Good day, everyone, and welcome to the Estee Lauder Company's Fiscal 2021 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 Senior Vice President of Investor Relations, Ms. Rainey Mancini.

Hello. 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. To facilitate the discussion of our underlying business, the commentary on our Financial results and expectations as before restructuring and other charges and adjustments disclosed in our press release. Unless otherwise stated, our net sales growth numbers are in constant currency and all our organic results excluding the impact of acquisitions, divestitures, brand closures and the impact of currency translation. You can find reconciliations between GAAP and non-GAAP measures in our press release and on the investors section of our website. As a reminder, references to online Sales includes Sales we make directly to our consumer to our brand.com sites and through third-party platforms. It also includes estimated sales of our products through retailers website. During the Q&A session, we ask that you please limit yourself to one question so we can respond to all of you within the time scheduled for this call. And now I'll turn the call over to Fabrizio.

Thank you, Rainey and hello everyone. I hope you and your families are in good health. In our hearts, continue to be with those impacted by COVID-19. We delivered outstanding performance amid the pandemic in fiscal year 2021, capped with an exceptional fourth quarter empowered by our dynamic multiple engines of growth strategy, as well as the timeless desirability of prestige beauty. In a year of pain and sorrow, our employees cared for each other, their families, and our Company with compassion, creativity, and results. While the challenges of COVID-19 persist, we confidently begin Fiscal year 2022 as a stronger Company full of aspiration for the opportunities of tomorrow. For Fiscal Year 2021, sales rose 11%, as we pivoted our energy resources to the growth engines of skincare, fragrance, Asia-Pacific, travel retail in Asia-Pacific, and global online. Impressively, 8 brands grew double-digits, led by Estee Lauder, La Mer, and Jo Malone London. Multiple waves and variance of COVID-19 to extend the center reach were unexpected a year ago drove volatility and variability throughout the year. We saw reopening reversed to closing and reopening in one market met with renewed lockdowns in other markets. Despite this, we delivered on the goal we set last August for sales growth to improve sequentially each quarter. Our sales exceeded $16 billion for the first time ever, up 9% from Fiscal year 2019 on a reported basis, fueled by skincare and fragrance. Adjusted Operating margin expanded to 18.9%, which is 140 Basis points above Fiscal year 2019. As we invested in today's strongest growth engines, managed cost with discipline and funded long-term growth opportunities. Adjusted diluted earnings per share rose 21% relative to 2 years ago. We delivered these excellent results while pushing our social impact and sustainability goals and commitment. First and foremost, we…

Thank you for [Indiscernible] and hello, everyone. I concur with Fabrizio in thanking our incredible team who have demonstrated great resilience during the pandemic. Navigating through the highly uneven recovery this past year has certainly required greater agility and flexibility and our teams across the globe rose to the occasion, delivering superb results for the Fiscal year, while also establishing a stronger foundation for future growth and profitability. We delivered exceptional net sales growth of 56% in our fourth quarter as we anniversary pandemic-related store closures in the prior year. The inclusion of six weeks of sales from DECIEM added approximately three points to growth in the quarter. Our performance also exceeded the pre-pandemic levels of the Fiscal 2019 Fourth Quarter by 9% driven by significant sales increases in Mainland China, the skincare and fragrance categories, global online, and travel retail in Asia. All three regions grew and all product categories within each region grew during the Quarter. Net sales in the Americas region rose 86% against the prior-year period with almost no brick-and-mortar retail open. Throughout the quarter, consumer confidence in the U.S. grew as COVID restrictions abated and people resume shopping in stores again. Our brands responded with strong program supporting recovery, new product launches, and animating key brand shopping events like Mother's Day. Sales in the region remained below Fiscal '19 level for the quarter, reflecting in part the loss of over 900 retail locations that represented nearly 170 million in annual sales. Additionally, makeup has historically been the largest category in the region, and the category has yet to fully recouped sales loss during the pandemic. Nevertheless, we are encouraged by the sequential acceleration in North American sales, which has been better than we expected. Net Sales in our Europe, the Middle East, and Africa region…

The floor is now open for questions. [Operator Instructions] And our first question today will come from the line of Dara Mohsenian with Morgan Stanley.

Hey, good morning, guys.

Hi, Dara.

Good morning.

Can you give us an update on how much of the incremental e-commerce business and new customers you obtained during COVID are proving sticky now that we fully cycle COVID and perhaps also just give us a sense for expectations for e-commerce sales, growth in Fiscal '22 and how you sort of think about that versus a COVID boost. And then longer term, can you also spend some time just discussing how you're better using or upgrading technology to drive e-commerce sales longer-term. Thanks.

So, let me start is -- first of all, I would say the large majority of our online progress during COVID is very sticky. And keep in mind that we attracted also many new consumer. The new consumer were also among the older consumers, and they really liked it. And so, we see they're coming back and they're staying, even when store reopens, obviously, with a different balance, but this is definitely happening. But then in total, our online is continuing to grow and we expect this to continue to grow from many years to come and the trend will not stop after COVID. Also, our online mix, which is 3PP in China for example which as you heard from the prepared remarks, flying the our last 18/6 event was really strong and then retail.com that for many retailers around the world is booming to a play, which is very much growing and then brand.com and obviously brand.com in the moment -- the part of brand.com in the moment that is the bigger reopening and people go back to store will temporarily stabilize or slightly decrease. But then will start growing again. That's our expectations. So overall, all-in-all our online business will continue to progress as percentage of total business over the next years.

And keep in mind Dara. We also explained in our prepared remarks that we do have some new customers. So retailer.com should pick up as well with the U.S. expansion of Ulta into Target and Sephora into Kohl's and the same with JD in China. So again, we've got -- as Fabrizio said, very strong plans for online again, this year. And -- and I expected that it will -- again increase as a percent of our penetration of Sales. As it relates to technology, we are investing quite a bit in our e-commerce platform to enable capabilities, many of which we have spoken about, whether it's virtual try-on. Our data analytics that -- that certainly support our being able to more personalized experiences for -- for consumers and many other -- many other capabilities. And beyond -- beyond online where we continue to invest in the consumer experience in our stores and in other areas as well. So we do have a robust technology investment plan that I would expect to continue over the next couple of years. We're also investing in new technology in our new facility in -- that is opening in a couple of years in Japan. And it will be a state-of-the-art manufacturing facility, so it will leverage quite a bit of technology also.

Great, thanks.

Our next question will come from the line of Olivia Tong with Raymond James.

Great. Thank you. Good morning. I was wondering if you'd talk a little bit more about Asia-Pacific and the improvements there? And if you could talk about the drivers there? You mentioned the strength of 618. So, should we expect more quarterly variability in Asia, whether because of 618 or 11.11, and how that could influence how the year develops? And then if you could just talk a little bit about the current trends, given another uptake in volatility [Indiscernible] with the pandemic? Thank you.

There is very -- very big strengths in Asia-Pacifics that we will continue in the long term. Obviously, as we said in the prepared remarks, there has been some pandemic issues and we're down in places like Japan, on some parts to Southeast Asia, which become an obstacle to these. So it's a temporary obstacle to this growth in these specific markets. But, overall, Asia-Pacific will continue to be very strong and will be led by China. Who's progress will continue to develop in our opinion and also that's what's happening so far. Now, the -- what we call variability of Sales, meaning ups and downs to Sales in Asia-Pacific, particularly in China, Frankly, is more about seasonality. And there is a clear seasonality like the reason that use like the Visa in Europe and there are holiday moments and Chinese New Year moments, moments where the Chinese population travel, moments in which they are more home, moment where there festivities and there are moments of the year with certain progress, particularly skincare is more used than others. Obviously, there is important elements of seasonality. Now, the good news we're completely on top of those. We manage seasonality with anticipation. And that's why our quarter-by-quarter a year programs are pretty well, articulate and reconnaissance consumer seasonality and trade proportionality period in a very accurate way at this point of time. So this is a leverage point rather than an issue that's why I would not call it variability, but rather seasonality.

Thank you. Our next question will come from the line of Lauren Lieberman with Barclays.

Great. Thanks. Good morning. I will start with the discussion of 3% contribution from pricing in '22. I know there's always some pricing in the business and it's somewhat subtle based on the consumer standpoint, but 3% just sounded higher than usual to me. So, curious if it's more centered in categories and brands, are there areas where you just like the momentum is so strong that it's not an untapped opportunity or is this more in response to the broadly inflationary environment?

Well, as you mentioned, Lauren, we take pricing every year, usually in the 2% to 2.5% range. We are taking approximately 3% of pricing this year and yes, it is certainly considering the inflationary environment that we're operating in. We do take differential pricing, so that it is an average across all of our markets, all of our brands. And -- and -- and but -- but so there's no specific category that we're taking any more pricing and -- then others. But -- but it is tiered certainly by the tearing of our -- of our brand Portfolio.

And I just want to add, we do have the ability to price, where there is the opportunity. And because of our loyalty [Indiscernible] levels, etcetera, obviously in certain markets with spaces. And so we are planning because of the current [Indiscernible] environment, as you said, to take about 0.5 point more prices that in the previous years, and this is completely justified. And these combined with our cost-saving programs, which should allow us to manage the inflation without any negative impact, neither of our advertising nor on our profitability. And that's our plan. The other thing I want to say about our flexibility on pricing is that with the kind of success we had with innovation, in the kind of very attractiveness of our Innovation that can command luxury pricing very easily because of the great, great quality that we are deploying to the consumers. And the moment you are between 20%, 30% every year of this coming from innovation, you can imagine that we can decide the pricing of 20%, 30% every year based also on our -- our intent, on the power of our Innovation. So this is a next to our flexibility that we have in terms of managing pricing over the years.

And our next question is going to come from the line of Rob Ottenstein with Evercore.

Great, thank you very much. Just two questions. If I can just a quick follow-up on the China. We're reading a little bit about government actions in terms of cracking down on wealth-flaunting luxury, particularly in social media. And so I just wanted to be -- make sure that that's not something that you see affecting your business. And then my deeper question is if you could give us an update on the e-commerce in the U.S. as a percent of sales and how that breaks out between your direct brand.com business and the retailer.com business and any changes in trends there that you're seeing? Thank you.

And sorry, could you repeat the one on the U.S.?

The.com.

Just -- just an update on the.com business in the U.S., the percent of Sales, I think it's -- was running 40% and then how that's breaking out between the direct business and the retail.com.

Okay, starting with China and --

No, we don't see any issue on China potential in our industry on our last improvement, what you're saying.

Actually we see a lot of support to the trend and a lot of interest in our products as the middle class evolves. And we see also given, for example, all the government actions that have been taken to support the development of Hainan and the duty-free line, and there is obviously an interest in supporting internal consumption and somehow, our industry is benefiting from the interest in being the creation of internal consumption and also bringing the consumption in the past was outside more internally. So, it's all of a positive trend. The other thing, when you speak about luxury, just want to say, we are really affordable actually, in the sense that our products are luxury within the beauty category, but they're very affordable purchases in the context of total luxury. So, we don't see any negative at this point in time on this front, on the contrary, very strong support for the long-term. Going into the internal online development in the U.S., I'll turn this to Tracey for your specific question on the percentages.

Yeah. In terms of the online percentage we ended last year a little over 40% online. Again, as you know, we started the year with some of our Brick-and-mortar doors actually closed. So very, very strong online penetration. And as Brick-and-mortar reopened, the online penetration lessened a bit, but we did end the year at about 40%. In terms of the retailer.com versus brand.com, we are seeing -- and it varies. So we saw quite a bit of strength in retailer.com towards the second half of the year and strengthen -- and brand.com earlier in the year. And this year, obviously, we have some very strong plans for both brand.com and retailer.com in the U.S. to continue to grow.

Thank you.

Our next question will come from the line of Steve Powers, Deutsche Bank.

Yes. Thanks and good morning. I was hoping you would just elaborate a bit further on what you're doing to best position your portfolio to take advantage of the anticipated recovery in makeup and to what degree you see your businesses likely to accrue net share gains alongside that recovery? Thank you.

So we -- we -- we are preparing for the makeup brand source and we are working on all our makeup brands and in all our regions to leverage these as user education comes back. The prove that what was exactly happening in the U.S. in this last Quarter is very encouraging. In the last Quarter, our makeup was extraordinarily strong. For example, in countries where the world's have a recovery growth, like the U.S. and we saw great results from MAC onto phase and to many other brands. And we saw, particularly, the recovery start s from foundation and lipsticks, which is very good news, a very good sign. So what we're doing is first of all, we are preparing programs, marketing programs, and innovation programs and new launches for every market, making sure that we timed those to the expected recovery trend. That would be gradual but we will be -- as you know, we'll be dependent on vaccination levels and on the ability to control the COVID spikes where this happens. And so we have all analytics that tell us when this timing could be in different parts of the world. We time our marketing the auction, our advertising relaunch auctions, our innovation auctions to the different expected recovery moments. So it's a pretty complex elaboration or plan, but it's very effective. And so far has given us the kind of results we wanted, but most importantly, the kind of return on the investment that we wanted when you time it correctly. The second thing that we're doing obviously is making sure that we use data analytics and we use the understanding of the consumers to really tailor it to where the trend will start, and this is set by makeup subcategories. There are very different priorities that the consumer choose in coming back to makeup when the [Indiscernible]. And so we have some outstanding new capability in analytics that drive us also in maximum effectiveness in these areas. So, in -- all-in-all, we are very, very encouraged by the early recovery in the countries where this happened, which are mainly U.S., China, and we are well organized to follow up on the recovering gradually in the course of 2022.

Our next question will come from the line of Stephanie Wissink with [Indiscernible].

Hi, good morning. This is Grace Ong for Steph. I wanted to dig in a little on the Travel retail recovery that you're expecting and how you think about the growth in market locations like Hainan. Would you expect that Hainan continues to grow on international travel resumes or is there a re-balancing where the demand is realized? Thank you.

Yeah. First of all, we expect Hainan to continue to grow in the future and we expect Hainan success to be relatively independent from the comeback to international travel. Let me explain that; if you put in the number of Chinese consumers that have a passport, which is above 10% evolving towards 15%, from the information which are available and you assume they don't get percentage of those consumer with the past travel internationally in a given year, you immediately see that the international travel is going to create consumption that is a certain percentage of the Chinese population. Hainan is domestic travel, so is open to 100% of the Chinese middle class that wants to travel and is traveling as we speak. So the Hainan phenomenon is basically -- goes well beyond international travel because it is domestic travel and appeals 100% of the population. That's why we believe that Hainan is here to stay and is a great opportunity for the long-term term that will continue to growth even when international travel will restart. As far as the international travel question. We are assuming that some international travel will gradually restart in the second semester of our '22 Fiscal year. And these obviously, this is an assumption, nobody knows and will depend not only will from the pandemic development, will depend also from the government decisions on how to manage the various rules around the management of the pandemic. So is -- we can only go with estimates, but that's what we're currently estimating. And we have seen already signs for example, in summer in Europe, we're seeing some new travel, some new movements and some increase, but obviously relatively still very much below what was before COVID. And then in Fiscal Year 2023, we assume there will be a more robust international travel acceleration.

And our next question is going to come from the line of Mark Astrachan with Stifel.

Thanks and morning everyone. Wanted to ask a bit of a follow-up on China and just maybe talk a bit about what's embedded in your -- your expectations just overall for the business, for that country for Fiscal '22? And it may be in the context of things that we've seen around slowing sales on Tmall and discuss the commentary about expanding on JD and just how does that fit in when you talk about different demographics? So, if you could elaborate a bit on what you're hoping to accomplish that would be helpful? Thank you.

So we -- we -- we expect the -- the market in China to continue to grow double-digit. And we're very, very optimistic on the strengths of this market, as well as on -- on our position with the consumers in this market. We -- we expect to see a continuous acceleration of online, which is already 50% of Mainland China business today and farther growing. We see the possibility of continued growth in the existing platforms, like Tmall, which is for us, for beauty, for our brands, very successful and a great partners that we will continue to develop and manage with also specific products of specific brands -- of specific new brands in the future. And then we see an acceleration of brand.com. And in the marketing models around the brand.com in which we are investing and also improving our technologies to keep it aligned with the extraordinary development of technology in China, and the ability to make this technology very appealing to the consumers. And so we keep learning and keep evolving in this area. And then there are certain brands that are appealing to certain demographics that also decided to expand [Indiscernible], and just now in July. And so very optimistic with also the results of these increased coverage of consumers that we're getting. And there would be more opportunity in the future is a very, very dynamic market and competitive market, which keeps evolving and our principal is always to stay ahead of devolution, which admittedly is not easy in such a demanding market. But we're trying to stay always ahead of the evolution and anticipate change. And we'd get helped in this by our extraordinary Chinese leadership team, that keep us braced around what's happening and help us anticipating all the trends. And we get helped by our compass that we discussed in our time, which gives us a good, good point of view on what will be the evolution in the consumer preferences in every market, but particularly in China.

And our next question is going to come from the line of Erinn Murphy with Piper Sandler.

Great. Thanks. Good morning. My question is for Tracey. If you could talk a little bit more about what you expect for the Sales and the profitability of rebound in the North American segment in Fiscal 2022. Particularly when you're kind of layering on some of the new distribution partnerships, both Kohl's and Sephora and Ulta Target. And then I do have a follow-up Fabrizio on DECIEM. I know that ordinary has been driving the large success to date, but they do have a number of other brands in their Portfolio? So curious on your plans to scale some of them. Thank you.

Okay. Let me start with North America. We're very optimistic, given the trends that we saw in the Fourth Quarter and that are continuing into the First Quarter as it relates to North America. So, people are coming back to stores. People are still shopping online and certainly, the new retail partnerships of our retail partners, we are expecting, will also contribute to growth this year. But across the board, the team has really been working on a terrific innovation. We're increasing advertising in North America in Fiscal 2022, so we expect both top-line growth and margin expansion in North America related to our strategies in 2022.

And on these, you are absolutely right. DECIEM is a Company with an extraordinary Portfolio brands. The Ordinary is today, the biggest, and is continued to be very successful in growing as an extraordinary brand. But our other brand light [Indiscernible], which is more science-based, that we intend with the DECIEM team to continue to develop. And also DECIEM is adding twice that of the Company, the capability of an extraordinary incubation, [Indiscernible], and ability. So we definitely intend to continue incubate new brands, develop new ideas, and continue with the days and philosophy of the challenge of the status quo and seeing new different point of views to be offered to the consumers and develop the extraordinary new brands in the long-term. But in this moment, the opportunity for the ordinary to continue to grow -- to continue to expand is frankly amazing and is obviously the priority we are focusing on in fiscal year 2022.

Thank you so much.

And our next question is going to be from the line of Chris Carey with Wells Fargo.

Hi, thank you very much. I just wanted to follow up on disclosure around travel retail being 29% of Fiscal '21 Sales. Can you just confirm that? And then that would imply that you had a pretty big acceleration in Q4 in the Travel retail business. And then does that mean that the continental Europe business declined in the quarter? So any -- just any clarification just around that. And then just longer-term this decision to partner with Ulta and Target, support Coles, this is really an expansion of distribution throughout [Indiscernible] some channels where you've been less comfortable going in the past, but there's just more of a -- these brands are being curated in a different setting, what are your thoughts on that in other channels, say Amazon or other online forums over time? So thanks so much for those.

So -- so I can confirm Travel retail in terms of the percent of mix at -- at 29% on it -- we did have strong growth and travel retail in the fourth quarter. And in terms of the AMEA region, we did see growth as well in the AMEA region excluding -- excluding Travel retail, the UK was a little challenge. But -- but as we mentioned in the prepared remarks, all our regions grew in the fourth quarter

And the other thing I want to say on Travel retail on the long term, as I said, is the -- travel retail as these addition of the domestic travel in China, which is a very important additions. And so the development of the business with the Chinese consumers is extraordinary and then the Chinese consumer depending on the period of the year or their choice is some of them would travel to Hainan by there others would buy in the cities, and so you would see these expanding growth of the Chinese consumers in the China region or in the travel retail Hainan depending on what the Chinese consumer decide to do. Our strategy is very simple. We are going to serve the growing demand of Chinese consumer wherever they choose to shop. And so, we are aligned, we are in the outstanding quality department stores in China, we are in Hainan, and in all these areas, where they shop, we tend to be present with outstanding execution, great luxury, quality of services, and to really give justice to our elevated luxury positioning in these positions. And that's the strategy to cover the Chinese consumer shopping. And as far as the -- when, when the international traveling will restart, we'll obviously also cover the international travels in the best possible way. In term of your second part of the question is -- I would like to clarify one thing. I think Fiscal Year 2021 was an extraordinary year to build our luxury position and to elevate our consumers pressure in a very luxury way. If you think that the core investment that we have done is being in elevating the brand building, the luxury experience online. And that we have been able to bring online a lot of the…

Thank you. That's all the time we have for questions and answers with Ben. I would like to conclude the Q and A portion of today's call. If you were unable to join for the entire call, a playback will be available at 1:00 PM Eastern Time today through September 2nd. To hear a recording of the call, please dial 855-859-2056. Pass-code is 6687-487. Again, dial 855-859-2056 and passcode is 6687-487. That concludes the Estee Lauder Conference Call. I would like to thank everyone for their participation and I wish you all a good day.