Good day, everyone, and welcome to The Estée Lauder Companies Fiscal 2015 Fourth Quarter and Full Year 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 Vice President of Investor Relations, Mr. Dennis D’Andrea. Please go ahead, sir. Dennis D’Andrea: Good morning. On today’s call are Fabrizio Freda, 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 SEC where you’ll find factors that could cause actual results to differ materially from these forward-looking statements. Our discussion of our financial results and our expectations are before restructuring and other charges, including the re-measurement charge related to Venezuela. In addition, we will generally discuss the results before the impact of accelerated retailer orders that took place in the fourth quarter of last year due to the July 2014 implementation of our Strategic Modernization Initiative. We will also explain the impact of the shift in sales on our fiscal 2016 first quarter and full year comparisons. You can find reconciliations between GAAP and non-GAAP figures in our press release and on the Investor Relations section of our website. And I’ll turn the call over to Fabrizio.

Thank you, Dennis, and good morning, everyone. I’m proud of our strong financial performance in fiscal 2015 which validated the soundness of our business strategy. We achieved very strong results which were fueled by our multiple engines abroad in all regions, despite significant currency headwinds and other unusually strong challenges and volatility. We delivered these results by having developed a more balanced and diversified business over the large years, across brands, geographies and channels. These important characteristics have become the key pillar that will help us continue to deliver long-term sustainable profitable growth. This balance and diversity are important factors that have made our performance more reliable this year, even in the face of external situation that arose and were out of our control. Our fourth quarter constant currency sales growth was strong, up 7%, ahead of the industry trends due to the broad global appeal of our prestige brands, and their highly coveted beauty products. That performance capped an excellent fiscal year with constant currency sales growth of more than 6%, and earnings per share growth of 12%. We are celebrating many other achievements as well. One of our most important assets is our prestige brand portfolio, which we continue to strengthen and evolve. Our brands successfully posted fast growing markets and channels, created desirable products and attracted new consumers. Makeup is the fastest-growing category in beauty in this moment as it appears consumers are seeking for gratification of instant results. As the global leader in prestige makeup, we are capitalizing on this trend, in our brands that are focused on makeup group sales. M•A•C outstanding performance was driven by its constant creativity and wider distribution. Smashbox, which is strong in the specialty multi-channel generated exceptional double-digit growth, driven by a successful array of product launches. Bobbi Brown expanded…

Thank you, Fabrizio, and good morning, everyone. I will briefly review our fiscal 2015 fourth quarter and full year financial results, and then share with you our expectations for fiscal 2016. Please note that my commentary excludes the year-over-year impact of restructuring and other charges primarily the Venezuela re-measurement charges. Also excluded is the impact of the acceleration of retailer orders that otherwise would have occurred in the first quarter of fiscal 2015 related to our July 2014 rollout of SMI. The impact of that shift was $178 million in sales and $127 million in operating income, equal to approximately $0.21 per share. This shift created difficult comparisons for the first quarter, the fourth quarter and the full year of fiscal 2015, and will also create comparability issues for the first quarter and full year of fiscal 2016. Now, for the fourth quarter, net sales came in at $2.52 billion, which was 7% growth in constant currency. Acquisitions contributed 50 basis points of this sales growth. Net earnings were $153 million compared with $175.2 million in the prior-year quarter reflecting increased door openings, investments in information technology and in R&D and product development. Diluted EPS of $0.40 came in above the top end of our expectations primarily due to continued disciplined expense management. Reflected in the EPS for the quarter was approximately $0.02 of dilution from acquisitions, and currency translation was unfavorable by $0.07. Looking at our business by region for the quarter, net sales in the Americas increased 12% in constant currency. We had strong double-digit growth in Latin America which came primarily from the continued great growth of M•A•C in Brazil and also in Mexico. We also had a high single digit increase in North America, which reflected good sales growth in both the U.S. and Canada, and…

The floor is now open for questions. [Operator Instructions] Our first question today comes from Dara Mohsenian with Morgan Stanley.

Hey, good morning. So on the long-term margin targets, clearly FX and acquisitions are pressure points, but I was hoping you could comment a bit on your ability to generate some incremental productivity internally to at least bridge some of that gap from these external issues. And given your efficiency in margin gap versus peers, why there's not more of a sense of urgency in attacking the productivity to deal with some of those external issues. Thanks.

So, when you look at the margin guidance, the cumulative margin guidance that we gave over the next couple of years, if you take into consideration both the foreign exchange impact from last year as well as what we called out for this year in terms of impact and the initial dilution from our acquisitions, which should mitigate in the 2017 to 2018 timeframe, but 2015 and 2016 we’re seeing dilution. We are actually relatively close to where we had guided to at the end of last year on that 17.5%. So, we do think that given both the currency impact that we’ve had and the acquisitions that we chose to do, we are in line with our prior guidance. Since that guidance, a few other things have happened. Clearly, the strength or the strong foreign exchange impact has impacted some of our channels like travel retail. The MERS impact is having us start off this year with a bit of a softer impact and we feel it’s very important for us to invest in Estée Lauder and Clinique. So the balance that we have, which is why we’ve actually increased our cost savings plans in order to do some of the funding that we need to support those programs and that’s important for us in terms of long-term growth.

I would like also to add one thing to this question, to this answer is that as you’ve mentioned sense of urgency, there is an enormous sense of urgency in the company to continue to grow margin and we are fully committed to it. The – already in the 17.5% that we communicated at that time, there was a lot of cost savings included. Second, we have increased them, and as Tracey has explained, we will continue to look into that and maybe find even more opportunities but there is commitment to that. The point is, however, that also investment needs and investment opportunity also had been increasing. And our decision is to make sure that we keep focused on the long-term growth and sustainable growth of the company. And so we are leveraging cost savings but also continue focusing on the investment needs and opportunities to keep the company growing the best possible way.

Your next question is from the line of Steph Wissink with Piper Jaffray.

Thank you. Good morning, everyone. Tracey, a question for you. When we were sitting at this point last year and you had guided to 2015, I think you had guided to 5% and 6% top line growth constant currency and EPS growth of 7% to 10%. If we compare that to your growth going forward for 2016, 6% to 8% top line and 8% to 10% bottom line, can you just help us characterize the differences in that top line guidance and the relative flow-through to EPS looking ahead versus hindsight looking to the prior year? Thank you.

Yeah. I mean, the growth levers that we have in fiscal 2016 are much like they were in fiscal 2015. So, one of the things that we saw in fiscal 2015 that we just spoke about was the tremendous strength of the makeup category. So, we certainly expect continued strong growth out of all of our makeup brands. One of the other things that we saw was more softness in skin care. And that certainly affected Estée Lauder and Clinique and we are expecting better performance in skin care in fiscal 2016 than we saw in fiscal 2015 and therefore better performance for Estée Lauder and Clinique. In terms of the flow-through to profit, with all of the mix impact that we have from channel mix and category mix, we don’t expect a tremendous amount of gross profit margin expansion, but some. So, that – the leverage that we will get will be in the expense area. And as I indicated, certainly over the next three years, we expect a one-third split between margin expansion and gross profit margin and two-thirds coming from expense leverage.

Your next question is from the line of Ali Dibadj with Bernstein Research.

Hey, guys, I just wanted one clarification and a real question. The clarification remains around the cost cutting plan, which even if you take out the currencies and take out the impact from acquisition, it just doesn't seem like SAP is allowing you to accelerate much at all whether it be from margin or whether it be from inventory. So if you just take another shot at helping us out on that that would be helpful. The other question is to try to get a better understanding on the channel diversity strategy which has certainly helped and I guess I have questions around three areas. One is the travel retail impact from the Chinese luxury tax change. Two is how we should think about your ROIC and margin given the ramp-up significantly now to 1,000 of freestanding stores? And then three is how have you guys analyzed the brand risk of Estée Lauder into Sephora? Thanks for all those.

Well, that’s a multi-part question. So, let me start with the SMI savings. Ali, we believe this year based on what we’ve communicated, we had very good results from SMI. As you know, we went live in July of this year. It does take some time for the team to get familiar with really optimizing SMI and our biggest markets went live in July. So, the fact that we were able to generate $100 million of cost savings and we are doubling that next year, we believe is very good progress. And as I mentioned in my prepared remarks, we believe that there is more savings out there to gain over the next few years. So, our internal plan call for increasing levels of savings every year related to SMI-enabled programs. As it relates to working capital, going from what was 200 days to sell to 155 days to sell is in the timeframe that we’re indicating is pretty great progress. And so, we certainly, as we always do, will try to exceed those levels of improvement. But being able to free up $300 million to $400 million of cash over this timeframe is obviously very good for us, very good for our shareholders, and allows us the opportunity to either invest in more ROIC-driven projects or return more to shareholders. So, that’s a good thing. So, I think we believe that we’ve got a very strong program and we certainly, to Fabrizio’s point, are committed to continuing to look for even greater savings.

Yeah. And in answer to your other 3-in-1 questions is on, TR we believe there is enough price differential in the TR channel to continue growing the part of TR business which is driven by price differentials. I want also to underline that a lot of the TR business is driven by conversion and marketing and error reports and other activities, particularly true for makeup where the absolute price differential is much inferior to fragrances, skin care and is growing actually in this moment faster than skin care. So the impact on TR of the tax difference in China we believe would be moderate and anyway there are other growth drivers in TR, which have the potential to more than offset that. The second is the freestanding store – the impact of freestanding store expansion on margin and ROIC, we believe [ph] you should look at the total business, meaning that some of our freestanding stores are very, very productive, particularly the one on market Jo Malone for the time being. In this case, the impact actually is positive. But also you need to think that the overall margin of online is higher, travel retail is higher. Some of the more productive freestanding store is higher; part of the specialty multi around the world is higher. So the combination of all these factors makes actually the channel mix favorable rather than unfavorable if we continue to drive our strategy the way we are. The last question on Estée Lauder in Sephora, we believe this is an important step forward for the brand. I personally don't believe there is a risk, actually this is very good news for the ability to modernize, rejuvenate the brand in front of the millennial consumer. That is a specific goal of this action. Sephora in the U.S. has an excellent penetration on millennial consumers and the ability of the Estée Lauder brand to tailor its activity to this consumer will have also a positive halo effect on the entire brand nationally in our opinion. So all good, we are pretty excited about this move.

Your next question is from the line of Olivia Tong with Bank of America Merrill Lynch.

Great. Thank you. I want to talk a little bit about the staying power of the impact of brand strength because it looks like your outlook implies that you're expecting local currency sales growth to accelerate as the year progresses, even though the benefit from acquisition lapse and the pace of investment spend also decelerates, clearly have a much bigger delta and investment spend at the beginning of the year and less so as the year progresses. So can you talk about the staying power of the impact of brand spend and if your expectations have changed relative to what you've seen in the past and if so what are the key drivers behind that?

So, one of the things that we’re seeing is quite a shift in terms of how we spend relative to brands. So, we’ve talked a lot, Olivia, about the fact that the brands that are growing right now are the non-traditional advertised brands. They’re the brands that have an in-store presence. They have a strong digital presence. And then from a category standpoint, as we said, makeup but also fragrance is growing in this moment. What we are seeing even in our more traditional advertising brands is the impact of TV moderating, still important but moderating, and the impact of digital growing. So, we have looked at balancing our investment spend across television, print, digital and in-store for those particular brands. There are also different channels that are growing. So we, too, have looked at balancing the channel mix for our brands. So, I think the strength of brands is still quite strong. We’re seeing, given the online strength of digital marketing, a lot of smaller brands gaining in strength because of the channel, that channel of communication with consumers gaining in strength.

And on the staying power question, I'd like to add that this fourth quarter we've been growing 7% which is faster than the industry, faster than most of our competitors. And this has happened despite some important challenges for us. We spoke to it but I want to underline that Hong Kong and Macau or Korea are very important areas for us, areas where we have high market shares, where we have profitable businesses, where particularly our skin care brand and skin care category is enormously focused and then we were able to deliver ahead of market 7% strong growth despite these headwinds on top of the currency one. And then this shows actually, in my opinion, staying power and stability of our growth model even in the presence of unexpected challenges which are out of our control, like MERS as an example in the month of June which had a big impact and also in the beginning of July. So there is a lot of staying power and to Tracey's point, the rebalancing of the media spending actually is in my opinion going to increase the staying power rather than diminishing it.

Your next question is from the line of Bill Schmitz with Deutsche Bank.

Good morning. Hey, a couple of questions. The first is, have you considered maybe just pulling the margin targets entirely? Because it seems like there's so many growth initiatives. And I think for investors top line growth and EPS growth is probably more important than a margin ratio, especially given the magnitude of some of the money you could spend to build out stores in some of the other channels, et cetera. And then my second question is on Clinique and Estée Lauder has the world changed? Because it seems like every five years or six years the brands go through a big growth challenge as you spend a lot of money, you get them fixed again and they start to struggle thereafter. So is that 40% of sales for those two brands like a number you want to stick to? Because as they slow, it seems like the natural margin mix of the business improves pretty dramatically and I do not know the answer but it seems like just given what's happening in the prestige cosmetics world broadly speaking everything is lifting up and to the right and it's hard to take those two brands there. I'm sorry for the long-winded question.

So let me take the first part of that, Bill. As it relates to the margin guidance, the reason we’ve transitioned to cumulative margin guidance is for the very reasons that you mentioned. The fact that in any given year, if we have the opportunity to invest in more freestanding stores or invest behind our acquisitions that are going to actually continue to drive above-industry sales growth and above-industry EPS growth, then that is the right strategy and decision for us, and it’s the right strategy and decision for investors. So, having said that, to transition from giving annual margin guidance to EPS guidance is a bit of a transition. So, we’re happy to be transparent with respect to what we’re thinking and the fact that we absolutely understand we have margin opportunity and we are progressing forward on that with our cost savings initiatives and other initiatives. Yet at the same time, there are some investments we’re making that are going to be more margin challenging and others that will be quite margin accretive. We may have a year where we have an 80-basis-point margin expansion and we may have one that we have 20 basis points. But what we are saying is we will have double-digit EPS growth, so your comment is well taken.

And also on this one, I want to add that in this volatile world which is in front of us it is where agility is a key driver of success. We wanted also to ensure we had multiple drivers for our ultimate goal of double-digit EPS growth. And so the multiple driver is certainly growth is important, margin will continue to be important, but we have other taxes, we have the share repurchase and share count. So we have different drivers that can deliver more constantly even in a volatile world. So we are stronger and we believe our point of view is becoming actually stronger and more reliable every year. On your question on Lauder and Clinique, Lauder and Clinique are very important brands for us and they are excellent brands with a great equity around the world. We can share the equity results of these brands, there are brands that huge appreciation and penetration among many different consumers around the world. So, those are important assets of the company and we want to continue to build on these assets. However, they are very big brands and so they have big brands with broad distribution and a very broad distribution. So, I believe the most important thing for these brands that they are more exposed to the new volatilities of the world than the smaller brands which have limited distribution and very specific consumer groups that like them. For example, in this moment, what we have seen in the last year meaning the crisis in Hong Kong, the crisis in Macau, now the flu in Korea and the slowdown of the growth of China, all these factors had a tremendous impact on Lauder and Clinique. And particularly on the skin care business on Lauder and Clinique which is very visible. And frankly these factors which are external have a bigger impact than what one innovation can do in the course of six months. So, these brands are – have been more difficult to turn around than the small brands because they are so broad in distribution and so big. But anyway we remain determined to drive them and to leverage the great assets that their equity represents for the company.

Your next question is from the line of Caroline Levy with CLSA.

Hi, there. Good morning. I'm just wondering on pricing given the devaluation we have seen some companies take more pricing, you're sticking to the 1.5% to 2% as a global number and I'm wondering if you see any upside to that. And then how many stores – standalone stores could you envision on a four-year to five-year basis if [indiscernible] company operated to date that would be very helpful. Thank you.

Okay. So, in terms of pricing, as we’ve shared in the past, Caroline, we have and you know we have a pretty sophisticated pricing process. In any given year, we look at all of our markets. We look at our traveling corridors and we adjust pricing either up, mostly up. But in some cases, we actually adjust it down if – for currency reasons, et cetera. So, this past fiscal year, we actually did take pricing up in some markets like Venezuela, Russia and other markets as well. And we did adjust some prices down as we indicated also. So, the 1.5% to 2% represents a combination of price adjustments both up and down, most up obviously given the net for the fiscal year. But we absolutely do look at currency competition and many other market factors when we establish pricing for all of our markets.

Yeah. And on freestanding stores, we will continue to drive freestanding store on some of our brands. Not all of our brands are designed to have a winning and successful freestanding store model as part of the total model. But in general, we are continuing to expand. And particularly, we are continuing to expand where there is not sufficient high-quality distribution in specialty or department store or other models. And the important thing is that the other [ph] evolution will be on the channel, meaning the ability to connect the stores with the online. And so, wherever there is not good alternative distribution freestanding store well-connected to online are proving to be an enormous opportunity to make the brand successful even in absence of high-end prestige distribution available. A typical example of this has been Brazil where without the freestanding store and the online business of M A C, M A C today could not be the market leader there in absence of the typical counter distribution that in Brazil is not available. So, freestanding store, we continue to increase, again, we are not in a condition to give you a specific number but it continues to increase and will make our ability to reach the new consumer of the world much stronger than it was in the past.

Your next question is from Steve Powers with UBS.

Thanks. I just want to go back to the margin guidance and just make sure I have my facts straight. So you used to be at 17.5% for fiscal 2017 and now it sounds like off an adjusted fiscal 2015 base of what I think is 15.9%...

Right.

… it sounds like you're guiding to basically 17.2% at the high-end one year later. So annually, you've gone from a 50-basis-point run rate to 30 basis points to 40 basis points. So, I guess just going back to the earlier discussions, how much of that gap is really just the differing FX environments versus something more structural? It sounds like you're investing more in advertising, in new channels. It sounds like brands like Clinique and Estée are not quite where you want them to be. So, I'm just trying to figure out the gap there. That's my just clarifying question. And then, Tracey, the working capital improvements that you target, how much of those will accrue to the U.S. versus overseas markets? Because I just want to gauge how much of that cash will be accessible without tax implications versus just building on the balance sheet? Thanks.

Okay. So as it relates to the margin, you are correct that the starting point is 15.9%, and as we spoke in our prepared remarks, currency between 2015 and 2016 accounts for about 70 basis points. Acquisitions accounts for about 30 basis points. So that kind of bridges some of the difference between what – where we were at previously and where we’re at today. It’s primarily currency and the acquisitions, which were not foreseen when we obviously gave the three-year guidance previously at 17.5%. And so that’s that explanation. As it relates to working capital and where cash is generated, we called out and as you’ve seen from our results, we’ve got strong growth overseas which we expect that that will continue. Our working capital improvements will be across the board. So, some of them certainly will be in the U.S. We have our largest manufacturing operation here in the U.S. and some of them will be overseas as well. So, it will be a combination of both. I can’t give you a precise split at this point in time. You certainly have seen that our tax rate has come down this year and is expected to come down next year also. And so I think the combination of all of the strategies that we have in place will be quite favorable from a company standpoint and from a shareholder standpoint.

Your next question is from Lauren Lieberman with Barclays Capital.

Great. Thanks. Good morning.

Good morning.

I just want to – good morning. I just wanted to understand a bit again about year because I've heard and I think in the press release it was a little confusing, Fabrizio in his quote and on the call has talked about a goal of double-digit local currency earnings growth and then for fiscal 2016 on that basis you're looking to do 8% to 10%. So is the reason it's not solidly double digit, is it the softness in Asia and that it disproportionately impacts Clinique and Lauder’s skin care which is higher margin? Or is it that there is also a stepped-up reinvestment this year with the goal of accelerating growth in some way?

Okay. First of all, I'd like to say the 10% is at the top of the range and in that sense when we put something at the top of our range means that we will do our best efforts to reach it. And, however, the reason why this is not in the middle of the range this is exactly the reasons you just underlined, meaning that there is both high profit pressure in certain externally just like Hong Kong, Macau, the situation in Korea, the slowdown in China and all these factors and the fact that these external pressure happen to impact particularly the skin care part of our business and which is highly profitable and very concentrated on Lauder and Clinique. So it is exactly the combination of these factors that we don't control what will happen out there. And so we want to be prudent in that sense and we needed to be able also to invest the appropriate amount of money to navigate this situation in fiscal year 2016.

Your next question is from Mark Astrachan with Stifel, Nicolaus.

Yeah, thanks and good morning, everybody. A question on Clinique Estée, so what was the sales performance in 2015 and if not specific just broad strokes? And then what are the expectations for the brand in 2016 and maybe if you could just talk about that progression a little longer term? And then differently just switching to emerging markets, so 14% of sales today maybe talk a bit about where you can be over the next three years to five years on a percentage of business basis, again, just broader strokes. How do you benchmark your exposure versus peers and then what is the cost on the operating margin outlook to achieve that continued expansion and specifically sort of what categories lead the growth in that channel? Thank you.

So, in fiscal 2015, Estée Lauder and Clinique were down low-single digits in constant currency. And so, we expect them to be up in fiscal 2016 low-single digits. So, that’s the difference between fiscal 2015 and 2016.

Yeah. The second question was about emerging markets, so emerging markets today are 14% and we will continue to grow them in the next years. I prefer not to give you a specific number but you need to just – you can make up your numbers when you say that we are growing 6% to 8% every year in emerging markets ex-China are in this moment growing 20% plus. And China is projected to grow between 6% and 10% depending year-by-year. Those are the numbers which are emerging. So, it will be a growing percentage of our total business. Now, what we need to invest in there as we explained China today is already more or less in line with the average of the company. And some of these emerging markets are ahead of the balance of the company. Others are in the beginning of the investment period. So overall, the investment is relatively reasonable to grow in emerging markets gradually the way we are doing it. So, this is not going to be a huge part of pressure on margin. It's rather the investment in other areas which are an important pressure on margin.

Your next question is from Wendy Nicholson with Citi Investment Research.

Hi. Just a couple of housekeeping things. Number one, can you give us the like door growth for your sales in China, not the retail takeaway but your sales into China. Number two, Tracey, you called out lowering the tax rate as a long-term driver of earnings growth but just looking at the progress that's already been made over the last decade, you're already below 30%. What's the five-year target for the tax rate, if you will, and I know it's subject to various geographic things and whatnot? But then my last question and sort of broader question is on the travel retail business because this is, whatever, it's been a tough 2015 for travel retail. Each of the quarters you've talked about it being either down in reported terms or low single-digit growth. And I have to go back to 2009 when obviously the macro was wildly worse than it is right now. So, I'm just wondering how many – you've been attributing the weakness in your travel retail to currency issues and less traffic and a little bit of MERS and a little bit of that but it just feels like the growth in the travel retail business may have structurally changed. So, I'm wondering is it that there are fewer airports that are opening, is there more competition in that channel because your growth of strong double digits in that channel seems to have evaporated? Thanks.

Okay. Let me start, Wendy, with your question on the tax rate. As we guided this year and you’re right the tax rate has come down over the last few years. We guided 29% to 30% at this point. I think the low end of that guidance would be what we are prepared and again, to your point, with lots of contributing factors to think about for the longer term at the 29%.

Yeah. And let me start on the travel retail question and then I will cover China. First of all, just to put the number straight, our travel retail business grows 6% at retail this year, which is a very solid growth which is slightly ahead of the traffic, so is a very strong number. So, I'm not sure I agree that there's been an overall [ph] travel. It's true that it's not been double digit like it used to be in the past and the reason for that is that this was a very tough situation where you get Hong Kong, Macau travel and then you get the Korean MERS activity in June and July and other factors like the important change of certain emerging market consumers that are very heavy spenders like Russian, Brazilians and in lower part Chinese. And all these driven by currencies as well on top of by economic crisis in some of these countries like Brazil or Russia. The combination of these factors all happening at the same time including the flu in Korea, yes, have been putting pressure on travel retail. And also keep in mind that we have made the historical choice that paid out very well to focus particularly on the Asian travel retail expansion that was the driver of skin care around the world. And this part where we have historically created a very big market share has been the one hit the most in the current external situation. We believe this is going to change. Every year there will be a different situation and we continue to believe that travel retail in the long-term will be a very strong driver of the business. And I don't think at all that our strength has evaporated. Actually, I think we've never been stronger in travel retail than today in terms of balance of brands, balance of airports and ability to grow in the future. Second, I just want to underline, for example, in the quarter – in the last quarter, we had travel retail net sales were minus 4%, travel retail – retail that we have only until May by the way, was plus 9%. So we have been growing 9% retail. Now, June where we don't have the retail number probably was a different number impacted by the MERS in Korea, still very solid retail trend in travel retail even in the last quarter. China, our net sales in constant currency in China was 6% in the year. Our retail in China was 8% growth during the year and the like door in China was minus 1% for the year.

Which was improved from the prior year’s like door growth.

Which was an improvement, yes, because last year, fiscal year 2014 the like door was minus 2%, so there was a little improvement.

Your next question is from Javier Escalante with Consumer Edge Research.

Hi. Good morning, everyone. I just would like a clarification with regards to the Americas growth, the 12% adjusted. So if you can break it down by North America, how much was acquisitions, how much was retail sales? And then I was surprised to see that you flagged Venezuela as a contributor because there have been [ph] scarcity to – for currency for necessities and I don't think that your categories qualify for that. That's a clarification. My question is whether you are experiencing margin degradation in department stores in the U.S. and whether you expect with the launches in Sephora that that margin degradation is going to worsen? If that happens, is it possible that you would shut down the less profitable doors in department stores in the U.S.? Thank you.

Okay, Javier. Let me start with the Americas growth and the components of that growth. So, as I said in my prepared remarks, Latin America which is certainly small relative to North America but it did grow strong double-digits and that was driven by Brazil and Mexico largely, but also Venezuela. Obviously, there’s the inflationary environment in Venezuela, so that is one of the markets where we did take pricing and that has nothing to do with cash repatriation or anything like that. As it relates to the U.S. and Canada, we had high-single digit, mid- to high-single-digit growth. So, again, a strong quarter for the overall Americas and those were the components. On the acquisitions, this year, again, they were acquired at different points during the year, mostly in the latter part of the year. So, we had about roughly $30 million in sales from the acquisitions this year. So, a relatively small amount, most of that in the Americas, some of it though overseas as Frédéric Malle and some of the other brands also have sales overseas.

Yeah. On the margin in department store, now, we are having a big stable margin situation in department stores in the U.S. And as far as the Estée Lauder expansion in Sephora, we believe this will benefit the overall equity of Estée Lauder and in turn this will benefit the growth in every single channel. We don't believe this will be a negative for department stores at all.

Your next question is from Dana Telsey with Telsey Advisory Group.

Good morning, everyone. You talked a lot about millennials and different strategies to capture millennials. Where do you see the greatest opportunities? And will the level of product innovation, should we continue to see more newness catering to millennials? And lastly, on the advertising budget, how are you thinking about advertising dollars shifting to digital from traditional in the context of the entire budget? Thank you.

Well, I will answer the first questions. So the focus on millennial is a very important focus. Obviously, we have brands in our portfolio which are already very strong on millennials like M A C and are market leaders in many of these areas with many of the makeup categories with millennials in North America and around the world. Kors, Smashbox or many others or some of the new acquired brands like GLAMGLOW. So, in our portfolio, we have brands which are even more focused on millennials and we have an innovation plan for them for each one of these brands. The two brands that we are trying to accelerate in terms of penetration with millennials are Lauder and Clinique. Clinique is historically very strong with millennial at the entry price of prestige. And as you heard in our prepared remarks, Clinique is doing a lot of new effort to revamp this ability to attract and engage millennials, particularly in the area of social media and specific product launches at the entry price point of prestige and particularly at the entry price point of makeup where the brand has opportunity with millennials. As far as Lauder is concerned, you heard that there are several activities that we are doing, for example, with new models like Kendall Jenner, which have a lot of attractiveness with millennials. And this is happening even on fragrances with Modern Rouge launch. And then there is obviously the newly announced Sephora launch, which is actually designed an entire collection on makeup and skin care designed for the millennial on top of the social media that will go along with these activities. So, we are very focused on millennial in the next years. And we are seeing initial very encouraging results. And we have a strong starting point from some of our brands like M A C.

And then the second part of your question in terms of the growth between digital and traditional advertising, I’ll just point out that more of our brands, again, we have a broad portfolio of brands. And more of our brands do digital marketing than traditional marketing. So, our digital spend is already higher than traditional marketing because of that. But having said that, if you were to think about it in terms of mix shift, about 30 basis points are shifting into digital out of traditional marketing.

Your next question is from Chris Ferrara with Wells Fargo.

Thanks. Guys, I guess for Americas, I know not all of this is necessarily operational but I guess, number one, can you talk a little bit more about the profit decline in the Americas, that 78% number was kind of big on an adjusted basis? And then skin down to on an adjusted basis, look, I understand the Estée and Clinique serums and moisturizers are down but just curious if there was anything unusual in the quarter on skin or is this the way to think about a run rate in any way? Thank you.

I’ll start from the skin. As I explained, Asia is – 70% of the market in Asia is about skin care and our market share in skin care in Asia is very, very high. The moment the external factors happens mainly concentrated in this area like Hong Kong, Macau, the flu in Korea, this has an over proportional impact on skin care and specifically on serum and moisturizers, as Tracey explained in our prepared remarks. So, that's the unusual thing of the quarter that happened on skin care and that's the key factor in the short-term. And then there is a longer-term factor which is the fact that to grow skin care, we need to activate a stronger growth on Lauder and Clinique as we have been talking across this call and we have solid plans for that for the long-term. Now, I’ll turn to Tracey for the other parts.

So, in terms of the decline in the Americas profitability, as you indicated, there are more than just the region performance in the Americas profitability. These numbers, first of all, in our press release, are not adjusted for constant currency, so they are adjusted though for the re-measurement for Venezuela and for the SMI shift. So, they’re not – the decline is not from an adjusted standpoint – a constant currency adjusted standpoint not as great as what’s reflected in the press release. But the acquisitions and the purchase accounting related to those acquisitions flows through the Americas. Some of our enterprise IT expenditures flows through the Americas and then the stock comp that we called out flows through the Americas as well. So, on an ongoing basis, no, we would not expect that the Americas profitability would be down.

Your next question is from Joe Altobello with Raymond James.

Hey. Thanks for squeezing me in here. Just a couple of quick ones. First, on travel retail this is, I guess, the third consecutive quarter where you've seen a pretty wide divergence between sell-in and sell-through. And I know there is a lot of destocking that has to go on but how much more is there before we see those two numbers start to converge at hopefully a higher number from here? And then secondly, on China, I think, you mentioned it was up 6% last year overall sales for you guys and I think, Fabrizio, you said 6% to 10% is probably a good run rate number. Is that what we should expect for fiscal 2016 given what's gone on with the change in tariffs and the devaluation of the yuan, for example? Thanks.

So, I will start from China. Yes, that 6% to 8% to 10% is the range we aim at. And I don't know if you should expect it because there is a lot of unknown in front of us in China in this moment. But that's definitely what we are trying to achieve in our plans, tailored to achieve the 6% to 10% range. And so on travel retail is the point is that there is still – when there are issues like a flu epidemic in a place [ph] like Korea which is one of the biggest markets, you have to expect that the retailers that don't know when this will finish will readjust their stock levels in a very decisive and immediate way. And so some of this stock just travel retail is an area where stock adjustment when they happen, happen fast and when they are driven by external factors they can be unexpected and very, very strong. So I would – to answer your question, I would like to separate the unexpected situation like we had the one in Korea from the ongoing. I believe that in terms of the ongoing travel retail model for the future, we should see a convergence of net and retail and that should become more or less aligned. But obviously this excludes specific unique factors like the epidemic of MERS in Korea that could further impact the difference between sell-in and sell-out. For example, this may happen again in months like July where the MERS continued. End of Q&A

That concludes today’s question-and-answer session. If you were unable to join for the entire call, a playback will be available at 1:00 PM Eastern Time today through August 31. To hear a recording of the call, please dial 855-859-2056, pass code 85104187. That concludes today’s Estée Lauder conference call. I would like to thank you all for your participation and wish you all a good day