The Estée Lauder Companies Inc.

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 Freyda, President and Chief Executive Officer, and Tracy 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 is before restructuring and other charges and adjustments disclosed in our press release. Unless otherwise stated, all net sales growth numbers are in constant currency. and all organic results exclude 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 include sales we make directly to our consumers through our brand.com sites and through third-party platforms. It also includes estimated sales of our products through retailers' websites. 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, Reni, and hello, everyone. I hope you and your families are in good health and 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 resolve. 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, eight brands grew double digits, led by Estée Lauder, La Mer, and Jo Malone London. Multiple waves and variants of COVID-19, to the extent of which were unexpected a year ago, drove volatility and variability throughout the year. We saw reopening revert to closing, and reopenings 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 costs with discipline, and funded long-term growth opportunities. Adjusted diluted earnings per share rose 21% relative to two years ago. We delivered these excellent results while pushing our social impact and sustainability goals and commitment. First and foremost, we remain focused on employee and consumer safety and well-being. We achieved important milestones for our 2025 sustainability goals, expanded our inclusion, diversity, and equity programs, defined a strategy for women's advancement and gender equality, and advanced work toward our racial equity commitment. Here are a few among the many areas of our progress. We achieved net zero carbon emissions and 100% renewable electricity globally for our own operations. We also set science-based emissions reductions targets, addressing scope one and two for our direct operation and certain elements of scope three for our value chain, signaling our new level of ambition for climate actions. We launched ingredient glossaries for seven additional brands, such that 11 brands now offer this insightful content. We transformed our traditional inclusion, diversity, and equity week into a blockbuster virtual experience with 35 events involving thousands of participants from 25 countries. We also introduced new educational offerings, including for anti-racism and inclusive leadership. We expanded our grassroots-led employee resource groups, which served as a source of support and comfort throughout the tumult of last year. The Women Leadership Network is our largest group and is now globally with its expansion into Latin America and Asia Pacific. We created two new leadership programs for women and black employees. The Open Door Women's Leadership Program is a unique, intensive course to develop our next generation of women leaders. Building on its success, we designed the Open Doors Collection, a self-guided program to bring these leadership skills to all our employees around the world. The Forum Every Chair Leadership and Developer Program has successfully helped to ensure that black employees have equitable access to leadership trainings, mentorships, career development, and advancement opportunity, as well as to build a stronger, more inclusive network of talent across the organization by promoting visibility and facilitating leadership connections points with participants. Our new partnership with Howard University focused on its alumni, hosted 12 engaging events, and launched an accelerator program to help increase the pipeline for Black talent with career coaching, professional training, and self-empowering networking. Let me now turn to product innovation, which served as an impactful catalyst for growth in fiscal year 2021. Innovation represented over 30% of sales, exceeding our expectations. We combined data analytics with our creative talent and R&D to successfully anticipate, scale, and set trends across categories. The Estelode brand achieved its fourth consecutive year of double-digit sales growth in fiscal year 2021. fueled by strengths across its many hero franchises in skincare. Trusted products, along with innovation, were highly sought from Shanghai to New York, Paris, and now Sao Paulo, given the brand's well-received launch in Brazil. Advanced Nye Repair's newly reformulated serum sparked excellent sales growth, revitalizing Supreme's new Supreme Bright Moisturizer, further bolstered the accelerating franchise, while the new eye serum surged and created a halo effect on demand. In makeup, the brand's double-wear, fuchsias, and pure-chloro franchises produced significant double-digit sales growth in the fourth quarter, an exciting early sign of makeup renaissance. La Mer delivered outstanding double-digit sales growth in the fiscal year, as innovation soared and engaging campaigns with iconic ingredient-based narratives drove demand for its hero products. The new Renaissance de la Mer Concentrated Night Balm proved highly sought-after and expanded the brand's ultra-luxury franchise as it both welcomed new consumers and captivated loyal consumers globally. Clinique Skincare excelled in fiscal year 2021. Sales rose double digits, empowered the brands to high single-digit sales growth. The brand successfully met consumer needs through the launch of Moster Surge 100 Hour with its unique hydration benefits and target solution for hard-to-solve skincare problems, like even better clinical interrupters. Clinique showcased its promise for makeup renaissance with stellar double-digit category growth in the fourth quarter, with a new even better clinical serum foundation and even better concealer capitalizing on its skincare authority. All told, Our robust skincare portfolio from entry prestige to luxury and across subcategories is fulfilling this journey needs around the world. Dr. Jart with its artful derma brand positioning and hero products delivered strong double-digit organic sales growth in the second half of fiscal year 2021. In May, we amplified the strength of our skincare portfolio as we became majority owner of Deysia, with its coveted ingredient-based brand, The Ordinary, and emerging science-driven Neod brand as part of its portfolio. Complementing skincare strengths, fragrance delivered striking sequential sales growth acceleration throughout the year. Each of our luxury and artisanal fragrance brands contributed meaningfully, from Jo Malone London to Tom Ford Beauty, Le Labo, Kylian Paris, and Frederic Malle, in both established fragrance markets of the West and emerging fragrance markets of the East. Tom Ford Beauty's private blend franchise is both recruiting new consumers and driving strong repeat in markets newly embracing the category, with the brand's fragrance sales more than doubling in mainland China during the year. The Asia-Pacific region was another dynamic growth engine in fiscal year 2021, as annual sales growth accelerated from 18% to 22%, led by mainland China, where sales rose strong double digits. Korea grew organically, as several smaller markets also contributed to Asia-Pacific strengths. The region, however, experienced increasing pressure from the pandemic as the year evolved, with Japan and many markets in Southeast Asia particularly impacted from renewed lockdowns in the second half. Mainland China prospered as we invested in its vibrancy of today and opportunity of tomorrow. We entered more cities, reaching 145, expanded our presence in specialty multis, opened the freestanding doors and increased our advertising spending. Skincare and fragrance sales grew strong double-digit for the fiscal year. We are encouraged that the makeup accelerated to double-digit sales growth in the second half. Our brands delivered excellent results for the key events of Tmall's 11-11 Global Shopping Festival and 6-18 Mid-Year Shopping Festival. as engaging live streaming generated product discovery for many new consumers. For the recent 2018, among Tmall Beauty flagship stores, the Estée Lauder brand ranked number one in total beauty, while La Mer ranked first in luxury beauty, and Jo Malone London led the fragrance category. To further capture the market's terrific online growth opportunity, we have continued to invest in Tmall and Brand.com to expand our capabilities. Most recently, some brands increased coverage of a different demographic by launching on JD in July. With international travel largely curtailed, we expanded our investment in the dynamic travel retail development of Hainan Highland, to serve the Chinese consumers in the best possible way, given the island's tremendous traffic growth and higher duty-free purchase limits. Our brands further elevated the in-store and pre-tailed shopping experiences, delivered ideal merchandising, and leveraged live streaming to drive strong sales growth. Looking at channels, Online strived globally in fiscal year 2021, characterized by strong double-digit sales gain and step change in its power as a growth engine. We accelerated our consumer-facing digital infrastructure and fulfillment investments. The challenge is now more than twice as big as it was two years ago and greatly benefits from its diversification as each of brand.com, third-party platforms, retail.com, and pure play retailers delivered outstanding performance. During the year, brand.com came to epitomize the allure of a luxury flagship store for each brand, localized by market and reimagined with our classic high-touch services. We expanded virtual trend on live streaming, omnichannel capabilities, and consultations with our expert beauty advisors. Consumers are all ages explored, replenished, and engaged in an immersive environment of entertainment and community. Our brands increasingly leverage the exciting trends in social commerce by integrating with Instagram, WeChat, Snapchat, and others. Estée Lauder launched on TikTok with the Night Done Right hashtag, driving nearly 12 billion views and the creation of almost 2 million videos. Its challenge used diverse creators to educate a younger audience on how important it is to take care of your skin at night, showcasing advanced night repair. Clinique Zit Happens campaigns on TikTok became a viral sensation. highlighting the brand acne solution and supporting the creation of nearly 700,000 videos on the app. Together, these and other strategic actions deliver exceptional results for brand.com as new consumers, conversion, basket size, repeat, and loyalty members grew considerably. Beyond the fearable growth rates, The direct relationship we fostered with consumers enabled us to better optimize engagement in-store and online, offering exciting future growth opportunities. We are investing across all channels of online, collaborating with traditional and pure-play retailers on initiatives to actualize prestige beauty online potential. We spoke on the last call about having expanded our presence with pure clay retailers, which continued into the fourth quarter, most especially in EMEA. And as I discussed a few minutes ago, we are expanding our consumer coverage in mainland China. For fiscal year 2022, we expect these growth engines of skincare, fragrance, Asia-Pacific, travel retail Asia-Pacific, and global online to continue to thrive, owing to our strong repeat purchase rates, sophisticated data analytics drive consumer acquisitions and retention, high-touch online services, and robust innovation pipeline. Three compelling skincare innovations recently launched. Estée Lauder's new Advanced Night Repair Eye Matrix is focused on lines in every eye zone, while La Mer Dehydrating Infused Emotion is designed to replenish, strengthen, and stabilize skin with healing moisture and has already proven to attract new consumers. Clinif Smart Clinical Repair Wrinkle Correcting Serum is designed to visibly reduce stubborn lines. Our Shanghai Innovation Center is expected to open in the second half of this fiscal year. enriching our capability in product design, formulation, consumer insight, and trend analytics for Chinese and Asian consumers. Also, with the new center, our east to west innovation will benefit, enabling us to create more successes like Estée Lauder Futurist Hydra or Supreme Bright and La Mer, the treatment lotion. As the world emerged from the pandemic We will be the best diversified pure play in prestige beauty as more engines of growth contribute across categories, geographies, and channels. Makeup and hair care are poised to gradually reignite as growth engines, as are developed markets in the West and brick and mortar retail. Growth in emerging markets is expected to resume over time as vaccination rates increase. We anticipate the momentum in MECAP will build around the world, driven by local reopening and increasing social and professional use education, just as we saw in the fourth quarter. Indeed, MECAP started to improve to the end of fiscal year 2021, driven by our hero subcategories of foundation and mascara. Newness in the category was highly sought and evidenced by the success of MAC's Magic Extension Mascara, Too Faced Lip Plumper, Smashbox Halo Tinted Moisturizer, and Bobbi Brown Sheer Pressure Power. Contributing to makeup emerging renaissance, MAC launched MAC The Moment, a campaign linking its makeup products and artistry-inspired trends to key experiences, such as date night parties, weddings, and back-to-school shopping. Too Faced expanded into brows in July with a collection that includes an innovative brow gel that adds color and texture. Similar to makeup, hair care is set to benefit from the rise of socially professional user education as well as salon reopenings. Aveda, which is now 100% vegan, and Bumble and Bumble entered fiscal year 2022 with momentum. owing to desirable innovation and rich consumer engagement from strong online performance globally over the past year. As make-up and hair care reignite, we expect our engines of growth will gradually diversify by geography and channel, initially driven by developed markets in the West and over time by emerging markets. In the United States, the fourth quarter we aligned innovation advertised pending and in-store activations as consumers returned to stores eager to explore beauty and experience high-touch services. Across brick and mortar, from regional and national department stores to specialty, multi, and freestanding stores, our business in the United States prospered, most especially in makeup and fragrance, and exceeded our expectations. As we start our new fiscal year, Bobbi Brown recently debuted in Ulta Beauty. Several of our brands launched online and in store with Sephora at Kohl's and Ulta Beauty at Target. In closing, we leveraged the power of our multiple engines of growth strategy to elevate the company to new heights in fiscal year 2021. We did this while leaving our values with the health and well-being of our employees as primary focus in making important progress on our social impact commitment and sustainability goals. Our success and agility in operating amid the challenges of the past year give us confidence for fiscal year 2022 as we expect volatility and variability from the pandemic to persist for some time to come. This year, we are celebrating our 75th anniversary as a company and beginning our next 75 years incredibly inspired by the opportunities of tomorrow as the leading global house of Prestige Beauty with the most talented employees to whom I extend my deepest gratitude. I will now turn the call over to Tracy.