THE ESTÉE LAUDER COMPANIES’ CAPITAL MARKETS EXPERIENCE: CHINA ECOSYSTEM IMMERSION - ESTEE LAUDER COMPANIES INC

Explicit Guidance:

• Fiscal 2027 Full Year: Reported sales growth of 5% to 6.5%; organic sales growth of 4% to 5.5%; operating margin expansion of 170 to 250 basis points (targeting 12.9% to 13.7%); diluted EPS growth of 28% to 38%.
• Fiscal 2028: Expectation of an additional step-up in profitability as the company realizes an entire year of full run-rate savings from the Profit Recovery and Growth Plan (PRGP).
• Fiscal 2030 Ambition: Targeting mid-single-digit annual organic sales growth; operating margin of 16.5% to 18.5%; effective tax rate of 30% or below; gross margin of 76% to 78%; double-digit EPS growth through fiscal 30.

Business-Segment Outlook:

• Categories: Skincare remains the lead category with long-term growth; Make-up moving from sequential improvement to sustainable growth with acceleration expected via speed-to-market innovation (e.g., MAC turnaround); Fragrance expected to deliver high single-digit CAGR over the next five years, particularly in Asia-Pacific where penetration remains low (4%); Hair care expected to return to sustainable growth after recent stabilization.
• Geographies: Asia-Pacific leading performance with China organic growth accelerating to 9% in Q1 FY27 and expected to be a primary driver for 2030 ambitions; Emerging markets expected to represent 15% of business in the coming years, with India highlighted as a tripled growth opportunity; Western markets (Travel Retail) expected to grow through fragrance expansion and portfolio diversification.
• Channels: Online business expected to continue high-single-digit organic growth; Physical retail expected to grow mid-single-digit organically; Travel retail viewed as a strategic growth engine to outperform market growth of 3-4% in FY27.
• Brand Portfolio: Focus on diversifying growth drivers across brands like The Ordinary (double-digit growth), La Mer (luxury leadership), and MAC (return to double-digit growth); Mid-sized brands (e.g., Bobbi Brown, Aveda) and small brands (e.g., Kiehl's, Kilian) expected to see accelerated investment and performance improvements.

Market and Competitive Outlook:

• Industry Growth: Global prestige beauty industry expected to accelerate to >4% growth in FY27 (up from ~3% in FY26) and compound at 4% to 5% annually from FY28 through FY30.
• Structural Trends: Consumer lifetime value expanding as younger generations enter the category earlier and older generations live longer (65+ population expected to double to 1.5 billion by 2050); Middle-class households in emerging markets set to increase >80% in the next decade; Shift toward "affordable prestige" and luxury experiences in travel retail.
• Competition: Expect intensified competition but confidence in ELC's ability to gain share due to brand portfolio strength, innovation speed, and "one ELC" operational model; China seen as a blueprint for global acceleration.

Macro / Industry Outlook:

• Consumer Spending: Anticipation that consumers remain resilient despite economic pressures, seeking "little luxuries" and self-reward; Beauty viewed as a resilient category compared to hard luxury.
• Inflation & Costs: Expectations to mitigate inflation and merit increases through AI, efficiency, and scale; Tariffs and geopolitical volatility acknowledged as factors navigated through supply chain diversification.
• Currency: Acknowledged as a variable impacting reported results, but strategy focuses on organic drivers.
• Regulation: Awareness of regulatory constraints (e.g., ingredient limits in China) as opportunities for local innovation; Commitment to compliance within global product frameworks.

Strategic Initiatives:

• PRGP Restructuring: Expected to reach full run-rate savings by end of FY27 to benefit FY28 and beyond; Program transitioning into "continuous transformation" via daily efficiency mindset and Zero-Based Budgeting.
• Technology & AI: Target to deploy 80% of in-scope sales and 300 freestanding stores on Shopify platform by FY27; AI integration in R&D, marketing, and value chain to reduce time-to-market (aiming for 30% of innovations launched <12 months); Partnership with Accenture for Enterprise Business Services (EBS) and WPP for global media consolidation.
• Innovation: Expecting innovation to contribute 200-250 basis points to sales in FY27; Ambition to double ingredient discovery output; China Innovation Center expected to drive 30% of global innovation sales in FY27.
• M&A & Investments: Focus on minority stakes and single-brand acquisitions (e.g., Forest Essentials integration); Continued investment in consumer-facing marketing and retail experiences (e.g., La Mer spas, travel retail flagship openings).
• Value Chain: Regionalization strategy (70%+ regional sourcing); Manufacturing capability in Asia serving China increased by 200% in two years; 85% of Enterprise Business Services transitioned to Accenture by October.

Risks and Headwinds to Outlook:

• External Factors: Evolving consumer behavior, market fluctuations, and intensifying competition; Geopolitical volatility, tariffs, and exchange rate fluctuations.
• Operational Execution: Execution risk regarding the PRGP timing and the pace of cultural/organizational transformation; Potential delays in technology deployments or innovation pipelines.
• Caveats: Guidance assumes "normal" macro conditions; specific risks include supply chain disruptions, regulatory changes on ingredients, and potential slowdown in emerging market middle-class growth.
• Channel Mix: Potential headwinds from price pressure in lower tiers if volume targets are not met; Balance required between premiumization and affordability.

Management Tone on the Future:

• Confidence Level: High confidence and optimism, described as "increasingly confident" in the durability of momentum.
• Narrative Shift: Moving from "restoration" to "sustained, profitable growth"; View the current phase as the "early stage" of realizing Beauty Reimagined's full potential.
• Strategic Clarity: Emphasis on a "blueprint" approach, using China's success as a model for emerging markets globally; Commitment to "plain talk, clear goals."
• Long-Term Focus: Strong conviction in the 2030 targets despite short-term market noise; Belief in the structural attractiveness of the prestige beauty industry.

Miscellaneous:

• Capital Allocation: Commitment to prioritizing CapEx for growth, deleveraging the balance sheet, and returning cash to shareholders via buybacks/dividends alongside selective M&A.
• Culture: Emphasis on rebuilding entrepreneurial spirit, reducing silos ("One Team"), and fostering a culture where speed and ideas matter more than hierarchy.
• Investor Relations: Commitment to transparent guidance with "no ambiguity" on targets; Regular Q&A forums established with regional teams to align forecasts.