariffs. It highlights the importance of agile supply chain management and regionalized outsourcing and manufacturing to mitigate these challenges. The company has increased North American production and expanded its Japanese manufacturing facility to better serve the Asia-Pacific market. With ongoing momentum in their "Beauty Reimagined" strategy, the company is focused on sustainable long-term growth, margin improvement, and cash productivity. The efforts and contributions of employees worldwide are acknowledged.

The paragraph highlights progress in the company's Beauty Reimagined priorities, including market share gains, gross margin expansion, and cost optimization efforts. Despite a 9% decline in organic net sales in the third quarter, earnings per share exceeded expectations at $0.65, with an operating margin of 11.4%. The company saw share gains in the U.S., China, and Japan, and aims for sustainable growth in more markets. Gross margin improved by 310 basis points due to operational efficiencies, reduced excess and obsolescence, and strategic pricing. A requirement to recognize certain manufacturing costs in-period was triggered due to reduced production, but the resulting charge was less than the previous year, leading to a favorable impact of 140 basis points. Operating expenses rose by 580 basis points as a percent of sales, driven by investments in key business areas, including a 480 basis point increase in consumer-facing investments.

The paragraph outlines a company's financial performance and restructuring efforts under its PRGP initiative. Despite reducing non-consumer-facing costs, sales deleverage led to higher costs as a percentage of sales, and operating income fell 27% to $403 million, with the operating margin contracting to 11.4%. The effective tax rate increased slightly, and diluted EPS decreased to $0.65 from $0.97. The company recorded $498 million in charges under the PRGP, mainly related to employee costs, showing progress in addressing business challenges and achieving gross margin expansion. Cash flow from operations decreased to $671 million due to lower earnings and restructuring payments, compared to a higher base last year when significant inventory reductions boosted cash flow. Capital expenditures were reduced by 44% to $395 million, focusing on optimizing expenditures to improve free cash flow.

The paragraph discusses the company's strategy to address uncertainty and volatility in trade policies and tariffs. It highlights efforts in regionalizing their supply chain to mitigate tariff impacts, stating that 75% of U.S. sales are sourced domestically or under trade agreements, while 25% of Chinese sales are U.S.-sourced with plans to reduce this. In EMEA, a quarter is U.S.-sourced. The company is exploring scenarios like optimizing manufacturing networks and leveraging trade programs to address tariffs without impacting fiscal 2025 profitability, although fiscal 2026 may be affected if resolutions aren't found. Additional cost-saving and pricing strategies are being considered, with further updates anticipated in their August earnings call. The company acknowledges the geopolitical risks in its outlook.

The paragraph discusses the potential negative impact of tariffs and consumer sentiment, especially in China, on the company's financial performance during the 6/18 midyear shopping festival. It notes anticipated declines in their Travel Retail business and a steeper decline in net sales in the fourth quarter. Despite these challenges, the company aims to maintain appropriate inventory levels and forecasts a decrease in organic net sales by 8% to 9% for the full year due to softness in the global travel retail business and pressures in Asia-Pacific. They expect a gross margin of 73.5%, an effective tax rate of 38%, and EPS between $1.30 and $1.55, with currency translation slightly affecting EPS. The company remains focused on its strategic priorities and expresses confidence in achieving sustainable growth and a solid adjusted operating margin in the future, acknowledging the contribution of its employees.

In the paragraph, during a Q&A session, Steve Powers from Deutsche Bank asks a question regarding trade inventory alignment targeted for fiscal 2025. Akhil Shrivastava responds, highlighting that significant progress has been made, particularly in travel retail, where elevated inventory levels have been reduced by December. He emphasizes ongoing monitoring of retail fluctuations and mentions challenges in North America due to retailers tightening their inventories, which affects their outlook. Overall, managing trade inventory remains a challenge, but improvements have been achieved.

The paragraph discusses the company's approach to navigating volatility in the market, specifically for quarter four, by providing a broader range in their guidance. They mention strong results in Q3, particularly in China, and the continued strength in April. Stéphane de La Faverie highlights the improvement in retail sales quarter-over-quarter, excluding travel retail, which helps manage inventory levels. This positions the company to realign retail and net growth targets for the following year. Steve Powers and Bonnie Herzog from Goldman Sachs are also part of the conversation, with Bonnie asking about FY 2026 planning assumptions.

Stéphane de La Faverie addresses a question about market trends and growth expectations, stating confidence in returning to positive growth by fiscal 2026. He highlights significant market share gains in key regions like the U.S., China, and Japan across multiple brands. Despite current headwinds such as retailer inventory destocking and consumption concerns, the company is optimistic due to sequential net sales improvements and a reduction in travel retail volatility. He suggests that these factors position the company well for future growth.

The paragraph discusses the strategic actions undertaken by a company to improve efficiency and reflect consumer demand over recent months. This includes progress on gross margin improvement through workforce reduction, particularly in middle management, and accelerating outsourcing and procurement projects. They are carefully monitoring tariffs and proactively taking measures to mitigate risks. The company is focusing on Beauty Reimagined to quickly adapt to new channels, accelerate innovation, and invest in consumer-facing efforts more efficiently. The team is prioritizing high ROI media strategies and successfully attracting consumers globally, although they recognize the need for progress in markets like the U.K. and emerging regions.

The paragraph discusses a company's strategy and confidence in its growth, despite challenges such as subdued consumer confidence in China and reduced confidence in the U.S. and parts of Europe. The company is focusing on applying successful strategies globally and monitoring external conditions. It highlights recent market share gains for its brands like Clinique, Estée Lauder, La Mer, and Le Labo in both the U.S. and China. The company aims to return to growth next year and is implementing mitigation plans for external challenges. The conversation then shifts to Lauren Lieberman from Barclays, who asks about the company's timeline for reducing the percentage of products sourced from China to below 10% in the U.S.

The paragraph discusses a company's strategy to mitigate the impact of tariffs on its products by adjusting its supply chain. The company aims to reduce the proportion of its products sourced from the U.S. to China to under 10% by the end of the fiscal year, primarily by increasing output from a newly opened factory in Japan. A significant portion of its U.S. imports, 25%, are sourced from Europe, with negligible imports from China. To further mitigate tariff impacts, the company relies on nine global campuses and has already reduced the tariff impact by over 40% since November through a dedicated task force. The focus is on finished goods, although challenges remain with components and raw materials.

In the paragraph, Stéphane and Akhil discuss their company's approach to managing exposure to tariffs. They highlight that their network helps minimize the tariff impact, even amid high rates and ongoing trade discussions. The supply chain team actively works on strategies to regionalize and control component and finished goods flow. Despite tariff uncertainties, they remain confident in their control measures and hope for positive trade resolutions. Stéphane mentions that their efforts to improve gross margins also enhance pricing power and inventory sourcing, contributing to their agile and diverse manufacturing network's resilience.

The paragraph is a discussion regarding the company's progress and future plans for its PRGP (presumably a cost-saving program). Stéphane de La Faverie, along with Akhil, expresses satisfaction with the progress of PRGP 1.0 and mentions their confidence in meeting year-end targets, including a significant improvement in gross margin by 300 basis points. The company aims for a gross margin target of 73.5% and is prepared to continue making improvements while considering potential challenges like tariffs. Additionally, there are plans to explore further PRGP expansion to identify more areas for potential savings, and from an employee perspective, the organization is achieving significant efficiencies.

The paragraph discusses the company's strategy to achieve financial efficiency and solid double-digit operating margins by fiscal 2025. Over 2,600 positions have been eliminated, with 85% expected to leave by the end of the fiscal year. The company is focusing on outsourcing various services and has launched a major procurement project to increase efficiency and cost savings. The end goal is to be more agile and lean as an organization. The leadership reiterates their commitment to these objectives, which also align with their growth agenda, "Beauty Reimagined."

The paragraph discusses the company's focus on improving gross margins and optimizing operating expenses (OpEx) to achieve solid double-digit margin growth. Progress has already been made in gross margin, and there is potential for further improvement. Despite seeing a decrease in costs year-on-year, sales deleverage has impacted movements in OpEx margins. However, the company expects significant changes as sales growth resumes. Initiatives include zero waste programs, restructuring benefits worth $350 million to $500 million, and improved procurement for non-employee costs. The goal is to enhance both gross margin and OpEx, combined with sales growth, to achieve meaningful financial progress.

Stéphane de La Faverie addresses a query about anticipated sales growth in fiscal 2026, specifically in relation to a potential resolution of tariffs. He clarifies that the expectation of a return to positive growth is a full-year projection, not specific to any quarter. While they are seeing improvements in net sales and are in positive retail territory excluding travel retail, they are taking steps to stabilize the travel retail business. This offers confidence for growth in 2026. Key regions like the U.S., China, and Japan are showing positive trends, though there is still work needed in the U.K. and emerging markets. Further updates will be provided in August.

The paragraph discusses the impact of tariffs on a company's operations and consumer sentiment, particularly in the U.S. and China. Despite external risks like tariffs affecting consumer confidence, the company sees positive market growth and strong brand performance globally. Akhil Shrivastava highlights that while tariffs pose challenges, the outlook is positive due to constructive negotiations. The company is working on minimizing tariff impacts by optimizing the flow of goods through low-tariff lanes and exploring pricing opportunities.

The paragraph discusses the company's strategic approach and performance in various markets. They are focused on maintaining consumer confidence while considering necessary actions. The company is exploring more PRGP opportunities as they have effectively developed new organizational capabilities, led by Stéphane. They aim to capitalize on these opportunities while setting strategic guidelines. Dara Mohsenian from Morgan Stanley asks about their market share performance, particularly in the U.S., China, Japan, and weaker markets like travel retail and the U.K. Stéphane emphasizes their recent market share gains in the U.S. after years of stagnation and gives a brief overview of their performance in key markets.

The paragraph highlights the strong market position of Estée Lauder's brands in the U.S., with Clinique leading in both skincare and makeup, followed by The Ordinary and M·A·C in skincare and makeup, respectively. The company aims to maintain and accelerate this growth through fiscal 2026. Estée Lauder's luxury fragrance brands like Jo Malone, TOM FORD, and Le Labo are performing well globally, gaining market share. In China, their skincare, makeup, and fragrance brands are also experiencing growth. The company is the leading group in fragrances in Japan and Korea, gaining prestige and luxury market share, and became the number one in Japan's prestige segment last year.

The paragraph discusses the company's strong performance in Japan and Korea and its strategy to apply those successful practices to the U.S. and emerging markets. The emerging markets face challenges from events like the earthquake in Thailand and shipment issues in India, but overall performance is flat without these disruptions. The company is focusing on boosting performance in the U.K. by implementing successful strategies from other regions. Early April retail indicators show strength in the U.S., China, the U.K., and some emerging markets. The travel retail segment is still recovering from previous high numbers but shows signs of improvement in Hainan, supported by a new leadership driving retail events and strategies.

The paragraph discusses the strategic actions taken by a company with a focus on agility and responding to consumer demand globally. They recently collaborated with the Estée Lauder brand to drive events and services in Hainan. The company emphasizes its transformation into a retail-focused organization by aligning with consumer trends and platforms such as Amazon prestige beauty, Shopee, and TikTok Shop. Bryan Spillane of Bank of America inquires about how the company plans to balance its margin targets amidst restructuring efforts without hindering revenue growth. The conversation indicates a complex strategy involving brand revitalization, geographic focus shifts, and pursuing margin goals.

In this paragraph, Stéphane de La Faverie discusses balancing transformation with revenue growth, emphasizing the importance of a clear organizational structure and strategy alignment. He aims to provide greater visibility amidst market volatility and highlights the focus on innovation and consumer engagement. De La Faverie stresses the roles of brands, regions, and affiliates in executing strategy and meeting consumer needs, while the broader organizational functions support these efforts. The overall goal is to drive revenue growth, ultimately prioritizing it over margin targets.

The paragraph discusses the ongoing transformation and streamlining efforts within an organization, with a focus on making operations more agile and efficient. They are implementing changes to the profit and loss responsibilities, simplifying processes, and preparing for accelerated improvements in the new fiscal year starting July 1st. Efforts include delayering the organization, outsourcing, and cost-cutting through procurement. The emphasis is on maintaining company culture while adapting to new consumer demands, boosting innovation, and ensuring high ROI on investments. The leadership, including the executive team, is actively engaged in these changes through global communication and strategy alignment.

The paragraph discusses the company's strategic initiatives to become more agile and responsive to consumer demand globally through outsourcing and leveraging advanced tools. The leadership team, including the executive team and Board of Directors, is united in a mission to reignite growth, aiming for strong double-digit operating margins within the next three years. Akhil Shrivastava highlights the focus on growth, margin, and cash as key drivers of Total Shareholder Return (TSR). The company is already observing growth, particularly in China and other regions, and has made significant cost management efforts, although some results are not yet visible due to specific market challenges. Overall, there is confidence in the company's potential for growth.

The paragraph outlines Estée Lauder's strategic focus on enhancing efficiency and growth. It highlights the importance of clear roles between brand, region, and functions to free resources and improve margins. The company is seeking to increase speed, agility, empowerment, and accountability, while also working with external partners to optimize processes and reduce costs. Their value creation hierarchy prioritizes growth, margin, and cash, and they emphasize making investments with high ROI potential. The paragraph also mentions the availability of a replay of the webcast for those who missed it.

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