The Estée Lauder Companies Inc. (EL) 2 Feb 232023 Q2 Earnings call transcript

Good day, everyone, and welcome to the Estee Lauder Company's Fiscal 2023 Second Quarter Conference Call. Today's call is being recorded and webcast.

For opening remarks and introductions, I would like to turn the call over to the Senior Vice President of Investor Relations, Ms. Rainey Mancini.

Hello. Fabrizio Executive and Financial Vice are and Executive Officer. call Travis, Tracey President today's Freda, Chief President Officer; On and Chief me actual with the Since forward-looking where forward-looking you'll press remarks statements. our that SEC, differ and refer could materially factors let these cause release filed many our to you reports today our find to results of statements, contain from

other on charges discussion net of an adjustments stated, before our our commentary financial impact divestitures, acquisitions, the the is otherwise results impacts closures facilitate noncomparable our To restructuring sales in and of business, and and disclosed Unless excludes press the expectations and currency underlying foreign of brand growth release. also organic all translation.

and and press GAAP our in You section of reconciliations non-GAAP on Investors can release website. between our the measures find

reminder, directly make retailers' and includes As through our sales online brand.com to third-party products our to estimated platforms. a include sites through It [Operator also Instructions] our of through sales we references sales websites. consumers our

And the to over turn call Fabrizio. I'll now

Thank to is with be to everyone. today. you, hello good you It and Rainey,

Turning results. to

outlook the COVID-XX the of second XXXX, our year sales incremental XX% For and within was pressure fiscal fell of China. resurgence which in organic quarter despite

adviser, and in our domestic and emerging Hainan retail beauty EPS markets limited China to Many in reduced developed COVID-related Adjusted and Retail November globally expectations in of as fell the in staffing significantly outperformed Travel impacts offset traffic December. well XX%. as

dollars. was and of driven both management by decline, moderation deep outlook, this U.S. stronger disciplined its better meaningfully our than While the expense

of A&P launching thought as for Importantly, we a innovation after growth, continue and to invest increasing sales. percentage prudently

adjusted sales primarily lowering for organic diluted X we our XXXX, reasons. are growth year fiscal EPS For for outlook and

to inventory disruptions December. travel levels in in in-store the due than somewhat expected November in staffing and elevated levels First, and more we remains Hainan

our business rollback creating potential retailers. duty-free near-term with related to announced supportive are our Free of a in transitory Korea recently Duty pressure courier COVID the Second, measures

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over the Tracey. And call to now I turn

Thank and everyone. you, Fabrizio, hello,

cases mentioned, of our the external of dollar. lower the rising quarter business shipments and U.S. to the COVID be in second orders Fabrizio replenishment U.S. COVID-related pressured in impacts, in of including headwinds As continued the stronger by the number China,

XX% organic net second sales to earnings Our share decreased XX% $X.XX. quarter and per declined

our slightly a online to offerings holiday We X%. promotions. sales better-than-expected From currency standpoint, results. declined tighter demand EPS organic for and net The our the management geographic impact in-store we consumers healthy Americas saw as in expense improved a our to and contributed gravitated --

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the including international Asia from increased Turkey. as growth Elsewhere, lifted experienced than Retail, travel the in many sales we rest and more year. restrictions markets offset strong region, in reflecting in France, India both United Travel emerging EMEA tourism the travel ongoing growth The experienced such retail of prior Kingdom, developed the pressures countries we the as in and

strong stages region coupled and impacts sales during various affected see ongoing Asia brick-and-mortar with tourism in X%, to quarter. Dr. that in in primarily Greater resumption fell the the sales across the Travel our Retail to region due in continue fueled This net Korea. Jart the growth of recovery brick-and-mortar of Organic We Pacific China COVID-related Greater China.

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care Asia category Organic XX%. for declined China, sales particularly by a Mainland in business. to affected care of travel the net restrictions where large our retail skin most the accounts majority in be China, and skin in COVID This continues

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in given we to growth from During primarily COVID. impacts on of reflecting of $XXX X lower-than-expected charges the key diluted The by respectively. locations retail and to currency from EPS of million brands, consumer Diluted $X.XX channels the pressure regions year. key EPS translation decreased transactions and the foreign quarter, X% X%, impairment impact compared related the in XX% demand last foreign travel geographic currency recorded and negatively and impacted

activities we year. both quarter, operating in flows to cash of capital million $XXX share in reflects working through expenditures, to last the changes we timing During from the from generated net and the cash and net impact income to decline stockholders negative We billion in $XXX from year primarily due payments. capital, $XXX million in lower The $X.X compared last million returned dividends invested repurchases. and

headwinds. we As by our half was pressured first external performance ongoing expected,

for outlook remainder our turn of now to me the XXXX. Let fiscal

of well and entry flights as testing In return to the half already. recent restrictions and second stabilization positive more and have of Asia in outbound the as are throughout of world are China fiscal cover XXXX, requirements. traffic increased easing with Hainan, in level months. encouraged by the and we we expected starting once COVID moderated declines visas around signs the travelers For see occurs as

COVID-related headwind the lengthy and reduction reflecting closures rapid incremental November staffing impact elevated, well Korea retail, somewhat store in-store with last the Korean our is potential as and to The emerged quarter the Korea as in recently still Duty is travel duty-free And are levels outlook. traffic has which supportive transitory third outlook in a in inventory pressuring our business Free pressure we retailer However, of December. November. of measures our levels near-term retailers, the an in in announced creating since provided rollback

social usage the create Year quarter greater retail more the occasions. frame. expect we Collectively, expect these anticipated. in term time -- of impacts pre-Lunar cases moderate expected which January continued originally November business now the during we slowed and New growth traffic than also to sales as brick-and-mortar headwinds rise in our shopping December and in near We third Cove net in China

result, in levels outlook of fiscal the quarter travel in of the of to fourth travel reflect are retail in updating due to acceleration of to of traffic retail growth a in China. a Asia Hainan, recovery the and in our inventory As we more the the from shift XXXX moderate normalization of third the pace uncertain start recovery a Korea

and markets those in developed from in markets and to is the EMEA as evolve continue our Asia momentum half recovery. other progressively The Pacific emerging expected in first

net and as in sales the has supportive half, trend a expect as optimistic North to already for retail our have our cautiously region we also performance January. growth particularly the America and mentioned. in are Fabrizio increased, second innovation planned We improve pipeline --

introduced relates meaningful sustain plan geographic support to and in strategy their advertising to while the many channels long-term profitable therefore, continued invest financial growth business operating engines to as of the continued ongoing external ability our We, prestige investments already strength these we of our recovery. progressing that remain to faster year. innovation, As confident in growth brands. our expansion results volatility it had investments impact strengthening and a the growth, strategic imperative markets also multiple our in We our including of this emerging income, have for our of on headwinds These that are and well fiscal of growth. reaccelerate that level has a and beauty, high

China, Mainland of impacts As operating that improved start anticipated third to and we guidance quarter skin due weakening foreign a with our on in U.S. travel recovery previous in the see retail, dollar. The have fourth the result, currency to quarter income an the meaningfully. in improvement recent care as the the materialize accelerated pressure negative we expect our from in to more sales

drag third year. is and growth currency the be full to a diluted sales However, still quarter reported expected EPS our meaningful for and

outlook yuan. is Chinese based X.XXX rates the for and the the Korean X.XXX now the XX.XX of yuan Our on X.XXX euro, XX pound, December for for spot for

transactions our backdrop, translation our pressures to to guidance to is reflecting dilutive business quarter be we that that previously. with organic locations designer the certain our approximately X%, license from follows: sales mentioned travel Retail So in third Currency by currency are international material. expect not net expected decline points foreign fragrance of to certain The be expected reported by expected impact XX% sales the impact primarily to as key and X of is exits for growth I sales to dilute reported to Travel X is point.

negative adjusted dilutive of decline $X.XX by expect XX%. expected to key is approximately be such quarter a between currency $X.XX impact international from $X.XX, adjusted constant Currency X between EPS to EPS expected certain includes is XX%. locations that We the to point. and transactions currency travel third for XX% to retail to translation percentage foreign XX% This to of decline EPS

retail of transactions X from X international exits additional by license approximately the year, Retail to points expected fiscal Travel percentage of expected in to impact between are a sales flat. dilution reacceleration translation of impact from point certain the travel full by reported foreign full growth designer X and in reported an is the full we dilute Currency to expect currency SPXXXXXXXX [indiscernible] certain dilute of the assuming range point. X% locations. down year growth For sales The for key

margin as period sustained geographical well foreign currency category be full to the approximately mentioned. XXX of a to as the and impacts sales year year recovery and the previously We as prior mix support due from basis to investments point operating contraction primarily XX.X%, expect

includes constant of locations, approximately reflecting EPS of expected tax change restructuring our rate includes XX%, points. between in currency from negative foreign We international the be impact estimated $X.XX currency, to translation. charges. from and transactions XX% mix $X.XX This to of range is effective EPS expect approximately between part expect retail XX.X%, a earnings. which to percentage XXX now geographical dilution and other travel In currency Diluted full in approximately and key fall and our before X year we

program the complete a transaction, increased and this combination anticipation closing January, deferred fund Ford and to payments. our brand we transaction Regarding In acquisition, quarter we of expect commercial debt the Tom fourth this by $X it through paper to of in billion. cash, in

EPS accounting provided of I We just slight also final due to year a purchase to that estimate dilution transaction full the costs. the inclusive outlook

recovery growth anticipated, process, a multiple this employees, we the perfect engines thanks longer the and While of on have company has to been business, strategy. our strengthened of been accelerated undoubtedly navigated year amazing unforeseen pressures our storm has through the and our environment macro transition and in challenging the our we values indeed to company than

improvement strong We made progress us by our in signs many the and preparing teams overall are of encouraged recovery. in have environment for the incredible the a

Balmain acquisition intact, agreement past Our fundamentals majority fiscal the interest over the have announcement of the Ford years. solid and Tom license and to XXXX by are the our taken recent few we actions agreement. the of in brand the to reinforced acquire From [indiscernible] the in

expanding through and growth are entry on ESG prestige our levels local both strategic go-to-market to chain more and remarks. taken our production and brand many the our digital portfolio and confident marketing beauty. and in business. distribution agility profitable actions our These that the to prepared remain progress Asia. in long-term of continue demonstrate new actions concludes enhanced supply sustainable initiatives. capabilities our enhance relevance We We've our And capabilities, innovation, facilities our We've luxury we of that at

be take your this to We'll happy time. at questions

first [Operator Instructions] comes with Barclays. today Lieberman Lauren question Our from

hoping and Tracey. probably -- you, more was this I for is

sheet And that why China Mainland you're and lengthy pretty sort knowing managing up of believe should production the I seemingly walk how supply inventory what through Because much so spike chain knowing could us demand both your think guess, you're on Hainan right? as I in of balance how If XQ. shipments that's the Is we XQ. for informing change see forecast through a guess with the is shifting. length it's in currently, versus works chain, supplying on if I supply and you there's visibility and we

Yes.

expect You're correct, two still that Lauren, coming in at we will we They almost down levels are expect sales Hainan. things. -- that we are the level accelerate. that to do One, inventory would

see Korea, pace start should you In a the in yes, bit the QX. what's inventory uncertain to of see again, build given So an going the nature to is expect that shipments little right we related more on now. to transitory

we resumption have of that start So do on there. in we as of of remarks see have And mentioned depend resumption that I prepared to the quarter. we in the an anticipate, Korea. travel that will amount But pace depending shipments in on that taken the assumption the will obviously we

a to own sitting inventory our decent of we amount are We the sales quarter. fourth expect even see that in the to supply in on warehouses

is Mohsenian The Dara from Morgan Stanley. next of question

versus COVID a So underlying of just sales. in little QX QX, a retail shipments in a versus there's right? difference bit, Obviously, that sort of in QX. We question terms extend impacts lot have quarterly volatility of China.

of underlying sales is great it's here and doing. hard a So get to business sense the retail how

So the a impacts about and give Europe? an versus the thinking maybe you growth can in China then rest and how sales ratio, update and the I'm particularly by of retail in bit any us And Asia of macro on Pac little region. a just U.S. interested category you're region

might think over that results revenue trajectory but came of of results you touched look years overview. but into expected Let's so of out and it you inform about I as on what you how the -- the more that, quarter a the it? helpful near-term you on think a aspects how get be originally general versus would and to couple here, next lot

pleasure. with Absolutely, No. Yes.

China, first me Let of all. with start

quarter We the And market significant so results China, built in share. good. pretty the where

the market overall digit. double So China negative was in

were built our category. in share net Our and market and negative sales every retail digits, single single was we

build share fragrance, So in makeup in care every health in market in in aspect. we most arises,

which the is very of are important us, very remains that very in a sign our working value this, very, our moment brands the of Now the reopening to strong, aspirational strong really brands -- position a for be. is

Though on So was were gain. Mer brands Jo share in in for performance was beauty Malone fragrance care that in and share La was the market really the gaining to market. our excellent relatively of brand some the skin best London leading shining, makeup

#X reading sales on and the net a categories. important other ranking sales across was that lot XX/XX, of were The XX.X% were and and the up retail XX.X%, streaming success live activity is there creative of China during on brand innovation. up various great our our holding in

some respond And so the obviously, consumers volatile traffic are seen situation way when like the we back our obviously And is this very in there high don't or consumers not where travel like period difficult our when is a XX.XX, back brands or have enormously. obviously, issues. the site are when,

and going in the So in direction. is from China way total, also recovering the is developing we And right planned. a standpoint, market share definitely

Hainan. opening we China, the see we see brick-and-mortar, the success. now -- create of obviously, the in potential of continue the to future, gain the in the the line to see traffic a of terms Mainland, of And we In continuation reopening

we'll the Chinese of to travel fronts. this so growth. increase internationally. is theses we and starting the And consumer this would moment, future, we that an the agreement, agreement yet also in resolved. finalized, be others be soon. is Korea opened, we is the that yet there where understand world will models it's Chinese are fact in not X are we will optimistic as and gradually Japan, the soon but not [indiscernible] this already we see the will governments open, it's the open Also, parts but been consumer on In the all of agree

will destination, impact, been the countries historically obviously, in in This our a another have of important positive but very retail it's So also that's trend. always channel, like happened.

will in us. the accelerate fronts most for obviously, accelerate terms happen as that will the China, categories be skin the on In care thing will all important China of

substantial China, And in Aleris our had but part a Asia, of improvement us so travel -- in in of year quarter that, the a have will This margin Retail which of will X, the Chinese, acceleration XXXX. in the of turn, positive will in fiscal impact trends international acceleration skin care of Travel part generate on mix. we our in front

obviously an program. So the that's important element of

world. Then the regions other of

Dejar As commented well. particularly Travel I are we in my market Korea, also Very where of very impacts, been strong commented And started the excluding the European has rest prepared percentage in big particularly Japan strong Europe I the our in has Retail, that very that already. as share. which heavy Korea retail in and a markets. strong in built most remarks, of progressing gains Australia, travel Asia, excluding in in on brand,

good the Then North other So progress all America. regions. in

Now also And been like in quarter top in good recovery. would the overall, November December, X. accelerate to then progress there we very line single sales in in share North America, But share October, progress news our was obviously, Every acceleration. and the strong is lose month, continue of there's to plan we quarter.

in ended First quarter X%. of X%, on the positive. X.X%, so U.S. plus the But the plus all, in was December retail,

in acceleration. of line So with our goals

So we see the U.S. progressing.

soft Now to innovation. the Sudo already next months, acceleration cream Marc, a even there remarks like an I in on of U.S., Lauder plan. Mer, the Pachorolistic, some cherry strong collection Moreso the prepared in Ford. X stronger have we mentioned In La Clinique, is Hyperion the Estee

some important distribution then have So -- improvement. we and

Macy's doors We department in in store more fragrances our strands. high-end distribution the ordinary some entering deploying are of dealers in is and

renovating our capabilities our opening stores And Ulta expansion We improve to in XXX on in continue and incremental of stand are key and in these omnichannel we are incremental free new, freshen Sephora X [indiscernible] brands deploying new fronts. doors. and all store

acceleration our an see also we in of U.S. the progress So

that we I at program. in time, So when our add behind improved should this what Tracey have underline capability summary, also same the

marketing is digital strong. Our

shortened is and chain supply faster. Our

our factory in in -- opened local of starting our obviously, way in we opened in travel in as progress the distribution And have this will in China China, a retail fiscal the also increase done an relevant fiscal discussed next important has within China, call. R&D year Japan, significant amount and that have new center a in the R&D Asia last year in Switzerland way. the service, on in we innovations we serves our the Obviously, on

that capabilities in the future. in these all are reacceleration ready make progresses there the us So investments and

the of where, channels China, in And during level particularly travel Asia. a the on so the about high China, then COVID profit, of important we impact been the suffered in this reopening retails U.S. fiscal retail, dollar the strength summary, travel was really, high dollar and the was And like in infections year the that lockdowns, has because and our high core big like impactful. of particularly year, particularly

gaining. was X apart situation. from a cases, rest, it of really the kind in progressed some storm market these But in So and successful very perfect share areas all really

I say overview. that overview your answer but my is the that's I for to question the would of situation. period. an very, hope having encouraging So recovery very

of question next from Grom The is UBS. Peter

implied line about wanted outlook organic better than of recovery is the Tracey, growth 'XX top few Or I quarter, the still revenue impact the in about and of strong quite So them which expected. kind be from ask think you're fiscal driving year? And a is But the to exit way to timing-related for potential in stronger could guidance we're a I growth in rate that next a fourth here. XQ months to given know looking implied forecasting what out away the the are there XQ kind fair

know this, Travel significant So certainly you're I a we well you is shift anticipated in expectation, we're months of that, year's recovery us terms our and aware fourth of of quarter said expecting just we the that some remarks, anniversarying as as Retail, stronger well, in And look, part would I than probably of of you remind shutdowns. a and last pretty of few some prepared also -- are because given back.

the fiscal quarter. about our up started coming we're that in the And of at actually So the speaking XXXX of fourth this on end we're anniversary volatility that.

today. particular, start So we numbers particularly some look in of on anticipated travel lockdowns the from Hainan retail the anniversarying in that because are and have China a call a this was in the large we which growth from some standpoint of in problems

all resume will fiscal strong we've anticipating remain we be open 'XX a markets. not encouraging right traveling and in our in of that but signs about will to 'XX, fourth many the fiscal markets certainly for uncertain year and that be given open pace of and are But 'XX anticipated think us. now. the giving guidance we're I are for gradually fiscal quarter, that resumption, seen again,

this be implied 'XX. moderate So at. what some certainly it we've -- getting we've much and that's many I than and in this growth the experienced experienced apply will But be fiscal of the volatility that take should that still to 'XX, the but volatility expect what fiscal QX pandemic if the things year. related there the year Peter, we we of wouldn't to you're certainly, --

do And if know. me currency, any have on you certainly let predictions

from of The next Credit Michael question Suisse. Binetti is

that told Tracey, could XX% margin a dovetail bit. I quarters on just that was us North back maybe little a a few Star. you

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about was China. it think it pre-COVID, sales half I of of XX%

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Travel pick was questions Travel -- larger. Retail will actually just So on But your Retail. let and me up Fabrizio on

time through our But fiscal Travel normally and in for 'XX, with recent events, Michael, in we'll pandemic. provide frame. business remembering, of terms guidance pre-pandemic. for 'XX, are as was can the we do operating certainly online are our what You're more of as Retail the imagine, was expectations going some the still August fiscal more you margin like we XX%

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lot we much investments, obviously fundamentals, of that in you're more when in business strategic expansion well. we the volume But Volume would And choiceful growth, protect but margin as investments of discretionary normal obviously, as our algorithm recovery down sins. as the volume. the expect terms a 'XX is certainly, fiscal in for also year, the this because we make of are as solves of

we're them. can the would our on get terms to leverage and have certainly practically so volume as those next this to fast well more And the we react we shocks year. expense occurred and hits of because expect base year, than trends able of in as how

certainly a progressive again, expecting So fiscal are we 'XX.

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said prepared 'XX. should So in growth all in of also acceleration those things marks of fiscal the support the that we

-- travel it more Fabrizio. your retail for question, I'll on travel to or your turn Now

thing Thank business of our Also, depend on add the you, the be in will normalization then higher on want be Yes. step be retail that in volume margin Tracey the Tracey. is of first -- describing that normalization margin. assume care you you the of also is in if normalization I assuming that to margin that is travel obviously, tend will top would of on to which are skin Because, China, volume.

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more the changing in I at affordable, had before The least way. will Heinen than different well-established now everything yes, easy Keep does internal place COVID, is cannibalized information consumers Hainan have mind international XX% require is, obviously groups. passport, is a less are Covis said is will And travel last by visa that for model. the restart, not travel high-end now yes, doesn't do way I when the the Chinese of a be of that in require there Visa Chinese, is passport. But travel for on the not before big that target Chinese vacation a

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in develop. so obviously, the So coming important the and which big know, travel you now has rest And business. to Japan as very will Macau, Kong, then is back. Korea Hainan improve. been be addition Korea international a will charter, The always retail important were and all will Asia, But continue an continue will way. businesses very of Hong that

so will And levels different growth, of be in obviously, of there this. all

Chinese as of category. Now travelers total the important very of of the categories, in travel -- term because is the retail, global percentage a general, Asia of skin in prevalence consumer care

future skin travel the before, in was as saying care. So carry, I will retail acceleration the

in combination category, acceleration And is, double is will Travel and impact category, this very of by positive again, Retail moment. consumers on then a fragrance strong interesting marginality is category particularly in the this the And powerful. and which the category, profitable be profitability we high-end see so that fragrance for a

many retail. retail the in the world, fragrance high-end partners for observed travel the development of We space future travel around making more

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retail development. corded post exciting world, are the I opportunity postal in really see when we in going of think be the travel years So some will to globally

Astrachan Mark for of time is more question. have one We It from Stifel.

you’re about wanted then obviously for improving care of to wanted sounds it around trends talking the improvement, as categories, And care ask skin growth makeup expectations question sustainability and reopening obviously, China I ask from well. to some the same I to in Yes, of skin which globally, benefited fragrances like China. these like

expecting you of should rest and of in the benefit. expect which a in the growth reopening terms terms that around are world we Or So China we’ve seen trajectory? in the a reopening similar of categories trajectory similar

online the the of in So China the today, biggest sales SP-X is of level percentage reopening of China is the world.

clear, of China brick-and-mortar. mainly will to impact So on the reopening be the reopening

business the reopening. by the XX% about will impacted will So very of China be impact positively in

COVID had to et like period, families of China, level the of infections were mid-January, in just we during so virus, super cetera. where lived somebody XX% since Obviously, mid-November with many high. X the the the

online, reduce make up also consumption So the sure implications were period, normal. other categories. Everything, for it you reduced interest in In this reduce see consumption. a

So, but that’s temporary, obviously.

of to [indiscernible] your only when the frankly, be also, So regular, what The is really free I but not COVID be has is free purchase this all regular. in more clarify question ability back. consumption to want stores, to to of happened COVID, only that thing come

people be a COVID free will as when disease. of So

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levers good are you there comeback of a growth. the potential consumers. of That will activated the Then asking lot that a. be are So by be of about categories will

biggest that’s simple where business. To other are skin of the will in be clear, which categories beneficial for of that beauty U.S., or Europe the in the care First biggest business the China. a percentage total skin there of the care not are in bigger all, is be reason case percentage

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most is which cutter the situation. affected is makeup also would Makeup carbon by

affected in the in So the world COVID the now not by China. By the affected. everywhere most most only situation, way, it’s the it’s been

in seeing when have reason also in well. for some signs very of Mac, a and luxury will seen we so in China And is resurgence data the that of Europe our clear launched benefiting we we from that China U.S., development in particularly normalize. in haircare. a this are moment COVID last, And the of of brands, this makeup Will happen have

hair well in developed care it’s care of hair Obviously, mainly among Chinese hair super beginning a is of journey of is sustainable consumers, but the part. the development the a luxury category mass the developed care

that’s and really so for in of exciting future front is And the development. also us

to [indiscernible] our expand in And portfolio. of terms continue fragrance fragrance

expecting fragrance, category is and Asia. and travel growing a pickup as it relates seeing certainly in pickup to a fragrance retail a in still We’re

fragrance So trends in grow, the during are we will reopening that the to now. continue that certainly, markets particularly recovery, expect

question-and-answer today's concludes That session.

call, please were through unable join good (XXX) at will passcode to XX. entire a the February Eastern recording of hear for available call, Time call. That X:XX p.m. the today you playback If be a To today's I XXX-XXXX concludes your participation Estee for use like would Lauder a you to thank like and dial and day. XXXXXXX. to all wish conference you