Earnings Call: Q4 2019

Aug 19, 2019

Good day, everyone, and welcome to The S. T. Lodler Company's Fiscal 2019 4th Quarter and Full Year Conference Call. Today's call is being recorded and webcast. For opening remarks and introductions, I would like to turn the call over to the Senior Vice President of Investor Relations, Ms. Rainey Mancini. Good morning. On today's call are Fabrizio Freda, 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 will 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, the net gain on liquidation of an investment in a foreign subsidiary, goodwill and other intangible asset impairments, changes in contingent consideration, the finalization of provisional charges related to the U. S. Tax law enacted at the end of calendar 2017 and the new accounting standard for revenue recognition. 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. During the Q and A session, we will ask that you please limit yourself to one question, so we can respond to all of you within the time scheduled for this call. And now I'll turn the call over to Fabrizio. Thank you, Rainey, and good morning, everyone. We delivered another outstanding performance in fiscal year 2019 as our strategy based on multiple engine of growth continue to be a winning model. We have created more investment opportunities and improved our ability to quickly reallocate resources among different growth engines. Improved data analytics combined with our long standing creativity fueled our successful product innovation and digital marketing, which led to double digit gains in net sales and adjusted earnings per share in all four quarters. For the year, sales grew 12%, once again above the rate of Global Prestige Beauty, further strengthening our industry leadership. EPS climbed 21%, our 2nd consecutive year of EPS growth over 20%. We finished the year with strong 4th quarter results, driven largely by the same geographies, brands and channels that fueled our performance in the previous quarters. We also had a modest improvement in trend in our U. S. Business despite a tough environment. In fiscal 2020, we expect another year of strong above the industry sales growth, margin expansion and double digit EPS gains. We believe Global Prestige Beauty will remain one of the most exciting consumer product areas, driven by strong demographic trends and desirable products, and we will remain completely focused on this sector. Our performance was not worthy considering the volatility and challenges in some of our most important markets. As you know, they included trade tensions, uncertainty surrounding Brexit in the UK, a difficult environment in North America with increased competition and slowing beauty sales overall and certain department store challenges both in the U. S. And the U. K. Thanks to excellent execution, our talented employees worldwide manage through this environment to deliver strong results. Our broad based gains reflect diverse growth drivers, the desirability of our high quality products, compelling marketing and innovation successes. In fiscal 2019, we continue to execute against our strategic priorities, which powered our higher sales. Our skincare category was outstanding across brands, markets and channels. The growing number of mid class consumers in China and other emerging markets embraced prestige beauty, and they were avid users of our brands. We prioritized investment in the fastest growing channels, and travel retail and online continue to grow strong double digits. Our direct to consumer business accelerated. Sales from new product innovation reached an all time high, and our digital marketing and social media activations were highly effective. In addition, our sales growth was supported by more than 380,000,000 of cost savings and our Leading Beauty 4 Way initiative enabled us to invest more in advertising and other brand building areas. Tracy will give more details about this initiative in a few minutes. Now, I will highlight some of the factors that drove our improvements. Our 10 year compass forecasted continuing strong demand for skincare, and we matched our innovations to the biggest opportunities across consumer segment and channels. One of our strategic priorities is to reach a wider range of consumers and several skincare launches including Clinique ID attracted younger and more diverse shoppers. Our brands also attracted more diverse consumers through elevated marketing. Our Estee Lauder brand created locally relevant bilingual communications to attract Latina consumers in key U. S. Markets. During one such campaign for the brands revitalizing Supreme Plus Moisturizer, sales to Latina consumers rose significantly and led to a 35% jump in sales for that product. Looking at our geographies, our strategy of serving the growing middle class in many emerging markets with locally relevant products was highly successful. Sales rose in virtually all our emerging markets worldwide, led by China, India, the Middle East, including Turkey and Southeast Asia countries. And as a group, they grew over 30%. Our growth in China was outstanding. All categories and channels grew, and virtually all brands posted double digit gains. Our online sales rose significantly in China, and we introduced our Tom Ford Beauty and Jo Malone London brands on Tmall. Tom Ford was our biggest launch to date on the platform. We continued to expand our business in the fastest growing channels during calendar 2018. Our company became number 1 in prestige beauty in travel retail worldwide. And throughout fiscal 'nineteen, we had broad based growth across our top brands, regions and categories in the channel. Growth was primarily driven by robust like doors gains and expanded targeted reach also contributed. The retail business where passengers can order products online and pick them up at the airport upon their departures or return was has taken off strongly. Pretail is centered in Asia for now, but is expected to grow worldwide. Our online growth was also broad based and as brand sites, retailer sites and 3rd party sites all grew double digits. We increased our brand presence on select third party malls and sites at our brands entered new markets. The priority of our online business comes from our 3 largest markets, the U. S, China and the U. K. However, in total, our smaller online markets have become an increasing meaningful contributor to growth. Our online sales in countries such as Spain or Greece, Israel and India are expanding rapidly and hold great promise for the future. Our online sales grew at least double digit in every one of the approximately 50 markets where we have by now e commerce operations. Our brand sites are more than a platform to sell products. They are valuable media properties. They collectively attracted this year more than 400,000,000 visits, allowing our brands to engage with consumer through rich storytelling, elevated assets, and high touch experiences. This builds equity and loyalty, which creates value that extends to sales in other channels. Data driven marketing will make these sites even more compelling as we tailor our messages to different consumers. Our brand sites together with 3rd party platform and our freestanding stores in brick and mortar comprise our direct to consumer business, which rose sharply. The 3 channels combined had approximately 1,300,000,000 visits last year, and we are leveraging them as equity building platforms. Our product innovation was powered by capabilities we have developed in data analytics and consumer insights. Combining data with our creative process resulted in terrific innovation success. Our new product launches reached a record penetration, about 1 third of net sales. In addition, the number of success launches increased as did our speed to market. Our innovation was focused on bigger, more impactful products in large part supporting our hero franchises. We continue to focus our advertising spending on digital marketing and social media to strengthen brand equity, drive repeat purchase and generate trial. Digital now comprises nearly 75% of our media spend. It was highly effective. For example, in China, the Estee Lauder brand was ranked a Genius brand for the 3rd straight year, and La Mer was number 1 in global engagement in luxury skincare. By making progress across our strategic priorities, we drove higher sales throughout our portfolio. For the year, brands representing more than 80% of our total net sales posted increases as they attracted new consumers and improved retention rates. 3 of our 4 largest brands each with sales well over $1,000,000,000 grew strongly globally. Fueled by its popular hero franchises, our largest brand Estee Lauder had terrific success. Our sales rose more than 20% for the 2nd year in a row with double digit gains in skincare and makeup. It posted higher sales in all regions and virtually all channels. La Mer products and digital communication attracted many new consumers. It generated double digit growth in every region. In Asia Pacific, it was the fastest growing top 10. Strong innovation in products and marketing accelerated Max global growth and its makeup offering were particularly well received in travel retail and all over in Asia. Clinique focused its innovation on moisturizers, a high usage and high loyalty subcategory, which drove the brand skincare business higher in every region. 2 key launches were Clinique ID, a breakthrough innovation that let consumer customize their moisturizer and the Monster Surge eye concentrate, which helped the Monster Surge franchise grow very strongly. We also strengthened our portfolio small and midsized brands, and our luxury brands resonated strongly. By focusing on developing high quality products, communicating our brand's authenticity and strengthening our repeat purchases rates, we successfully scaled our brands and added $1,200,000,000 in incremental sales to the top line. Strong demand enabled us to raise prices across our portfolio, which contributed 2 percentage points of sales growth. During the year, we also committed to delivering greater value through our citizenship and sustainability programs. We announced new goals at our Investor Day and are continuing to incorporate our efforts throughout our brands, regions and functions, as well as on corporate level. Recently, we added the corporate responsibility scorecard on our website to track our initiatives. We have been recognized for our achievements, including being named number 1 on Forbes list of the best employees for women and included in Barron's top 100 sustainable companies. We celebrated 25 years of Mac VIVAGLAM campaign, which has cumulatively raised $500,000,000 to help people with AIDS and HIV in more than 100 countries. Finally, with our strong cash position and financial success, we raised the dividends by double digits for the 10th consecutive year. Fiscal year 'nineteen was a fantastic year, yet even more significant is the progress we made since we launched our current strategy a decade ago. Let me recap some of our key accomplishments. Since 2009, our net sales more than doubled from $7,000,000,000 to nearly $15,000,000,000 rising on average 8% a year, which is the top of our long term goal. EPS growth averaged 21%, 2.5 times our sales growth. Our share of global prestige beauty reached 15.3%, up 2.3 points, making us the clear global leader. Our total shareholder return topped 1100%. Total cash return to stockholders exceeded $10,500,000,000 and cash flow from operations skyrocket from $700,000,000 to $2,500,000,000 In addition to these financial results, we further diversified our business and built a more flexible financial model. We developed processes to drive more collaborative teamwork and invested in human capital, including recruiting external talent to bring fresh perspectives. Our workplace is now more diverse and inclusive. We amplified our family values. These changes have created a more streamlined integrated organization and a stronger foundation that we believe will enable us to continue our growth trajectory. As we start fiscal year 2020, we are continuing to adapt our strategy to reflect a continuously changing environment. We plan to fuel our strengths in the brands, categories, channels and geographies that are performing well, accelerate growth in areas that are underperforming to turn them around and with the guidance of our compass in utilizing data and technology anticipate new opportunities and trends as they emerge and act on them quickly. Our overarching goal is to reach diverse global consumers of all ages and reinforce our connection with loyal users. To do this, we will prioritize growth in emerging markets and fast growing channels, strengthen our hero franchises and create new ones, engage throughout social media and reach digital assets and expand our omni channel capability to seamlessly connect our online and offline businesses. In addition, we are striving to stabilize our North America business despite the current soft environment. We believe our creativity innovation will continue to attract and retain consumers. Our innovation program is focused on expanding our hero franchises across our categories. In our largest one, skincare, some new products include Clinique Smart Clinical MD, a moisturizer visibly Resculpt Revolumize and a RESET Concentrate in Estee Lauder Advanced Net Repair line. The luxury segment in skincare is among the fastest growing, which is why our high end Tom Ford beauty brand is launching a skincare collection to complement its very popular makeup and fragrance lines. And La Mer is launching a neck and decollete concentrate and updating the regenerating serum. We expect continuous strong growth in China and in other emerging markets including India, Turkey, Southeast Asia as we tap into the growing middle class with our desirable brands. We will expand online in these markets to reach consumers who don't have brick and mortar distribution options and offer more locally relevant products. We believe China's growth will remain strong, although we expect some deceleration from the rapid pace of the last 2 years. But as China's growth moderates, we expect other emerging markets to contribute more. Likewise, we expect our travel retail business to continue to be a growth catalyst, but we are anticipating our growth rate to moderate. We also are intent on turning around the parts of our business that aren't performing to our expectations. Prestige Beauty in North America and the U. K. Remains somewhat soft, especially in makeup where we are a leader. That said, we aim at improving our performance this year as we further rebalance our channel mix and win in key subcategories. We will build on our leadership position in prestige beauty by targeting a broader range of consumers within local areas and creating compelling campaigns. As we embark on the 2nd decade of our strategy, we are focused on winning today, while at the same time continue transforming our business to lead in the future. Maintaining our leadership in such a dynamic industry require constant reinvention, which has been a hallmark of our company for decades. We are optimistic about the outlook for prestige beauty and foresee continued healthy growth. Thanks to favorable demographic, especially in emerging markets and a continued shift from mass to prestige. As the best diversified pure player in prestige beauty, we are in a unique position to capture greater global share. Nonetheless, we are cognizant that in the short term, economical, social and geopolitical uncertainties could impact our results. In closing, I want to thank our leadership team and our highly talented employees all over the world for delivering such a terrific year. Throughout our brands and function, our employees excelled in their roles and successfully navigated difficult environments. This skill differentiate our company and our people. It give us a competitive advantage. We are proud that we have much to celebrate, but more importantly, we are excited about our bright future ahead. Now, I will turn the call over to Tracy. Thank you, Fabrizio, and good morning, everyone. As a reminder, my commentary today is adjusted for the items that Rainey mentioned at the beginning of the call. And now for the quarter results. Net sales for the Q4 rose 12% with strong growth in our international regions and growth across all product categories. We saw continuation of the outstanding growth in China and travel retail that we saw throughout the year and North America improved slightly. Our Asia Pacific region continued its strong net sales growth this quarter, up 23% with all product categories rising double digits. Nearly all markets grew and more than half of the markets grew double digit. Regarding China, the continuation of robust growth reflects the superb execution of new innovation along with strong digital advertising campaigns. Nearly every brand rose strong double digits in China as did all channels. Among the other large markets in the region, Hong Kong rose double digits and both Japan and Korea rose mid single digits. Net sales in our Europe, the Middle East and Africa region rose 20% led by a strong double digit increase in global travel retail. International passenger traffic remained strong, particularly in Asia, and our travel themed collections sold particularly well. The EMEA region also benefited from strong growth in emerging markets led by Russia, Turkey and India. The Middle East rose sharply following an inventory rebalancing in the prior year quarter. Growth in Western European markets was mixed. Increases in Italy, Greece and France were partially offset by modest declines in the UK and Benelux. Net sales in the Americas declined 4%, reflecting a slight improvement in North America trend compared to our prior Q3. Prestige Beauty overall in North America continued to be soft, particularly in the makeup category. We achieved double digit net sales growth online with contributions from both retailer and brand sites, but were challenged in brick and mortar retail. Latin America net sales declined as growth in Brazil, Colombia and Peru was more than offset by declines in Mexico, Chile and Venezuela. Skin Care again led product category growth this quarter. Net sales grew 19% with continued strong increases from the Estee Lauder and La Mer brands globally. Estee Lauder sales were driven by success in our hero franchises, notably Advanced Night Repair, Nutritious, Perfectionist and Micro Essence, where the franchise benefited from the launch of its Micro Essence with Sakura Ferment in Asia. La Mer had success from the relaunch of the concentrate and garnered increased awareness through its global Blue Heart campaign supporting Clean Oceans. Net sales and makeup grew 8%, led by strong demand in Asia and travel retail. Many brands contributed to growth, particularly Tom Ford Beauty, M. A. C. And Too Faced. Tom Ford Lip and Eye Makeup drove growth and the brand launched a cushion compact foundation in China, supporting foundation as another strong pillar of growth for the Tom Ford brand. Tom Ford Beauty's recent launch on Tmall also contributed to makeup growth. MAC resonated well across Asia, several EMEA markets and travel retail and grew sharply in the Middle East due largely to anniversarying an inventory reset in the prior year quarter. 2 Faced growth was broad based geographically driven by the successful launch of Damn Girl Mascara. The brand also continued its global expansion adding doors and travel retail in Hong Kong during the quarter. Fragrance net sales rose 3%. Higher sales of Tom Ford, Joe Malone and Laliboe fragrances were partially offset by declines in certain designer brand fragrances. Tom Ford Signature Fragrances maintained good momentum. Jo Malone London launched Frangipani fragrance with its Blossom collection and LALABO continued to selectively expand its global reach while maintaining strong light door growth. Our hair care sales rose net sales rose 1%. Higher net sales from Aveda's Champur, Rosemary Mint and Cherry Almond lines, select new doors in Italy and strong growth online were mostly offset by soft U. S. Sales from Bumble and Bumble. Our gross margin decreased 2 30 basis points compared to the Q4 last year and increased 10 basis points excluding the change Favorable pricing and mix impacts were mostly offset by higher obsolescence and shipping costs to support the strong growth in Asia. Operating expenses as a percent of sales improved 2 40 basis points or 50 basis points excluding the impact of the new accounting standard. Increases in advertising to support new initiatives were more than offset by savings in selling and store operation. Operating income rose 10% and operating margin increased by 10 basis points. Excluding the impact of the new accounting standard, operating income rose 17 percent and operating margin improved by 60 basis points. This was achieved even while making strategic investments to support a strong start to fiscal 2020. Diluted EPS of $0.64 increased 5% compared to the prior year and grew 8% in constant currency. Earnings per share for the quarter included $0.02 of unfavorable currency translation. Diluted EPS, excluding the impact of the accounting change was $0.68 an increase of 12% compared to the prior year or 15% in constant currency. So that concludes remarks regarding our Q4. Let me now discuss a few highlights of our full year results. Net sales grew 12% in constant currency. Growth was broad based as you have heard from Fabrizio. Aside from the diverse growth by brand, market and product category, our sales in virtually all channels grew. Travel retail and online continued to deliver strong double digit growth, further diversifying our overall distribution mix. These channels now represent 23% and 15% of sales respectively. Department stores globally represent 35% of sales today with North America department stores now 13% of our global sales mix. Our gross margin declined 200 basis points to 77.4 percent, but rose 10 basis points excluding the impact of the accounting change. Favorable pricing and mix were partially offset by increased obsolescence. Operating expenses as a percentage of sales improved 300 basis points or 70 basis points excluding the impact of the accounting change. Significant savings and efficiencies in our selling model allowed us to increase digital advertising, social media and influencer outreach. Our full year operating margin rose 90 basis points to 17.5%. This margin included 20 basis points of favorable impact from the accounting change, offset by 20 basis points of dilution from currency translation. Our Leading Beauty Forward initiative and ongoing cost savings initiatives contributed more than 3 $80,000,000 in savings, which fueled the strategic investments that will support our future growth. We have continued to create more flexibility in our cost structure to reinvest in areas that support profitable growth, mitigate risk, and deliver margin expansion through greater leverage of our cost base. Our effective tax rate for the year was 21.5%, an improvement of 80 basis points over the prior year, primarily driven by the lower U. S. Statutory rate. Net earnings grew 17% to $2,000,000,000 and diluted EPS rose 18% to $5.34 Earnings per share was negatively impacted by $0.19 from currency translation and positively impacted by $0.04 from the accounting change. Excluding both of these items, earnings per share rose 21% for the year. In fiscal 2019, we recorded approximately $190,000,000 after tax or $0.51 per share in restructuring and other charges for our Leading Beauty Forward initiatives. As of June 30, we concluded the approval of all major initiatives under the program and we expect to substantially complete all of them by the end of fiscal 2021. We now expect to incur charges of between $950,000,000 $990,000,000 before taxes and achieve annual net benefits of between $425,000,000 $475,000,000 before taxes. Leading Beauty 4 has been an unqualified success. The scope of the program grew over time to approximately 70 initiatives and encompassed most of the organization. Some examples of the transformation achieved by Leading Beauty Forward include improved global customer care that leverages new technology and enhanced customer data to deliver a seamless cross channel brand experience and more Integrated shared services across the business through our OneSource service center. OneSource delivers a suite of services across HR, legal, finance and point of sale support. Services are delivered through a mobile friendly portal for ease of use by employees around the world. Modernizing the North America field organization to provide best in class consumer services and experiences and exceptional retail partnerships New centers of excellence together with new tools enable our field teams to spend more time in store to drive sales and coach talent. And expanding indirect procurement efforts to new categories of spending and using enhanced technology to accelerate our savings opportunities. These are just a few of the key wins to date and they are not only producing expense savings, but changing the way we work to drive sales and improve the customer experience. Moving on to cash flows, cash generated from operations was slightly below last year at $2,500,000,000 reflecting our earnings growth and offset by higher inventory to support the rapid growth and longer lead time international markets. The timing of other working capital components and higher cash paid for taxes. We utilized $744,000,000 for capital improvements, primarily for consumer facing counters, gondolas and e commerce support, as well as supply chain improvements in IT. We returned cash to stockholders at an accelerated pace. We repurchased 11,000,000 shares of our stock for 1,600,000,000 dollars twice as much as the prior year. We paid $609,000,000 in dividends, reflecting a 13% increase in our dividend rate. So as Fabrizio said, we are obviously pleased and proud of our fiscal 2019 results and the momentum our overall business had throughout the year. Looking ahead to our expectation over the next few years, Global Prestige Beauty has been exceptional in recent years and we expect it to rise again in the range of 6% to 7% annually over the next few years, driven by a growing middle class globally with increasing disposable incomes. Our net sales goal is to grow 6% to 8% annually with possibly 1% of the growth over 3 years coming from acquisitions. Over the next 3 years, we continue to target average annual margin improvement of approximately 50 basis points and double digit EPS growth. Now let's take a look at our expectations for fiscal 2020, full year and Q1. As we enter our fiscal 2020, we must consider the escalating macro issues that could have an impact on our business. The ongoing tension and unresolved trading terms between the U. S. And China, the looming concern and consequences of a hard Brexit in October, and recent protests in Hong Kong and other markets are all examples of factors that could impact our fiscal 'twenty results. For the year, net sales are forecasted to grow 7% to 8% in constant currency at the upper end of our long term goal of 6% to 8%. Pricing is expected to contribute approximately 2 points to growth, expanded targeted consumer reach is expected to add 2 to 3 points of growth, and the strength of our existing business will account for the remainder. Strong growth in travel retail in China is expected to continue yet moderate as we anniversary 2 years of extraordinary growth and with the increasing macro and geopolitical uncertainty. We also aim to stabilize the brands and regions that were more challenged in fiscal 'nineteen and position them for future growth. All product categories are expected to grow again with greater balance and growth among the categories. Based on June 28 spot rates of $1.14 for the euro, dollars 1.27 for the pound and $6.88 for the yuan, we expect currency translation to have a negligible impact on reported sales for the full fiscal year. This will obviously change as the currency markets become more volatile. We expect to deliver productivity savings of between 2% and 2.5% of sales, including benefits from Leading Beauty Forward and our ongoing cost containment efforts. These savings give us the flexibility to invest more in digital marketing and advertising to support innovation, recruit new consumers and drive brand awareness as we expand our developing brands into new markets and focus more heavily on emerging markets outside of China. With the leverage from strong top line growth and our ongoing cost saving programs, we are well positioned to make needed investments for the future, while also delivering margin expansion. We estimate that the fiscal 2020 effective tax rate will be approximately 23%. Diluted EPS is expected to range between $5.90 $5.98 before restructuring and other charges. This includes approximately $0.05 of accretion from currency translation. In constant currency, we expect EPS to rise by 9% to 11 percent. In fiscal 2020, we expect cash flow from operations of approximately $2,700,000,000 and capital expenditures of approximately $900,000,000 or 5% to 6% of sales as we invest more in our supply chain, enable enhanced consumer experiences and invest in facilities to optimize our workspaces. Our sales in the Q1 are expected to rise 9% to 10%, both as reported and in constant currency. We expect 1st quarter EPS of $1.56 to $1.59 including a $0.01 of accretion from currency translation. EPS growth in constant currency is forecast to rise by 10% to 12% for the Q1. In closing, while we are cautious about the increased macro tension, we remain confident about the continued momentum behind Global Prestige Beauty and our ability to execute on our strategic initiatives. We continue to create increased flexibility in our expense base to invest behind the greatest opportunities we have to continue to drive long term sustainable growth. The flexibility in our P and L and our increasing cash flow generation also position us well to navigate a more volatile environment. And with that, I'll conclude our prepared remarks and we'll be happy to take your questions at this time. The floor is now open for Our first question today comes from Wendy Nicholson from Citigroup. Your line is open. Hi, good morning. I guess my question has to do with the U. S. Business specifically. Everything else is just going so great, but it just seems that that business is stubborn in terms of turning around and growing for you. So I guess number 1, specifically in your guidance for full year 2020, what are you expecting? What's baked into your outlook for the U. S. Business specifically? And what do you think it takes to get growth, not just for you, but the category overall? Are you taking too much pricing? Is there too much competition and you need to buy a bunch of smaller brands? Do you need to exit more department stores? What do you think fixes the problem there? Thank you. Okay, Wendy. So I'll start in terms of what's included in our guidance and I'll let Fabrizio speak about what we're doing to improve the North America business. So in terms of our guidance, we are expecting a slight improvement from fiscal 2019 in terms of North America. Remember that part of the challenge we had in North America in fiscal 2019 was the closure of Bon Ton. So that certainly cost us about a point of growth in North America. And we continue throughout the year to work on a number of different changes in our organization in order to position ourselves well for future growth. But it's obviously a pretty dynamic environment in North America given the soft traffic. So with that, I'll turn it over to Fabrizio. Yes. I think your question, Wendy, is what was the issue is still that we have 50% of business in North America in a part of the market which is under pressure in term of low traffic and declining business. And so what is happening is that the swing to the high growth areas is taking time, particularly is taking time because the overall environment is very soft. Have you heard from everyone in North America? Just to give you an example, even our global travel retail business, which is going fantastically well in Asia and in Europe is flat to declining in the U. S. So is really the U. S. Environment overall which is under pressure and that's why is taking a bit more than what we wanted. So what we have in mind for fiscal year 2020 is a stabilization of our business. We believe, 1st of all, we have seen some progress already in quarter 4 where we have started investing particularly on MAC and Clinique, we have seen some sequential improvement. Also, I want to underline that the launch of Dangirlo 2 Phase in the U. S. Make 2 Phase grow nearly 30% in a very tough quarter for makeup in the country. So showing the power of this brand and there are many other positive signs in the strategy we already explained in the past, meaning our strategy to work more online continue which is growing by the way very well, continue to build our specialty channel and obviously invest more in innovation which is specific to the subcategories which are relevant in the U. S. And we are doing this very well with some initial success. So in that, I'm very optimistic for the long term ability to make U. S. A growing business for us, but will be good one day to be helped by less soft environment to accelerate the speed of that process. Our next question comes from the line of Dara Mohsenian from Morgan Stanley. Your line is open. Hey, good morning guys. So my question was around top line. First, I guess, just short term, you highlighted the top line guidance for fiscal 2020 included a number of exogenous risk factors in the U. S, U. K, Hong Kong and China, yet you're still at the high end of your long term sales growth outlook. So I was just hoping you could parse out a bit more detail for what you assumed along those risk factors given some of them look like they could be sizable and perhaps directly comment on Hong Kong so far this quarter since that's played out to some extent. And then second from a longer term strategic standpoint on top line, we've clearly seen very strong growth rates for prestige beauty in China. But a couple of years ago, we had seen an acceleration in the U. S. Prestige beauty market, particularly in makeup, behind social media, e commerce sales, etcetera. Now that looks like it's rapidly dissipated. So I'd just love to get your view on sustainability of the key growth drivers of prestige beauty in China and understanding the U. S. Is a very different market if that might have some application in China as you think about the growth rates longer term? Thanks. Yes, let me start answering the second question is, I mean, I think you made the point that the world of makeup and skincare I think is relatively volatile, meaning that depending on consumer trends you could see growth in a certain category or another in a given market or another. So the strengths of our strategy is exactly what we have defined as multiple engines abroad. So our ability to fast allocate resources and strengths to whatever is growing in a given moment. So when U. S. Was growing strongly in makeup, we leveraged the growth that time with MAC particularly in other brands. Now we are leveraging the growth of skincare in Asia and as these trends will evolve gradually over the years, we will be able to focus on the fastest growing growth elements. So that's exactly at the heart of our strategy and at the heart of our resource reallocation strategy. Said that, the growth of skincare in Asia is here to stay for the long term. And again, there could be moments of volatility here and there depending on the situation around the markets, but it's definitely a very strong long term trend because Asian consumers are very heavy users of skincare. They are very interested in high quality products And most importantly, the Asian consumer use skincare much younger. And so each consumer you conquer in skincare in Asia has a much higher life value than what happens in other markets of the world. That's why this is definitely a long term trend. As far as the makeup situation in the U. S, the makeup situation is that the explosion of makeup in the U. S. Some years ago was also driven by the exposure of social media and by the enormous availability of how to do videos and understand all of a sudden online to 1,000,000 of consumers. Now this phenomenon is kind of now have reached a plateau and it's stabilized. That's why now makeup will need to continue growing based on the historical trends that by the way are the strongest trends we have which is quality of product, quality of innovation and continuous brand building. So in summary, I believe that the sustainability of the growth that you see is there and that's why we believe that our 6% to 8% overall long term growth is sustainable and will be sustainable for a long term. And I would just add Dara, in terms of how to think about our guidance for the year. China and Travel Retail are expected to still grow double digit, just not as strong a double digit as they've grown in the last couple of years. So again, reflecting some moderation. The comfort that we have in guiding at the higher end of our range is recognizing now everything that Fabrizio just said in terms of the middle class and the growth of the middle class and the consumption behavior as it relates to prestige beauty, the fact that emerging markets now and faster growing channels are a higher percentage of penetration of our business. So we are benefiting more from the momentum of those markets and we are less exposed to some of the slower growth channels in particular than we have been historically. So yes, while a moderation is certainly the right guidance for us this year, given everything that's going on in the environment. We're still very comfortable with the 7% to 8% top line growth. And our next question comes from the line of Caroline Levy from Macquarie. Your line is open. Thank you so much. Good morning and congratulations on an exceptional decade. Thank you, Caroline. Fabrizio and team. Despite everything that's been going on China, Hong Kong, it's just unbelievable to see this mixed management that's just driving your business. And I'm wondering, Fabrizio, if you could help us understand some of the actions you're taking within China and Hong Kong to protect against any negative fallout from what's going on at a high level? Because it obviously looks a little out of great. Yes, I mean we are taking we are learning from what we see and how we manage volatility. Let me take the Hong Kong examples. Hong Kong had another moment of protest and crisis few years ago as you remember. In that moment coming out of the moment we realized that our Hong Kong business was a bit more exposed to tourists and not having enough high penetration on local. In the last years during the recovery of Hong Kong we have actually readjusted that. Today our business in Hong Kong, which by the way Hong Kong including travel retail is less than 4% of our business globally at this point. Is also because of the strong growth of China and the others that's the percentage today and is much more local than used to be. So for example, how we are mitigating Hong Kong protest risk in this moment. First is that we have seen that when the tourists don't shop, they shop somewhere else. So we are working to recover part of the potential loss on tourists in other markets. 2nd, today we have a bigger share of local business and local business is less subject to this kind of protest because people still buy what they need to leave in a normal way locally. And so we are mitigating that with good local activity and local marketing and local relevant products. And in doing all of this, we also have today the ability to reallocate resources to the trends, meaning financial resources, invest more or less in a given category in either area, even by area in places like Hong Kong, we have the flexibility to invest more or less by area. To give you another example, Macau is not affected in this moment by the turmoil on the business. So that's the kind of things that make us more capable of mitigating volatility that we have been historically and these all been developed strategically. However, I want to close on my example of Hong Kong to say our priority in this moment in Hong Kong is actually the safety of our employees and of our consumers and that's where we are focusing our effort and that's where we definitely manage our priorities in the market. On China, I mean China, we've been investing in China for the long term and we are in China for the long term. We have over 6,000 employees, basically 99.5% Chinese. We are very local in everything we do. We are locally relevant. We have local activities like any other area of the world. We are a local relevant organization in everything we do. And so we mitigate the risks with local presence, local relevancy and again with our ability to invest in the market. We are investing substantially in many emerging markets particularly in China and these investments are important to the countries we participate in. So that's the way we are mitigating. We are a truly global company which are local in every market we operate in and very respectful of every kind of consumer and market dynamic we see around the world. Our next question comes from the line of Steve Strycula from UBS. Your line is open. Hi, good morning and congratulations on a good quarter. Thank you. So quick question on the U. K. We haven't spent this much time focusing in there. But for context, should we think about that being around 8% to 10% of company sales? What have you noticed anything in terms of change in consumer confidence in the local marketplace? And how do you source products and manufacture them for their region? So first of all, it's less than 10% to 8% of the company is more in the range of 5% of the company sales, our UK business. And the potential impact of the hard Brexit as of October as Tracey has explained is already included in our guidance and that's in fact one of the risks that we see globally that we are including in our guidance and that has to do with the moderation of the growth in our guidance versus the current trend by quarter end in the last year. So UK is earning then we are very well organized in case of a hard Brexit, we are ready to operate. So we have done all the investment needed to make sure we are ready to operate our business in both situations. And finally, we believe that the UK will continue to be mitigated by the fact that the hard Brexit risk which has obviously a risk on local consumption on the other side as an impact on the currency that you all are seeing which is benefiting the tourism and our sales to tourists in the UK which is an offsetting factor. That's why we forecast a moderation, but not a dramatic one. Our next question comes from the line of Andrea Teixeira from JPMorgan. Your line is open. Hi. Hello, everybody. And I echo the congratulations to all on your results. Great. Thank you. Could you please elaborate on the traffic and the conversion in travel retail, which I remember you discussed on the Analyst Day, there has been the conversion has been very strong. But can you update us on the most recent trends? And as a follow-up to that, we also saw an increase in inventory. And I understand that you always wanted to increase the service levels, especially because of the growth in Asia. But is it also related to any deceleration or a safety inventory level given the volatility there? Thank you. So you want to Yes. I'll start with the inventory. So no, it's not related to any recent deceleration. It really is because of 2 years of outstanding growth that we've had and where much of that growth has come from, which is in Asia and travel retail. So that certainly raises our in transit inventory levels and certainly raises our inventory levels. Inventory is and we've talked about it for a number of years. So the good news is we've been able to make quite a bit of progress in terms of cash generation and cash flow from operating earnings over a 2 year time horizon even without having benefits from inventory turnover. We've made a lot of progress in terms of the working capital elements of accounts payable in particular. And you might recall that last year, our cash flow growth grew over 40%. So, while it was flattish this year largely because of the inventory, we have and are putting more sophisticated processes in place to improve the accuracy of our forecasting and certainly looking at supply as well in terms of getting supply a bit closer to demand in the future. Yes. And on travel retail is first of all, our travel retail business has been growing very strongly. Also last quarter, we saw no slowdown in retail. And the growth has been as I said before very strong in APAC and EMEA and actually there was a decline in the Americas. And the business is growing across all brands and the most important concept is that the same doors are the fastest growing part of the business. So our Travel Retail business is going because we are winning market share in same doors. We are adding new distribution where relevant, particularly new brands that we are deploying to the channel and that the channel is requesting. And importantly, as you said, we are increasing conversion of traveler into buyers, into shoppers. The conversion continue to improve. We are not going to give specific numbers on conversion, but continues to grow. One of the key driver of conversion is the success of the pre tail system where consumers can order online and then take the products in the airports. This is growing very well in Asia particularly for the time being, we forecast this will be a global methodology to buy in this channel in the future. This is obviously driving conversion because consumers some consumer arrive to the airport late, arrive to the airport stressed, they don't want to shop, they want to go to a lounge or they want to do other things. And the fact that you can buy online before going and then getting the airport actually is increasing the amount of consumers which are willing to buy something in the airport and that's one. The other big thing that we are driving, we are doing to drive conversion is the advertising in the airports and that's very important and drives obviously conversion. But the most important of all drivers are the investment we are making in the country of origin of all our products. The travelers, the shop the best tend to be the one from emerging markets. So Chinese as we know, the Russian, Brazilians, Middle Eastern and our new investment and accelerating investment in emerging have an indirect positive impact on the fact that those travelers when they travel they also want to buy the brands visiting airports or in visiting countries where they go. So the big driver is our increased investment in the country of origins, which is accelerating the phase of our travel retail business. Our next question comes from the line of Ali Dibadj from Bernstein. Your line is open. Hey, guys. So if I look at your guidance, 7% to 8% constant currency for 2020 on the top line and then 9% to 11% constant currency core on the EPS line. And I compare that to fiscal year '19, where it was 12% on the top line and a large GAAP 21% growth on the EPS line, excluding ASC and all that stuff. If I go to 'eighteen, it was 13% of the top line and then 24% on the EPS line. So lots of leverage between the top line and the bottom line, the big gap in growth for 2018 2019, but less so for 2020. And I just want to get a better sense of why that might be. Is it being careful of changes in the mix of the categories or geographies? Is it that you expect incrementally more investments? And if so, where? And I particularly ask that in the context of surely successful Leading Beauty Forward savings and continue ratcheting it up there. So that's kind of the shorter term part of that investment question. But then the longer term part is really just getting a sense of whether you think your current broad investment levels, given how you've been able to kind of react more quickly to markets, whether the current investment levels you think are the right ones for your long term aspiration of continued market share growth in the category as the prestige beauty industry evolves? Thank you. All right. So let me start and then the incremental leverage that we get on the incremental sales at 4 or 5 point of sales is highly accretive. So we and one of the things to your point that we've been working on under Leading Beauty Forward is make sure that incremental sales are more and more accretive to the bottom line. So that's really the difference in terms of the margin expansion that we saw in fiscal 2019 relative to what our guidance is in fiscal 2020. As it relates to our investment levels, we certainly continue to invest to support. We have a portfolio of 30 brands. They're at all different stages of development. And we also have emerging markets that we're investing in as well in terms of driving brand awareness and with consumers. So we certainly expect that we want to have the flexibility when the opportunity is there to invest behind those brands and behind those markets from a growth standpoint. But as Fabrizio said, when the growth isn't there for whatever reason, we also have flexibility to pull back and we have more of that flexibility today than we have had previously. But when you think about what we've done with our expense base over the last few years with our cost saving programs and with Leading Beauty Forward, we have significantly diversified our portfolio. We've expanded into new channels of distribution and we've done that while continuing to drive margin. Those new channels of distribution required investment. The same thing with new markets, as we've expanded brands into new markets, that too has required investment. So all of the work that we've done over the decade that Fabrizio spoke about in his prepared remarks, really has been quite remarkable in terms of our ability to manage to continue to drive margin, continue to allocate more investments in the continue to be able to do that in the future. Yes, I mean just very clear, the only thing I would add on the investment side is that over time we have invested much more in advertising and now I would say that every one of our brands has some investment depending on where they are and how which part of investment. These investments are mainly now in digital, 75% of our investment now are in digital social media influencers and they're revealing to be highly productive. And now they're highly productive because we are doing very good job in advertising quality on asset in targeting, but frankly they're very productive because we have learned much better how to focus our investment where there is growth. Because when you expose your investment to growth, they have a much better rate of return and that's what is happening in this moment and that's what we manage daily with data accuracy that frankly we didn't have available in the past. So and also want to underline it while we have increased our advertising, we have kept our promotion flat. And while we have increased our advertising and kept our promotion flat, we have delivered 90 points of margin improvements showing that we have been capable of reallocating cost and taking cost out of the fixed areas into the variable areas, which again is one of the key driver of the flexibility I'm speaking about in resource allocation. So in net, I personally believe that what we have done with advertising investment in our P and L is one of the key driver of our recent acceleration and is going to be one of the key driver of our sustainable success in the future. Our next question comes from the line of Lauren Lieberman from Barclays. Your line is open. Great. Thanks. Good morning. Good morning. Lauren. I wanted to talk a little bit actually about Leading Beauty Forward and then also other kind of ongoing productivity efforts which may not be under that bucket. But I guess first would be that specific to Leading Beauty Forward, I think statements came in ahead of guidance this year. You've raised slightly the expected savings range versus what you even articulated at the Analyst Day. So I wanted to hear a little bit about what's driving that upside surprise in leading Beauty Forward? And then you mentioned ongoing productivity also contributing in fiscal 2020. So if you could talk about areas where that work is coming through, because I think Fabrizio, all the points that you've just made around investing in new channels and new markets, There's also the other side of that equation, which is reaching a point where you can kind of take resources away from some of the slower or no growth areas of the business. So I wanted to talk a little bit about that shift that I think is kind of at that inflection point. Thanks. Okay. So let me start. In terms of the upside from Leading Beauty Forward, really it's the addition of new programs. And so we also took the cost of the program up to your point, Lauren, along with the savings expectations. So as I said in my prepared remarks, the momentum that Leading Beauty Forward had over the 3 years that we've been managing the program has been quite strong. And as we look across our business and identify areas of further opportunity for transformation, that is really what has driven that success. Everything from digitizing our creative process with some initiatives to the ones that I called out in the prepared remarks like indirect procurement, shared services, etcetera. So that's really what has driven the upside surprise. In terms of future programs, again, we still haven't reached the full potential of Leading Beauty Forward from a savings standpoint. Next year will be a big year for completion of a lot of programs and then with the tail being in 2021. And so we'll see even greater savings that we'll realize from the program through those efforts. And I just would like to add the point that you said on advertising is where are we leveraging the cost, where we are spending more in advertising. First of all, our selling line is going down. Our selling line is going down because we are doing some good work of rationalization and also because our channel mix require less selling line spending and more advertising spending today that was in the past. So that's been a big Elite Beauty Foro has supported this work in a very big way. 2nd, in the past, our organization which is so focused on managing by brand, which is the right thing to do forever because brands have to be authentic and distinctive. However, in the past we have duplication in the back office cost that were not needed. So we need to manage by brand the front not necessarily the back. And so, improvement tends to lead the beauty forward in rationalizing the back office cost and limiting or avoiding duplications. The 3rd bucket is advertise. As I said, the rate of return of our advertising given our ability to focus more on growth channel etcetera has increased and we spend a lot in A and P and the rate of return in NP has improved. And finally innovation, you have seen the great innovation and the return we're having innovation but our spending innovation is not increasing the same pace of our success innovation. So our ability to use data, we have invested in creating the right data and I think our ability to focus innovation has created better rate of return of our innovation investment. At the end, our company is really focused on delivering quality products that get high repeat rate and I come back to the last point which is our repeat rates are increasing. When repeat rates of quality product are increasing is a great element of value creation over the long term and allow us to invest wherever we will believe is appropriate to sustain future growth. Our next question comes from the line of Rupesh Parikh from Oppenheimer. Your line is open. Good morning. Thanks for taking my question. Also congrats on a strong quarter. Thanks. Thank you. So I wanted to go back to your China business and I just wanted to get a sense of what you guys are currently seeing on the ground in China and whether with all these headlines and some of the geopolitical concerns you're seeing more volatility in your business in China. And then related to that, just curious if you guys have been at all surprised by the continued resilience of the China business? So the short answer is no. We are not seeing any slowdown China at this point in time and the Q4 China as we commented in our prepared remarks was very, very strong. And I'm not surprised, I mean as I've been saying a lot and I believe I we explained in detail in Investor Day, the fundamental for long term sustainable growth with Chinese consumer are absolutely there and they're super strong. The middle class, the demographic, the fact that the young consumers in China spend more than the older one. The huge opportunity we have in front of us on Tier 2 and 3 cities, which is completely untapped actually I should say Tier 3 and 4 cities, which is completely untapped at least numerically for luxury goods. The fact that the system of we are in 121 city and then thanks to our online operations and Timo sell to Xiang 650 cities. This dynamic make China access consumers even when the productivity of that specific city is not ready. In fact, the productivity of our stores in China is the best in the world. And as you know, a lot of our profitability has to do with same door productivity and with single door productivity. So all these dynamics are here to stay and then our market share is improving just to be clear importantly we gained 80 points of share with significant increases of market share of Mack, La Mer, Tom Ford in China in the last year. So is clearly a very well oiled system. Now will the question of the moderation beyond the point that there is now a higher base and we need to reflect the reality on that. The question of the ratio is more about the questions out there in terms of the economic situation in China, in terms of the trade tensions and the impact the trade tension could have on consumption in China. So there are economical and geopolitical reason why we expect the moderation and also because we believe that now the base of growth is super strong and we need to be realistic about the future. But as Tracey already said, we are completely convinced that there are the fundamentals for double digit growth in China with Chinese consumers for the sustainable I just had a quick question for Tracy on capital allocation. Just looking at some of your metrics, it really does seem like you're in an optimal position here to either continue to step up shareholder returns or maybe execute on M and A. So curious as to which you potentially see as most attractive today given what you're seeing out there on the acquisition front? Thanks. Yes. No, Bonnie, thank you. So in terms of capital allocation, yes, I mean it's a decision that we take along with our Board every year in terms of the best uses of our very strong cash generation. Last year, obviously, we made the decision that we would step up share repurchase because that was the best return, and certainly has proven to be the case, for us. We did take a pause, last year as it related to new acquisitions. A, I would say the valuations had gotten a bit lofty. And B, our strategy on acquisitions, we don't need acquisitions to grow. I did say in my prepared remarks that we would expect one point of growth to come from acquisitions over a 3 year time horizon. But the organic strength of our business is such that certainly, it also has a tremendous amount of momentum. So we have the benefit of looking for acquisitions that are strategic to our portfolio. We look for white space opportunities as it relates to acquisitions. I mean, acquisitions that obviously we can get the right return on investment on. So, but again, the cash generation, if there isn't an acquisition that's out there, certainly we relook at our cash distribution across dividends and share repurchase activity and make a decision accordingly. Our next question comes from the line of Steve Powers from Deutsche Bank. Your line is open. Hey, great. Thanks. Good morning. First, maybe just a bit of housekeeping and follow-up to, I think, Lauren's question. Leading Beauty Forward charges came in, I think $65,000,000 to $80,000,000 higher for the year than what you had guided at the end of the Q3. So apologies if I missed it, but just if you could highlight some of the drivers there, that would be great. My real question is on your biggest brands and what you expect from them in 2020, maybe just a little bit more of a health check. I guess, from my perspective Estee Lauder, La Mer, even Mac seemed broadly healthy on a global basis, but I'd love a little bit more from you on how you're viewing them and any pockets of higher opportunity that you see. And then Clinique, which sounded like a point of relative optimism at your Investor Day back in March, it just still seems a little bit softer. So I'd love to get your views there as well and how you think the contribution of Clinique will compare in 2020 to the year just completed? Thanks. So starting with Leading Beauty Forward, as we came upon the end and the close of the program in terms of accepting new initiatives, we did have a number of new initiatives in the Q4 that were added to the program. And again, those initiatives are expecting to generate an acceptable return. We have return thresholds underneath the program. So, some of those were in our retail area, as it looked at as we looked at retail rationalization as well as some strengthening of our freestanding store operations. So, and there were others as well that were added at the end of the year. Yes, in terms of brands, we spoke about our top four brands in the year when I said the 3 out of 4 were growing 80% of sales represented by brands we are growing. Quarter 4 was actually an improvement. So what we said to the Investor Day was actually happened in quarter 4. In quarter 4, all 4 of our largest brands had grown in constant currency and 2 rose double digits and all brands representing over 94% of sales grew in quarter 4. So we are really on a roll on all our brands portfolio. And as far as Clinique, I remain optimistic for the brand for stabilization and then growth in the future. But we are going as we said Clinique is going in steps and now the priority is skincare which is the base, the fundamental also in terms of profitability for the brand. So we are first building moisturizer skincare and then we pass to the rest and continue to build the brand using the same dynamic we're using on the other brands. Also keep in mind for Clinique, the Clinique is the most disposed of our brands to North America and North America is the softest market overall particularly makeup and in fact Clinique makeup is one of the area that we have not yet turnaround for that reason. So it's all very specific, very much we are in line with our long term goals and what's happening. Then we have a store in our brands also in the mid group, for example, Tom Ford or Jo Malone had terrific year, having a terrific performance. I personally believe there will be soon very top big brands in our company. So meaning they will go from middle to big in the next years. And even in our small brands and new brands there are some high flyers, take Le Labo, Le Labo is one of the really high flyers in our Yum! Brand portfolio. So we have an extraordinary brand portfolio and I think we have learned how to continue building it. The Estee Lauder brand is on fire as I said in my prepared remarks and we expect that the strengths of our brands will continue to operate in fiscal year 2020 and in fiscal year 2020 we expect some improvements in the areas which are still to be improved as Tracy said and namely is Clinique U. S. And MAC U. S. Are the 2 that we are focused on looking for improvements, but the rest is frankly on fire. Our next question comes from the line of Erinn Murphy from Piper Jaffray. Your line is open. Great. Thank you. Good morning. I guess my question was around Tmall. Could you just maybe reflect on what you think made Tom Ford's launch so successful on that platform? And then with less than 50% of your portfolio on Tmall, portfolio and how you think about it longer term? And then just sorry, Tracy, one follow-up, I may have missed this. In the U. S, can you talk about what you saw specifically with specialty multi? Thank you. So Tmall is an exceptional partner and we are having very good business with them. The strength of Tmall is that we control our business and the ability to deliver the right equity for the brands in the communication. The Tom Ford launch had an enormous amount of super outstanding quality creative assets produced for the launch of Tmall that created a lot of traffic and a lot of conversion from visitor to purchase and that's what was driving the success, the creative assets that were done by the Tom Ford team together with the China team and obviously under the direction of Tom Ford personally who is an amazing creative leader. This combination was very exciting for the Chinese consumers and so the results was high traffic, high conversion and that's what drove the success. So we have seen more of this, I think we have learned together with our team partners how to create the right level of traffic interest conversion on Tmall platform also for the future. And to your question of do we plan to launch more brands, yes, in the future we will launch more brands at Defense also from the brands that we will launch in China in the future continue building our Chinese portfolio. And regarding specialty multi, Aaron, in the quarter in North America, specialty multi was up about 1%. And our next question comes from the line of Jason English from Goldman Sachs. Your line is open. Hey, good morning folks. Congrats on a strong year and thanks for squeezing me in. Good morning. Thank you. You're welcome. Two quick questions. First, building off the question on Tmall. Given the control you have there, out of curiosity, do you record the sales there at retail sales price or wholesale? And if it's different, if it is retail, is there a mix benefit you're seeing? And then second question is really on holistically looking at the margin profile for next year. At the midpoint, it looks like you're guiding to roughly 70 basis points or so of even margin expansion based on my back of the envelope math. Not far off of I think the underlying 90 that you achieved this year, but you're getting less productivity savings as a percentage of sales and you're expecting less leverage from the incremental sales, the 4 points, Tracey, that you highlighted, suggesting there's some other offsets there that are helping you deliver that robust growth. Can you give us some more context and quantification around those? Thank you. I'll start from the your first question where Tracy will answer the second. So we recall retail sales of Timor and in my prepared remarks I spoke about our direct to consumer business. Our direct to consumer business is all retained for us and our direct to consumer business is our freestanding stores, is our brand.com like estelota.com and Tmall and other platforms a la Tmall where we are in control. And that part of the business is growing and that part of the business, I want to repeat that at 1,300,000,000 visitors in the year. So imagine the amount of data that we have, the amount of equity building communication that we can do and the impact, the positive impact of all of this on in general what the consumer decide to buy even in other channels and in other situation in the course of the year. So it is a very powerful dynamic that helps also our wholesale business. Tracy? And as it relates to the productivity savings and the margin expansion, you're spot on Jason, not surprisingly in terms of what we are initially expecting for margin expansion in fiscal 2020. Again, having top line sales growth of 7% to 8% versus 12%, we are seeing less leverage based on sales, but still some. Some related to obviously our continuing cost savings and the ramping up more of Leading Duty Forward Savings along with other cost programs. And then a little bit of mix benefit as well in order to drive that 70 basis points. And that concludes today's question and answer session. If you were unable to join the entire call, a playback will be available at 1 p. M. Eastern Time today through September 2nd. To hear a recording of the call, please dial 855-859-2056, pass code 9,999,544. That concludes today's S. P. Lother conference call. I would like to thank you all for your participation and wish you all a good day.