Earnings Call: Q4 2020

Aug 20, 2020

Good day, everyone, and welcome to The Estee Lauder Companies Fiscal 20 2Q4 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 Mantini. Hello. On today's call are Fabricio Freda, President and Chief Executive Officer and Traci 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. All net sales growth numbers are in constant currency. You can find reconciliations between GAAP and non GAAP figures in our press release and on the Investors section of our website. For clarity, I would like to remind you that references to online sales include sales of our products from our online channels, including brand.com and 3rd party platforms, as well as estimated sales of our products through our retailers' websites. During the Q and 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, Rainy, and hello, everyone. Fiscal year 2020 was truly a year without parallel as we delivered 1 of our strongest first halfs on record and navigated with agility through an unprecedented pandemic in the second half. In both of these dramatically different halvies, our employees led with extraordinary passion, creativity and resiliency. Our hearts continue to be with everyone impacted by COVID-nineteen, and we remain focused on the safety and well-being of our employees, their families and consumers. The second half of our fiscal year also marked a period of profound pain as tragic events in the United States highlighted the systemic racial injustice that has plagued our society for far too long. In June, we announced a comprehensive set of commitments to act with urgency on achieving racial equity. We stand in solidarity with our black employees, black consumers and black communities and firmly know black lives matter. Among our many commitments, we are listening and learning to foster a stronger internal culture and advocacy and inclusion. We are focusing on talent and opportunity to ensure that we are providing more equitable access to professional development and advancements for our black employees. We are ensuring that the end to end creative process accurately and consistently represents the black experience and engages black professionals. We are investing for change through a 3 year $10,000,000 pledge for the company, our brands, our foundation, employee matching gifts and the Loder family to support non profit and are in the process of making the initial $5,000,000 donation. Since announcing our commitments, we have held 30 town halls with our employees and began to identify gaps in our professional development and advancement opportunity for our existing black talent. We have also engaged a diversity focused recruitment firm and created new diversity recruitment resources. We have commitment to doing more as allies at our company and in our communities. In the last few months, the company and our employees have also made donations and pledges to organization around the world to help limit the spread of COVID-nineteen and ease the related hardship faced by the communities in which we live and work. We made hand sanitizer for frontline workers, high risk individuals and our employees. The production continues in this day at our facilities in the United States, the United Kingdom, Belgium and Switzerland. Our brands have found meaningful ways to offer support and Aveda is a shining example. Its initiative for salon owners and stylists serve to connect and educate as well as to provide financial and business assistance. By offering extended payments term, online sales, reopening toolkits and over 1,000 hours of virtual education, Aveda actively assisted its network during this challenging period of salon closures. Turning now to the year's performance. In the first half of fiscal year twenty twenty, sales rose 14% and adjusted EPS climbed 20%. Our continued outperformance yielded strong global prestige beauty share gains. In fact, our gains accelerated in calendar 2019. We were well on our way to a third fiscal year double digit sales and adjusted EPS growth. Despite extensive temporary store closures worldwide the second half as COVID-nineteen pandemic took hold, sales fell only 20% and we were profitable as we quickly pivoted to online to capture consumption and adjust our cost structure. Our multiple engines of growth strategy, which has powered our success for over a decade, continues to be highly effective. The company diversified prestige beauty portfolio give us many levers to drive the business. Our robust global skincare portfolio, vibrant online business, a broad exposure to Asia Pacific are the engines of this moment. In them, we enjoy both strong and growing prestige beauty share and profitability. Across these engines, the Estee Lauder brand's performance was magnificent in fiscal year 2020 as it achieved its 3rd consecutive year of double digit sales growth. Impressively, the brand hero franchises of Advanced Nerve Repair, Revitalizing Supreme, Perfectionist, Renutri and Micro Essence all contributed meaningfully to growth. For the fiscal year, skincare performed exceptionally well. Estee Lauder, La Mer, Tom Ford, Origins, Dafen and Le Labo drove growth organically, while the category also benefit from the acquisition of Dortorgette. We delivered excellent performance across subcategories, owing to strong repeat purchase rates, data analytics driven marketing, new social selling strategies developed during COVID-nineteen and highly desirable innovation. Among the subcategories, demand for Water Illusions is soaring as a hydrating step before serums and moisturizer in the new era of self care. Estee Lauder Macro Essence, La Mer, the treatment lotion, Origins, Doctor. Whale Mega Mushroom treatment lotion delivered outstanding growth for the fiscal year and we expect to continue favorability in this compelling subcategory. Beyond watery lotions, our serums and high care subcategories are prospering. For serums cherished heroes like Estee Lauder Advanced Repair and innovation from Clinique Even Better line and Estee Lauder Perfectionive and Renutrib franchise bolstered growth in fiscal year 2020. La Mer new eye concentrate launched a few months ago has been highly sought as consumers are embracing its lighter texture and new claims. In EMEA, the product was the best seller on lamertot com in the Q4. Trusted brands like Clinique flourished online when brick and mortar closed. In the Q4, Clinique U. S. Prestige Beauty share rose on retailer.com, solidifying its number one rank. Sales on clinique.com were the largest across of all our brand sites in the quarter, driven by HERO's dramatically different moisturizing lotion and moisture surge. Clinique promise to deliver products that are simple, safe and effective for skin is resonating loudly online. Our online business surged worldwide in fiscal 20 20. It delivered nearly triple digit or digit organic sales growth in the 4th quarter, which is a testament to the capabilities and scale we had built. Each of brand.com, brand boutiques on platforms such as Tmall and retailer.comdoors contributed meaningfully. On our brand sites, in particular, we delivered nearly 90% organic sales growth globally in the 4th quarter as we increased investments to offer the best high touch services. We quickly evolved our live chat capability to offer video. We also announced our virtual try on to include more categories. We rapidly deployed live streaming first in Mainland China then globally engaging makeup artists as well as brand ambassadors for tutorials. Our live streams are shoppable, meaning that consumers can make purchases within the event. Across the brands, traffic grew significantly in the Q4 and conversion rates rose dramatically. Encouragingly, we saw strong growth in engagement and repeat purchase behaviors. Both new and existing consumers shopped our brand sites more frequently. As for example with Origins and Estee Lauder in the United States, reinforcing the great work we are doing to cultivate and retain consumer through this moment. Consumer discovered new shopping habits online that are enduring and this is true of all ages. Clinique's live streaming series designed to both entertain and educate let consumer to return more frequently, brand June The brand June live streaming event with Clinique Global Ambassador Emilia Clarke surpassed these newly elevated conversion levels. Bobby Brown launched its Artistry like never before program in May, offering consumers 1 on 1 small group video consultations with national makeup artists. These engaging sessions range from 15 to 60 minutes with the 30 minute makeup bag makeover session as the most popular. Conversion rates are incredibly strong with a high level of units per transaction. Bobby Brown continues to scale this program globally to meet the increasing demand. This is just one example of the many ways our brands are building community through this challenging moment and we see this as an exciting evolution of the shopping experience for the future. Aveda, which led our brands by first launching its ingredient glossary earlier in the year is seeing guests we engage with the glossary spend 3 times more time on aveda.com than average. Further acting on our commitment to ingredient transparency, Clinique, La Mer and Origins launched their ingredient glossaries in the 4th quarter and we have more to come in fiscal year 2021. We maintained our strategy focus on key online shopping events throughout the year. Our advanced planning for these events delivered outstanding results. For the 6 18 mid year shopping festival, the Estee Lauder brand sales on Tmall, TRIPLE and its sales ranked 2nd among all prestige beauty brands. Our Asia Pacific region delivered superior sales growth in fiscal year 2020. Every category in the region expanded, led by accelerating growth in skincare. Fragrance also accelerated as consumer desire in the region for our portfolio of luxury and artisanal fragrance built. Mainland China performed exceptionally with its sales rising roughly 50% organically in the 4th quarter. Korea and several other markets also grew for the year and 4th quarter, driving prestige beauty share gains for both periods. In Mainland China, the premium and luxury segments of prestige skincare are booming. In fact, luxury is the primary growth driver for the total category. For this, La Mer is ideally positioned with its heritage, iconic ingredients and superior quality. La Mer is helping to grow the category and the brand shares of Prestige Skincare is expanding significantly, which is the ideal combination. Desire for our luxury and artisanal fragrances is strong in the region and we continue to see the growth. In the Q4, we launched Kilian and Frederic in Mainland China with great initial interest from consumers. In Korea, our fragrance sales soared as Jo Malone London and Tom Ford grew with our launches of Kilian and Le Labo were also highly sold, collectively driving prestige gains in the category. With air travel still largely curtailed, we are focused on meeting demand locally across the brick and mortar and online channels as well as in localized destinations of travel retail. Hainan in particular is prospering as tourism gradually resumes, which partially offset the decline of travel retail in the 4th quarter. As of July, duty free shopping allowances in Hainan have increased more than threefold, which is further boosting consumption. We continue to strengthen our leadership in the travel retail channel. Innovation is fundamental to our strategy and even this unique year, it once again represented over 25% of sales. It will play a vital role in fiscal year 2021, powering the engines of the moment and the engines of the future. Already out this month are 2 big launches in skincare. La Mer launched its new concentrate as a potent barrier serum newly advanced with antioxidant power to be a double source of strength against environmental stressors and their aging effects. Estee Lauder introduced the breakthrough new generation of its brand Icon Advanced Night Repair. This powerhouse serum still has all the benefits and texture loyal consumers know and love and now seizure innovative new technology. Tested on women of all skin tones, ethnicities and ages, it now offer the fast growing highly desired benefits of firmness, pore minimization and 8 hour antioxidant power on top of its existing wrinkle and uneven skin tone benefits to recruit a younger consumer while retaining our loyal users globally. Its package has been modernized into a luxurious recyclable glass bottle that supports our sustainability initiatives. We have exciting launches to come from MAC and Clinique in makeup as we anticipate trends on the horizon. Our pipeline in fragrances and hair care is also robust with newness from Jomolon, London, Enavida among others. Looking ahead, we are confident that we can return to our long term growth algorithm of 6% to 8 8% sales growth, 50 basis points of operating margin expansion and double digit earnings per share growth in constant currency after a period of normalization as the impacts of COVID-nineteen subside. Our citizenship and sustainability goals remains on track. We are also implementing sustainable office practices in Mainland China and exploring green energy solutions there. For fiscal year 2021, we are investing in several strategic priorities intended to drive our long term sustainable growth. Among the priorities are enhancing manufacturing capabilities, expanding online fulfillment capabilities and further funding growth opportunity in Asia Pacific, including our new state of art innovation center in Shanghai. While the world continues to confront many unknowns related to the pandemic, certain realities have emerged that have accelerated our strategy. As online has quickly grown, we need to more aggressively adjust our brick and mortar footprint and more closely align with how and where the consumer wants to shop. The post COVID Business Acceleration Program we announced today is designed to rapidly relocate our resources, enabling us to invest in the greatest opportunities for long term sustainable growth like online, skincare or China. Importantly, this program would also improve the productivity and sustainability of our brand building brick and mortar footprint and better position us to make it experiential and omni channel. Tracy will discuss the program in more detail. In closing, we confidently bring the strength of the first half and the learnings from the second half with us into a new fiscal year. I want to thank all our employees for your exceptional contributions across the year and most especially the second half. You navigated through an unprecedented period with grace and made us a better company. Now I will turn the call over to Tracy. Thank you, Fabrizio, and hello, everyone. As Fabrizio said, fiscal 2020 was an extreme tale of 2 halves. At the end of December, we delivered our best half year performance on record. And by the time we closed the year on June 30, COVID-nineteen had created the backdrop for our worst second half performance. Navigating through this year has certainly been one of the most significant challenges we have faced. Same time, we are proud to recognize the incredible compassion and resilience of our employees who continue to support their communities and each other as they also work to both mitigate the business impact of COVID-nineteen and also drive the recovery of our growth. As a reminder, my commentary today is adjusted for the items that Rainey mentioned at the beginning of the call and net sales growth numbers are in constant currency. And now for the quarter results. Net sales for the 4th quarter fell 31% as the majority of our brick and mortar distribution throughout the world was closed for much of the quarter. We rapidly accelerated programs to capture As a result, online sales including retailer.com represented more than 40% of our total sales in the quarter. The December acquisition of Doctor. Jart added approximately 3 points to net sales growth. Regarding our regional performance, net sales in Asia Pacific rose 16%, driven primarily by very strong double digit growth in skin care. Mainland China returned to previous levels of robust double digit growth as brick and mortar retail reopened and online more than doubled on strong six eighteen midyear shopping festival programs. Nearly every brand and channel rose strong double digits in China. Korea rose mid single digits, while other markets in the region have been slower to recover. Net sales in our Europe, the Middle East and Africa region fell 39% with all markets declining. Global Travel Retail, which is primarily reported in EMEA, was hard hit by the 97% drop in international passenger traffic, but still managed to decline less than 30% for the quarter, supported by strong local tourism within China. Net sales in the Americas declined 54%, reflecting a very difficult environment throughout the region. From a category standpoint, skin care was the most resilient. Net sales grew 3%, driven by continued strong increases from the Estee Lauder and La Mer brands in Asia. Skin Care sales also benefited from the acquisition of the Doctor. Jart brand. Net sales in makeup fell 61%, reflecting the greatest impact of COVID-nineteen work from home and social distancing guidelines on consumer preferences, particularly in Western markets where makeup is the largest category. Fragrance net sales declined 56%, reflecting the impact of store closures and a shift in consumer preferences from personal colognes to hand wash and home fragrances. Our hair care net sales fell 35%. Most stores and salons were shuttered during the quarter. Our gross margin decreased 8 40 basis points compared to the Q4 last year as we expected. A number of factors contributed to the decline and most were triggered by the impact of COVID-nineteen on our sales and on our manufacturing locations. Increased obsolescence contributed more than half of the decline as demand for all products, particularly makeup was sharply curtailed by COVID-nineteen. Inefficiencies caused by the temporary shutdown in some of our manufacturing locations and the implementation of social distancing measures, reduced capacity and triggered a requirement to recognize these manufacturing costs in the current period rather than when the product is sold. This contributed approximately 210 basis points to the decline. The inventory step up related to the Doctor. Jard acquisition, increased tariffs and other supply chain impacts made up the remainder of the decline. Operating expenses declined 22%, reflecting the $550,000,000 in cost actions we implemented during the quarter. However, the sudden and dramatic sales decline and the gross margin impacts I just mentioned resulted in a $228,000,000 operating loss for the quarter. The diluted loss per share of $0.53 including $0.03 of unfavorable currency translation and $0.06 dilution from the acquisition of Doctor. Jard. Let me now discuss a few elements of our full year results. Net sales declined 3% in constant currency, reflecting the record performance in the first half, followed by the impact of COVID-nineteen on the second half. Our distribution mix shift continued to evolve, accelerated by COVID-nineteen. Online sales growth accelerated during the year and continued to outpace other channels. Online, including retailer.com, represented 22% of our total sales during fiscal 2020, a 7 point increase compared to last year. Travel Retail delivered a strong performance despite the sharp downturn in the second half and grew high single digits for the year, ending fiscal 2020 at 25% of sales. Department stores globally, including their retailer.combusinessrepresented31% of fiscal 2020 sales and North America department stores were 9% of our global sales mix. Our gross margin fell to 75.2 percent driven largely by the factors I just described in the Q4. For the full year, the increase in obsolescence comprised about half of the decline. The COVID related manufacturing inefficiencies were approximately 50 basis points and the Doctor. Jart acquisition increased tariffs and other supply chain impacts caused the remainder of the decrease. Operating expenses declined $240,000,000 or 3% for the year, reflecting savings from Leading Beauty Forward and our ongoing cost initiatives as well as the cost containment actions we took in response to COVID-nineteen in the second half of the fiscal year. Our full year operating margin fell 2 80 basis points to 14.7%, primarily reflecting the gross margin decline, 40 basis points dilution from the inclusion of Doctor. Jart and the deleveraging effect of lower sales. The capabilities we built during this time and the actions we took and are taking should help position us to emerge strongly when the recovery is in full swing. Our effective tax rate for the year was 23.2%, an increase of 200 basis points over the prior year, primarily driven by the geographic mix of earnings. Net earnings declined 24% to 1,500,000,000 dollars and diluted EPS fell 23 percent to $4.12 Earnings per share was negatively impacted by $0.04 from currency translation and $0.11 dilution from the acquisition of Doctor. Jart. We recorded $1,200,000,000 after tax or $3.31 per share of impairment charges primarily related to our makeup brands that were initially challenged by a general slowdown in the overall makeup category and along with certain freestanding retail stores have been further challenged by the impact of COVID-nineteen on consumer demand. In fiscal 2020, we recorded approximately $68,000,000 after tax or $0.19 per share in restructuring and other charges for our Leading Beauty Forward initiative. We remain on track to substantially complete initiatives under the program by the end of fiscal 2021 and we continue to expect annual net benefits of approximately $475,000,000 before taxes. These charges were partially offset by the gain on our minority interest in Doctor. Jart and favorable changes in the fair value of contingent consideration. As you have heard, COVID-nineteen has created a number of disruptions to our business, including accelerating changes in our distribution mix that had been expected to occur over a longer period of time. The post COVID business acceleration program that we announced today reflects the need to accelerate additional organizational changes during fiscal 2021 to operate more effectively in the post COVID reality. We expect to close select department store counters and between 10% to 15% of freestanding retail stores, primarily in Europe and North America, while also further supporting the accelerating consumer shift to online shopping. This necessitates commensurate changes in our commercial organizations that will result reduce the number of employees by a net range of 15 100 to 2,000, primarily point of sale and support personnel related to those retail locations. While some positions will necessarily be eliminated, we also plan to increase investment in online talent and capabilities, including online consultation by sales associates. We also intend to reinvest a portion of the savings from the program to further build out our online technical capabilities, including accelerating omni channel capabilities linked to our retail stores and to increase digital media to reach both new and existing consumers. The program is beginning now and we expect to realize results fairly quickly, mostly in the coming 2 years. We expect to take charges of between $400,000,000 $500,000,000 through fiscal 2022 and generate savings of $300,000,000 to $400,000,000 before tax by fiscal 2023, a portion of which will be reinvested to drive growth. Moving on to cash flows. Cash generated from operations was slightly below last year at $2,300,000,000 reflecting lower net sales partially offset by cost actions and favorable working capital. We utilized $623,000,000 for capital improvements, primarily supporting our e commerce capabilities, supply chain improvements and information technology. We eliminated or deferred approximately 1 third of our planned CapEx, mostly related to retail stores and office space upgrades. We also used $1,040,000,000 net of cash acquired to purchase the remaining ownership interest in Doctor. Jart. During the year, we borrowed $2,700,000,000 net of repayments to both fund the acquisition of Doctor. Jart and to provide liquidity and flexibility as the COVID-nineteen impact spread during the second half of the year. We ended the year with $5,000,000,000 in cash and cash equivalents and $6,100,000,000 in short and long term debt. Even with these liquidity actions and with lower earnings, we returned $1,400,000,000 in cash to stockholders during the year via dividends and share repurchase activity. In August, we repaid the remaining outstanding $750,000,000 drawn on our revolver. In the near term, while we are encouraged by the gradual reopening of markets around the world, it remains difficult to predict the duration of the pandemic, the timing and trajectory of the recovery and the corresponding impact on our business, even while online remains a significant bright spot. Where stores are open, we are seeing traffic return slowly. We are also mindful of the risk of a global recession and a likely slow recovery in employment as some businesses in Western markets remain closed and many government support measures taper off. Therefore, we are not providing explicit sales and EPS guidance for the full year. However, we can provide you with some underlying assumptions to help at least frame some of your expectations for the year. We do expect to see progressive quarterly sales and profit improvement as retail doors reopen and traffic and travel gradually resumes, assuming no significant second wave occurs. Given this expectation, for the first half of the fiscal year, comparisons to our record performance in the prior first half will be difficult, with sales and profit below prior year levels. While online is expected to perform strongly, the momentum for recovery in brick and mortar and travel retail will not be realized until later in the second half. Conversely, we expect sales and profit to grow significantly in the second half of the year against a period of considerable COVID impacts, particularly in the Q4. The inclusion of 6 months of incremental sales from the acquisition of Doctor. Jarr should add about 1 to 2 percentage points to sales growth for the fiscal year. Pricing is expected to add another 2 points of growth. Our manufacturing capacity is back to near normal levels and we expect our gross margin to recover accordingly. We expect to realize the full benefit from Leading Beauty Forward in fiscal 2021 and we will continue to maintain some of the COVID-nineteen cost controls as we progress through the first half of the year. These savings are expected to give us the flexibility to invest more in digital marketing and advertising to support innovation, recruit new consumers and drive brand awareness, while also supporting our operating margin recovery. Our full year effective tax rate is expected to be approximately 23% and net interest expense is expected to be approximately $170,000,000 Capital expenditures are planned at approximately $900,000,000 as we continue to invest in additional manufacturing and distribution capacity, technology and data analytics, research capabilities and e commerce to support future growth. And as you saw in the press release today, we declared a quarterly dividend of $0.48 per share. We also expect to reinstate share repurchases sometime during the year as we gain comfort that the recovery is more sustained. As we are already halfway through our Q1, we are more comfortable providing guidance for this quarter. At this time, we expect sales to decline 11% to 12% in constant currency. Sales declines peaked in April and have been gradually improving each month as retail markets around the world reopen for business. The incremental sales from Doctor. Jart are expected to add about 2.5 points to growth and currency is expected to be dilutive by approximately 1 point. We expect 1st quarter EPS of $0.80 to $0.85 reflecting the sales outlook, continued cost containment measures and investment in key growth areas like online, innovation and China. Currency is expected to dilute EPS by 0 point 0 $1 and Doctor. Jart is forecast to dilute EPS by $0.06 We look forward to leveraging the tremendous strengths of our business and driving a strong recovery in the new fiscal year as the market accommodates. Protecting our agility to invest appropriately for both the near term recovery and the long term opportunities inherent in Global Prestige Beauty is paramount to the strategic actions we are taking to continue to support long term sustainable growth. On behalf of Fabrizio and The Estee Lauder Company's leadership team, we give thanks to all of our employees around the world for their extraordinary efforts to manage during this unprecedented period. That concludes our prepared remarks. We'll be happy to take your questions at this time. Our first question will come from the line of Erinn Murphy with Piper Sandler. Great. Thanks. Good morning. I guess my question is for Fabrizio. You've had a lot of success in digital that was really expounded upon this quarter. Have you changed your views on how you view Amazon as a potential beauty partner? And then secondly, as stores are starting to reopen, you just talk about how consumers are interacting with stores? Thank you. So, no, we have not changed our point of view at this point of time on Amazon. We see such a huge long term sustainable evolution of our online that we want to focus on that. And specifically, I want to explain what's happened in the online part. Our last quarter, our online business was growing at triple digits. And these included 90% growth on our brand.com, great work on retail.com in the 80% plus and also triple digit in our platforms, AlatiMO. This increase, particularly the brand.com and the platforms is increasing our data to consumer business, which means increasing our data availability of consumers and increasing our ability to market these consumers. The other thing we are seeing is a dramatic increase in consumer engagement in the world of online. And because of these better engagements, we are driving loyalty and repeat of our hero products like never before. And finally, we really see an increase of exclusivity, meaning the consumers that were already there are buying more exclusively our brands and our brands online. And we see the arrival of new consumers across all age groups, which was not the case in the past, where the younger age group was ahead. Now we see really an increase across all ages group. This is a tremendous opportunity and we will stay focused on leverage this opportunity in the future. The other thing we are doing is investing in creating better omni channel capability, which bridge you bridge to your second part of the question, which is what we see in store. We see that brick and mortar stores are and will remain very important, But they will need to be linked more wherever possible in an omnichannel ways to the online. The consumer expect the full experience and the brick and mortar store will need to become even more experiential to attract the right traffic on top of being omni channel. And so we expect brick and mortar to be very important, continue being brand building, but we need as we explained in the prepared remarks to rationalize it because we need to increase productivity. We need to bring back the productivity levels that have been diminished by the COVID situation and bringing back the productivity will make the brick and mortar more sustainable for the long term that we continue to play in a sense a part of brand building. Thank you. The next question will come from the line of Lauren Lieberman with Barclays. Great. Thanks. Good morning. Good morning, Lauren. Good morning. I was hoping we could talk a little bit about North America and sort of underlying brand performance and takeaway, if you will, there. So I think anything you could share, I guess, 1, in terms of brand dot com performance? And then 2, the degree to which existing retail inventories, so retail inventory at department stores as an example and specialty multi, which were redirected to fulfill online orders such that maybe the shipment numbers that you're reporting don't really give us like a full read of how the brands were actually performing during the quarter? Thanks. Yes. So first of all, your first part to the question in North America, our online business has been exceptionally strong and our brand.com business has been really exceptionally strong. And the penetration of the online business has increased dramatically up to the 40%. And so that's changed. Now a lot of these will be sustainable for the reason I was explaining before, meaning that retail.com is increasing and our reason why it would be sustainable. The engagement of the consumers there is increasing. Our brand.com increase in the 90% is sustainable because we see it from the consumer engagement for the amount of time people spend on our brand.com. Just to give you a sense, a few data points that the virtual try on that we have added or the chat with consultants that we have added or the entertainment activities that we had added and the story explanation of innovation, all these brought in some brands, Estee Lauder as an example, we have consumer that spent 26 minutes of our site interacting with us for years. So we see really the time of interaction, the time of engagement going up. So this is will make this very sustainable growth over the long term and joined with our new technologies, we make it probably one of the best consumer experiences over time, a luxury consumer experience, full of experience and our omni channel capabilities. So that's what's happening now. To be clear, this was in our plans. This was part of our compass. But the COVID-nineteen has anticipated these trends and the speed of margin of these trends over at least 2, 3 years. That's what we have seen. Now the impact of COVID-nineteen outbreak, however, is also expected to disrupt the brick and mortar in the near term. These impacts include the store closure in department stores, which are happening obviously in the quarter last quarter. They were closed in many, many cases. Closure directed by us will also be added in the future as we explained in the post COVID-nineteen acceleration program. And then we are conscious of the high level of unemployment and that is offsetting consumer sentiment in total in general. And we see also these affecting particularly for the time being the makeup category. We are managing through this pivoting to online business, as I explained, supporting also supported by our new understand granular understanding of consumer and the biggest availability of data that we can drive. And our post COVID in business acceleration program will have accelerate the increased productivity in our freestanding store, in our department stores and should work really to rapidly bring productivity back in the future. Fewer brick and mortar location, which is what's happening now in the short term, but also will continue in the medium term, will reduce our fixed cost and should help also making the region becoming more profitable with a different mix between online and bank and market. And the only thing I'll add Lauren is the brand.com business in North America in the Q4 was up almost 70 percent and represented about 60% of the mix of business. So it was a very strong performer as you might well imagine and that to Fabrizio's point was the case really across all of our markets. Great. Thank you. Our next question will come from the line of Nik Nadeyes with RBC Capital Markets. Yes. Good morning, everyone. Just a quick clarification. Can you confirm that online margins are for the corporate average? That was just a clarification. And then, Tracy, Fabrizio, I mean, how do we think about this post COVID plan and kind of what you're targeting for like online as a percentage of the overall business? Because a 7 point increase is quite dramatic. I'm just curious how you're thinking about the evolution over the 24 month period over this program? Thanks. I don't know. I can say, our online margins are stronger than average. So the development of our online business is accretive to the business that is a fact. And how we are thinking of this, I mean, we are thinking of a continuous growth of the penetration of online in our business. I'm not going to give you a specific number because there's a lot has to be written in the future. But as a point of reference, we are today at the level of 40% in the most developed online markets of the world, U. S, U. K, China. And other markets are growing tremendously from a much lower base than these 3 markets. But in every market, there is a tremendous growth. So the potential is very high and we will learn more about what the specific lending point could be, but it's going to be significantly higher than today. Yes. So we finished the fiscal year 2020 at a 22% online mix, as we said in our prepared remarks. And we would expect online penetration to grow from there even with the strong growth in the 4th quarter, obviously with a lot of our brick and mortar closed during much of the quarter. We do still expect to see higher penetration in fiscal 2021 of online on top of what we saw in full year fiscal 2020 with a portion of our brick and mortar doors closed. So to Fabrizio's point, the acceleration of online that we are prepared to continue to sustain with all of the programs that we implemented in Q4 and expect to continue along with other capabilities that we're adding in fiscal 2021, should continue to sustain a lot of those consumers that perhaps discovered shopping online for the first time or at least certainly was our record of them for the first time and they continue that practice. Thank you. Our next question will come from the line of Mark Astrachan with Stifel. Yes, thanks and good morning everybody. I wanted to ask, so your growth in calendar first half twenty twenty was slightly above what estimated market share for Prestige looked like, at least estimated by one of your larger peers, but also then slightly below the growth from that larger peer, which has been somewhat consistent in recent years. I guess perhaps talk a bit about the dynamics of that and how you anticipate share trends to progress kind of through your fiscal 2021 maybe segment geography and kind of what perhaps has driven some of that underperformance? What do you anticipate for the future and kind of maybe if we're all wrong and kind of looking at that point that out as well? Thank you. Yes. I'm not sure I understood completely the way you frame the question, but basically we are growing global market share and we are in Prestige, the global market leader. And the total market share is growing and is growing ahead of our competition in general at global level because we are focusing on the area of fastest growth. And most importantly, we are focusing on the areas of profitable, sustainable long term growth. And because of this, the total is growth. Now there are areas of the business where because of our historical business model, we are losing market share. In some cases also, we are losing more market share than some of our competitors. And those are specific this is specific to the U. S. For example, which is an example of this. But there are areas like China, travel retail, Asia in general, where we are growing and we are growing very fast. So our strategy is not to have our multiple engines of growth to grow all at the same time at any cost. We are trying to put the resources, relocate the resources where there is the highest sustainability and rate of return. And in that sense, we really look at the key measure of the global market share. And so that's answered part of your question. The other part of your question, how we see these market share developed by quarter. As we explained in our prepared remarks, we see really a gradual improvement of our business quarter by quarter during fiscal year 2021. We explained what is our view of the Q1, the Q2 will be better and last semester will be really strong. And that's our view of the recovery. And this is a reflection of the way the stores will reopen, COVID will hopefully be managed around the world and the markets, particularly the consumer sentiment in different parts of the world will be reestablished. Where the consumer sentiment is reestablished, where COVID has allowed the reopening of most of the channels like China, we are seeing tremendous business and tremendous share gain. So is also in the area of consumption and market share that was the core of your question, we see a gradual acceleration and recovery over the years in the 4th quarters of fiscal year 2021. Tracy, maybe you want to add something specifically. No. And obviously, we have not provided guidance for the year for obvious reasons as we don't know how the recovery will progress or COVID-nineteen will impact global markets for the fiscal year. But as we think about the second half of the year, because I know we tried to provide you with as much as we were comfortable providing as it relates to the guidance. But if you think about the second half of the year comparable, assuming that there is a gradual recovery and there's no other shock to the system, very comparable to our fiscal 2019 EPS performance. So stronger sales growth, but comparable to our fiscal 'nineteen EPS growth. And that's with obviously the tax rate and the interest expense callouts that I made. Our next question will come from the line of Wendy Newsome with Citi. Hi. Good morning. The first question is on the stores that you will keep open. Can you give us some sense of what that footprint will look like maybe by brand and by the ones that you're closing, they may have been unproductive, but they still have served the ones that you're closing, they may have been unproductive, but they still have served as great ways to build customer relationships and they're great branding vehicles and all that kind of good stuff. So how much of the savings from closing those stores do you intend to drop to the bottom line versus reinvest to offset the benefit of that branding presence if you will that you've had historically? Thank you. Yes. Let me start and then Tracy may add something. First of all, we are doing what the consumers are telling us they want. So we are following the consumer preferences evolution. And second, we are responding to the decisions of our retail partners because to be clear, there are retailers which are reducing the number of stores, there are retailers which are closing. And so first of all, we need to reflect what is the reality of the market. 2nd, we need to reflect what the consumer preferences are. And this will result in closing the stores which are the least productive. And so the stores that will remain, which is obviously the large majority, these stores would be more productive and will allow us to make this store experiential and in the appropriate cases also multichannel. And this will make these stores not only sustainable for the long term, but will make these stores brand building. While the non productive doors, which are not working and there is no traffic, frankly, are losing their power of being brand building. But the large majority of the remaining brick and mortar will remain will be more productive and will be a fantastic brand building tool that will continue to create the relationships you were referring to. But the unproductive stores of the world are frankly not very productive relationship today. And on the contrary, the online new way to work and particularly the new way of the consumer to engage online is becoming much more relationship building, much more brand building than ever before. And I think if I had to summarize what is in my opinion the biggest change of COVID-nineteen that made all the online channel, brand. Com, platforms, pure place, retail.com much more brand engaging and so much more fully luxury experiences, thanks to technology than ever before. And so to the last part of your question, the savings from this productivity improvement in brick and mortar will be in part obviously going to the bottom line, but in part will be reinvested. It will be reinvested in making the remaining brick and mortar store and our online much more brand building, growing faster and continue to create outstanding relationship with our consumers. Not to underestimate that the fact that a lot of the strong online growth is in brand.comnet platforms. So where we have the data access will also give us much more information, data and insights to manage the consumers and the business better in the future. And the only thing I'll add to that is most of our stores are profitable. We have had a portion of our stores as you have heard us talk about the mix shift we've experienced over the last few years. Some of our stores became more marginally profitable. Expect in terms of brick and mortar recovery, those are stores that now we believe need to close. And as you all know, the deleverage related to some of the fixed cost of freestanding stores when they are not productive is burdensome and certainly prevents us from being able to invest behind recruiting new consumers from a digital marketing perspective. So those are the stores that we will be taking action on. They were on that marginal bubble to begin with and certainly have become loss making now that we don't expect them to recover from loss making. As it relates to our mix of stores, you can imagine as well clearly in the more mature markets like North America and Europe. Those are where the bulk of the stores are that we will be addressing. And with the challenges in the makeup category, a number of them are in the makeup area, but they're not just makeup. They do comprise some other locations as well where mall productivity has declined and or street productivity has declined with some of our freestanding stores. Our next question will come from the line of Steve Powers with Deutsche Bank. Great. Thank you. So I guess if we met all of that together and fast forward to when your sales do recover to pre COVID levels, is it your expectation standing here today that the resulting profitability and margin against those sales will be higher than before just given the productivity and restructuring efforts and the mix shifts that we're talking about to online and skincare? Or are there reasons to believe that that may be delayed given the growth reinvestments you just spoke about and maybe some residual weakness in higher margin channels like Travel Ag? A little bit more color as to how you're thinking about all that? So and obviously margin, we don't expect, will recover this year. And certainly with the actions that we're taking, we would hope that we could recover back to fiscal 2019 margins by next fiscal year. But that is just the pattern as we believe in fiscal 2022 again all things going smoothly, which has not been the case the last several years. But that in fiscal 2022, assuming a normal year, we will be back to the margins that we had pre COVID and would progress from there as Fabrizio indicated in his prepared remarks to back to our 6% to 8% top line growth and 50 basis points of margin expansion. Our next question will come from the line of Ritesh Parikh with Oppenheimer. Good morning. Thanks for taking my questions. So on the makeup category, I was curious just to get your perspective in terms of how you guys think the makeup recovery could take place from here? And then also, I guess, related to that question, I know ops losses related to makeup was a big headwind on the gross margin line in Q4. So I was just curious whether that headwind would continue into this fiscal year? Thank you. So I'll answer the second portion of that question. We've clearly adjusted our demand plans and our forecast to be more in line with the trends that we're seeing in makeup this year even in the recovery. One of the things that we have seen during COVID-nineteen, there has been even an acceleration from a penetration standpoint of interest in skincare, and we certainly expect that to continue next year. We have some great innovation programs behind our makeup brands as well. But we are adjusting our forecast to the level of consumption we expect coming out of fiscal 2020 and the ramp up through fiscal 2021. So we certainly don't expect to see the same level of obsolescence unless there is another complete shutdown of business, we don't expect to see the same level of obsolescence in fiscal 2021. And in terms of trends, Fabrizio? Yes. And to the question of will makeup recover, absolutely makeup as a category is coming back. This is what we are seeing is the impact of what COVID has created on the consumer sentiment or consumer behaviors. There is a result of wearing masks in many parts of the world, which had an impact of lipstick. There is the results of being in homes and having less interaction and less social interaction between people. And there is also frankly the stress that COVID and the situation today in many parts of the world is creating that is conducive a bit less to the use of the cap that at the end is part of a joyful moment and indulgent moment more than point of views. My point of view that makeup cycle will come back very strongly as soon as consumer sentiment will be back and optimism will be back in the future. We'll see this category booming again and we'll be ready for that. But that's exactly the essence of the multiple engines of growth that in this moment is skincare and the reason why is skincare. Somebody was asking me if the lipstick index is finished. Remember lipstick index concept was the beauty is a resilient category, both in situation of crisis like this one and in particularly in situation of recession risks, because they are affordable purchases for indulging and taking care of yourself. And consumer really love their routines. Now this is remained exactly true also in this crisis. What has changed is the category because of what quality is, lipstick was not the right category to indicate that. But the resiliency of the overall beauty is still evident and it's still a very strong market. But the way I answer is the lipstick index has been substituted by the moisturizer index, But the concept of index is still there. This is a very resilient category and makeup will come back when consumer sentiment will come back. The next question will come from the line of Steph Wissnick with Jefferies. Thank you. Our question relates to trial and discovery. I think, Tracy, you mentioned you have some new launches planned. And also, Fabrizio, you talked about some of the emerging technologies, live streaming, virtual try on that you're using in your online business. Can you talk a little bit about how you think about trial and discovery going forward, whether it's makeup or skincare? And then also just intertwining your comments on data, customer data and data access? Thank you. Yes. First of all, trial and discovery is going very well. And what is evolving and continue to be very strong is obviously travel and discovery in store has always been the key point. But what is evolving is travel and discovery online. And the way this is happening is, 1st of all, we see and I said this before, we see consumers spending much more time. So the level of engagement, the level of relationship with our online sites is increasing. They spend time and they spend time to discover. Now in term of trial, we are making a very big new investment in Samsung online. So you will go and buy online, for example, in our brand.com, your preferred hero products and then you will receive the samples of all what our data suggests that you may like around that when you open your pack at home. And in this way, we see how we are driving trial. We are driving discovery, frankly stronger than what we ever been able to do in the stores, because the ability to know what people would like based on data together with the ability to interact with people with more time in the online relationship and to ship to their home their main purchases allow us to make them try and discover everything else. It's just a matter of the techniques that we choose. So this is the moment where I believe trial and discovery can be further enhanced in the luxury business model that we are developing for our future. The next question will come from the line of Michael Binetti with Credit Suisse. Hey, guys. Good morning, Tracy, Fabrizio. I would rather ask you a long term question here, but I do want to clarify one thing that Tracy mentioned. Tracy, I think you said the second half of the year earnings performance will be the same as fiscal second half of twenty nineteen. And then I think later you said EPS growth would be comparable to fiscal twenty nineteen. Maybe you could clarify that as I just look back at the model, you did about $2.09 in EPS in the second half of 'nineteen. I think everybody's probably going to hook models to that comment, so it would help to get a little clarification there. And then I guess, and I do hate to be near term, but it seems like in the Q1 guidance bakes in about 800 basis points of an operating margin contraction. I think you said the gross margins just start to improve. And obviously, with the factories open, you'll see less of the accounting drag there from idle factory overhead accruals. I know the stores are reopening, but the SG and A was down by $500,000,000 in the 4th quarter. It seems like it should still be meaningfully lower year over year even if retail starts to come back online. So I just want to make sure I understand where the pressures on the margin might be in the Q1 related to what you guided? Sure. So let me start with, again, reiterating the fact we are not giving guidance. So as we try to help you frame your model for the year, given the fact we're not giving guidance, one of the things to think about, as we believe that the second half of the year, we will still be recovering our sales growth, but will be more normalized assuming no additional impacts from COVID-nineteen, the way you could think about our second half EPS is similar to our adjusted fiscal 2019 EPS in the second half. Again, with the ramp up and acceleration in sales that we expect to see. So that is a way to kind of think about the second half of the year. But again, that depends obviously on a continuation of progress as it relates to the recovery. As it relates to the Q1, what we said in our prepared remarks is we do expect gross margin to recover. And so when you think about the margin for Q1, one of the things we are doing is investing in advertising. So even with sales down in the quarter, we have a launch of our one of our most popular products, advanced night repair. And that is we are supporting with additional advertising some of the online initiatives as well. We are supporting with additional advertising and other innovation as well. So that is a piece of what's driving some margin deleverage in the Q1. The other piece is higher shipping costs. So we are still catching up a bit from our plants starting up slow more slowly as it relates to social distancing, but now ramped up, but really catching up on some of the shipping to replenish some of the product that was low on inventory in certain markets. So that is driving a piece of the margin. And then when you think about EPS, we obviously have higher net interest expense. So we have higher interest putting some putting some pressure on our EPS in the Q1. And then the last piece obviously is I did quote the tax rate, which would be the tax rate we expect to see in the Q1 as well. Thanks a lot, Kevin. I really appreciate the help. Sure. Our next question will come from the line of Andrea Teixeira with JPMorgan. Hi. Thank you and good morning everyone. And so this is Tracey, can you help me understand the travel retail performance embedded in the Q1 guidance now that you have more than half of your quarter through? And just a clarification on the split and takes that, Tracey, you just described for the Q1. So basically, you're seeing still a lot of the pressures that we saw in the quarter. So if you can help us like understand like the exit rates on some of these expenses that will be great, but the travel would be my first my main question, sorry. So I'll start and then let Fabrizio share his perspective on travel retail. There are still travel restrictions. So travel retail is still largely closed in the Q1. And again, we expect travel retail really to be the slowest to recover. Now again, we are seeing traffic locally in Asia, in particular in China. And so that is continuing to pick up and Fabrizio addressed some of that in his prepared remarks. But we do expect that travel retail will be the slowest to recover. As it relates again to the Q1, relative to the Q4, I guess, I'll add to what I said just previously. We did have some furlough programs in the 4th quarter that also are not repeating in the Q1. So that is another piece of why the expenses, if you're comparing the Q4 to the Q1, might look a bit higher. So it's the advertising, it's the shipping cost and we do have some of the furlough programs that we had in the Q4 that will not be repeating. Probably for when you look at the quarter, a more comparable quarter would be the Q3 of last year, relative to our Q1 this year in terms of overall performance. And What I will add on travel retail is that, 1st of all, in the long term, we believe travel retail will continue to be a very exciting channel. And in this moment, the traffic is very, very low. But for example, the conversion of travelers into buyers is increasing dramatically. The Asia is the biggest part of travel retail globally. And the good news that Asia is going to recover faster than the West, the traveling traffic and the conversion driven by retail. So basically by travel retail online in Asia even stronger than the rest of the world. So the good news that will over time mitigate the current lack of traffic in travel retail is that the recovery is starting from Asia. Asia is the biggest and the most interesting travel retail segment. The other important thing to say travel retail that in this moment, the number of travel retail also in the last quarter, a minus 30%, has been better than at least we were afraid of because of the many closures around the world. The reason why it's been better, there are some mitigating factors which are very important. The most important mitigating factor that has been the start of China local internal travel that in many cases is duty free travel like in the Hainan Island and the extraordinary increase of what the Chinese are buying within their local duty free travel is mitigating the lack of the very limited international travel. But then you can expect for the long term when the international travel will be reinstated, these local internal travel will not go away. And so there will be a stronger and even more exciting long term travel retail market to manage in which we are today the market leader. And so there is a lot of long term potential into that and then very exciting to see what's Q4 versus Q1, obviously being down quarter 4 versus quarter 1, obviously being down 30% in sales in Q4 and progressing to down 11% to 12% in Q1, we are seeing obviously a pickup in our brick and mortar business. And so in July, in fact, as Fabrizio indicated, we actually had positive sales growth and that was related to some of the restocking that we saw in the trade for doors that had been closed and are now reopening. So we are seeing positive signs that we will expect to continue to see throughout the first half, even as brick and mortar recovers more slowly than obviously the strength we're seeing continue in online. Very helpful. Thank you. And we have time for one more question. The final question will come from the line of Olivia Tong with Bank of America. Great. Thanks. Good morning, everyone. First, just a follow-up. Did you just say that July was positive overall or specific to a channel? And then just generally speaking, I wanted to ask about the balance between containing costs and supporting the top line because it's clear that your investments resonate in the top line in the last couple of years pre pandemic. So as we think about the timing of you getting back on your long term algorithm, clearly with a focus on efficiency, can you talk about how the organization plans to balance achieving both of those things concurrently? Thanks. So my comment on July was global and it was sales growth and a lot of that being driven from North America actually in terms of some of the restocking within North America. And still seeing growth obviously in markets like China and Korea, the same markets that had momentum in the Q4 or more momentum. But every market is improving a bit as doors reopen and we start to see traffic flow back to stores. But July really was a restocking from many of our retailers that had had their doors closed. And we're sourcing some of their online sales from their brick and mortar doors. In term of so yes, July was positive to that company. But to speak about your second part of the question is the focus on the top line. We are and we intend to remain a high growth company. So we are really focused on growth and but we are focused on profitable growth. And in the short term, we are we'll remain focused of cost containment to make sure that we preserve the resources to invest in growth. So the cost containment in our program is never short term, is always designed to preserve and relocate resources for investment in long term growth and obviously to drive profitability at the right level. So that's the way we think about it. And in our compass and our strategy process are very focused in identifying the key areas of growth and the key areas of sustainable profitable growth and to invest in them over proportionally and to continuously reallocate resources in these areas. That's what we're doing. And also our restructuring program is also designed to give us the flexibility to continue doing that also in the COVID situation despite that we are paying a lot of attention to mitigate the short term impact of lack of sales with a lot of good action of cost containment. We are really focused on recovery. That's the key point It's recovery of our top line that over time gradually will bring back our profitability and our ability to continue to deliver the kind of EPS and double digit EPS growth that we want to deliver in the long term. But also I would like to close, if this is the last question, say in this COVID crisis as we try to do in every crisis, I truly believe we are coming out with a better company. And yes, you are focused on the profitability side. This company can go back being high growth and being high growth with strong profitability, but also is a better company in inclusion, in sustainability, in technology. And all of these together will make us also better employer and stronger loyalty both of employees and of consumers. And I think that's a very important value for the company we are, which are a company very long term focus. And I think this crisis has been managed in a way where we remain very long term focused company and will remain a better company, will be a better company. And that concludes today's question and answer session. If you are unable to join for the entire call, a playback will be available at 1 pm Eastern Time today through September 3rd. To hear a recording of the call, please call 855-859-2056, passcode 417,137. That concludes today's Estee Lauder conference call. I would like to thank you all for your participation and wish you all a great day.