The Estée Lauder Companies Inc.

Good day, everyone, and welcome to the Estee Lauder Company's fiscal 2022 first quarter conference call. Today's call is being recorded on 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 noncomparable impacts 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 investor 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 our retailers' websites. During the Q&A session, we ask that you please limit yourself to one question so that 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. We are grateful you have joined us today. We deliver excellent performance to begin fiscal year 2022, reinforcing our optimism in the opportunities of tomorrow, as we discussed with you in August. Our multiple engines of growth strategy enabled us to excel amid continued volatility and variability from the pandemic. Organic sales rose 18% and adjusted diluted earnings per share grew an even stronger 31%. Encouragingly, relatively to the pre-pandemic first quarter of fiscal year 2020, our business is 13% larger on a reported basis and more profitable. We achieved these outstanding results with increasingly diverse growth engines, as we expected. By virtue of our dynamic strategy, we could act locally amid the complexity of the pandemic to both create and capture demand. The growth engines of make-up developed markets in the West and brick-and-mortar reunited and complemented momentum in skin care Fragrance, Mainland China, Travel Retail in Asia Pacific, and Global Online. 13 brands contributed double-digit organic sales growth, demonstrating the breadth of strengths across our portfolio. Estée Lauder and MAC drove makeup emerging renaissance, while La Mer and Clinique delivered standout results in skincare. Impressively, skincare has solidly outpaced its pre-year organic sales growth performance despite having the far toughest comparison among the categories. Fragrance soared double digits, driven by Tom Ford Beauty and Jo Malone London. Let me share a few highlights by brand. Estée Lauder advanced planning for the make-up renaissance delivered significant sales growth. As social and professional user education resumed in certain markets, the brand was well-positioned with compelling innovation, superb merchandising, and on-point communication. Its double-wear and futurist foundation franchises rose strong double digits, while its new pure-color whipped matte lipstick was a hit. MAC strategically engaged consumers to drive performance in makeup. In the Americas and EMEA, excellent results from in-store activations and regional Mac-the-moment campaigns combined with desirable innovation like luster glass, sheer shine lipstick, and magic extension mascara. The brand's new omni-channel capabilities, which leverage its freestanding stores, also contributed to the strengths and demonstrate a new capability for Mac to benefit from going forward. La Mer performed magnificently and led the company, with sales rising strong double digits. Its new dehydrating infused emulsion expanded our portfolio of east-to-west innovation, captivating consumers in every region. The product's successes are many, as it welcomed new and younger consumers, as well as men, into the brand and created a powerful halo benefit for La Mer's skincare portfolio. It is a striking example of the innovation gains we can achieve when the power of our data analytics combines with our creative talent and R&D. La Mer's iconic Crème de la Mer prospered as a new global campaign focused on its most rising benefit realized terrific initial results. Clinique strived in skincare from the strength of its heroes. Moreover, its new smart clinical repair wrinkle correcting serum with powerful clinically-led claims and compelling before and after visualizations extend the Clinique winning streak with innovation and further demonstrated the brand ability to be highly relevant for consumers of all ages. In makeup, Clinique's skincare authority drove growth in complexion-led subcategories, while in lip, the brand Brilliant leveraged black honey viral sensation on TikTok to expand its consumer base, especially among Gen Z. Dezium complemented our organic sales growth in skincare with its coveted vegan brand, The Ordinary. Dezium is known for its transparency, which has enamored it with consumers. And in the first quarter, it launched the insightful Everything is Chemicals campaign. And the new regimen builder by The Ordinary on brand.com realized spectacular adoption, further enhancing the brand-powerful online ecosystem. Fragrance momentum continues with stellar double-digit performance in every region. powered by hero products and innovation from Tom Ford Beauty, Jo Malone London, and our artisanal offerings. We are excited for the Estée Lauder brand launch of its luxury collection in the second quarter as it expands our portfolio in the high-growth segment of fragrances. Our fragrance category benefits from diversification among subcategories as well as regions, with outstanding performance from both historically strong markets for fragrance and emerging fragrance opportunities. The self-care rituals related to scent, which were embraced during the pandemic, continue even as social and professional use education resume. Of note, Tom Ford Beauty performed strongly in both fragrance and makeup, such that the brand was among our top performers in the quarters. its new umber leather perfume, and heroes Hood Woods and Lost Cherry fueled the brand's success. Our growth engines also diversified geographically, led by developed markets in the West. Our business in North America executed with excellence to deliver strong double-digit organic sales growth, powered by readiness for makeup's emerging renaissance, ongoing strengths in skincare fragrance and recovery in hair care. Strategic go-to-market initiatives supported by on-trend innovation, increased advertising spending, and expert in-store virtual services delighted consumers. Our expanded consumer reach enhanced these initiatives as Bobbi Brown launch in Ulta Beauty exceeded expectations. and we are encouraged by the early results of the new Ulta Beauty at Target and Sephora at Kohl's relationships. In Asia-Pacific, many markets faced COVID-induced lockdowns and temporary store closures, which pressured performance. Despite this, the region still grew 10% organically, driven by strengths in Greater China and Korea. Mainland China achieved double-digit organic sales growth owing to skincare and fragrance, with online and brick-and-mortar both higher. We launched locally relevant innovation, which proved highly desirable, while we also increased advertising spending, strategically extended our consumer reach to match success on JD, and designed successful activation for Chinese Valentine's Day. We continue to invest in the vibrant and compelling long-term growth opportunity of mainland China, led by our talented local team. We are enthusiastic for our new innovation center in Shanghai to open in the second half of this fiscal year. This new world-class innovation center will be the first of its kind for our company. With it, we will have a unique ability to grow and build on our market, and consumer insights to develop exceptional products to meet and surpass the needs and desires of Chinese consumers. What is more, we are seeing the benefits of recent investment in online fulfillment, which have led to higher service levels and better inventory management while setting the stage for expanded omni-channel capabilities in the market. From a channel perspective globally, Brick and mortar grew strongly in markets which are gradually emerging from the latest waves of COVID-19. We realized excellent results across the board in brick and mortar, most especially in the Americas and EMEA. Our brands created excitement in store with enticing high-touch services and unique activations. We are encouraged by improving trends in the productivity of brick and mortar, owing to both increased traffic and our strategic actions, including those under the post-COVID business acceleration program. As brick and mortar reignites, our global online business continues to showcase its tremendous promise, with impressive organic results, despite significant organic sales growth in the year-ago period. online grew to be nearly double the size on a reported basis of the pre-pandemic first quarter of Fiscal Year 2020. Many markets capitalized on the remarkable new consumer acquisition trend of the pandemic to deliver sustained gain in repeat purchases. As we seek to engage with consumers in innovative ways, we advanced our work with Instagram, Snapchat, TikTok, WeChat, and others to capitalize on exciting trends in social commerce. We also deployed a technology solution which enables brands to better customize consumer outreach by leveraging data to merchandise and personalize communication. This is leading to higher conversion rates for new consumers and a deeper level of relationship building after the initial purchase to foster retention. Initiatives such as this position us well to realize even greater success with trial and repeat. We continue to invest in online to strategically extend our consumer reach and realize promising results. For example, in the first quarter, La Mer launched on Lazada in Southeast Asia to tremendous success. We differentiated merchandising, unique services, and prestige packaging, making it one of the platform's biggest brand launches ever. Our relationship with Lazada expanded in the current quarter with Jo Malone London, the boot. Before I close, I wanted to share that today we will release our fiscal year 2021 social impact and sustainability report. We are incredibly inspired by the achievements of our employees globally. The report highlights initiatives across key areas, including inclusion, diversity, and equity, climate, packaging, social investment, responsible sources, and green chemistry. I'm particularly proud of our support to employees globally who face financial hardships due to COVID-19. The ELC CARES Employee Relief Fund awarded nearly 14,000 grants and distributed nearly $8 million through June 30, 2021. Here are a few among the many other highlights of the report. We have continued to contribute to a low-carbon future. For the second year in a row, we sourced 100% renewable electricity globally for our direct operations and achieved net zero Scope 1 and Scope 2 emissions. The company also made strong progress in its science-based targets for Scope 1 and 2 and made efforts toward meeting its Scope 3 science-based targets. We achieved our existing post-consumer recycled content goal ahead of schedule and announced a more ambitious goal to increase the amount of such material in our packaging to 25% or more by the end of calendar year 2025. We also committed to reduce the amount of virgin petroleum plastic in our packaging to 50% or less by the end of calendar year 2030. On the last few earning calls, I discussed actions we are taking to make more progress on our commitments for racial equity as well as women advancement and gender equality, which are reflected in the report. We also deepened our work by further aligning the strategy of the Estelode Company's charitable foundation to identify and support programs at the intersection of climate, justice, human rights, and well-being, with a focus on equity, building upon our legacy of founding girls' education and leadership programs. In the beginning of Fiscal Year 2022, and aligned with our social impact commitments, We were pleased to announce a three-year partnership with Amanda Gorman, activist, award-winning writers, and the youngest inaugural poet in U.S. history. The Estelode companies will contribute $3 million over three years to support Writing Change, a special initiative to advance literacy as a pathway to equality, access, and social change. In addition, Mrs. Gorman will bring her voice of change to the Estelode brand, debuting her first campaign in the second half of this fiscal year. In closing, we delivered outstanding performance to begin the new fiscal year amid the volatility and variability of the pandemic, while continuing to invest in sustainable long-term growth drivers. We are focusing on fundamental capabilities for product quality and the consumer-centric elements of acquisition, engagement, and high-touch experiences and services. We are doing this while improving our cost structure, diversifying our portfolio and its distribution, investing behind the best growth opportunities, and living our values. Our confidence in the long-term growth opportunities for global prestige beauty and our company is reflected in the announcement today to raise the quarterly dividend. I am forever grateful to the grace, wisdom, and ingenuity of our employees globally who are making us a stronger company each and every day. I will now turn the call over to Tracy.