The Estée Lauder Companies Fiscal 2027 First Quarter Results - ESTEE LAUDER COMPANIES INC

Good day, everyone, and welcome to the Estee Lauder Company's Fiscal 2027 First Quarter Conference Call. Today's webcast is being recorded. For opening remarks and introductions, I would like to turn the call over to the Senior Vice President of Investor Relations, Ms. Rainey Mancini. Hello. On today's webcasting, I'm Rainey. I'm the Senior VP of Investing Relations. On todays webcast are Stéphane Delafavry, President and Chief Executive Officer, and Akhil Srivastava, Executive Vice President and chief financial officer. Since many of However, 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 releases. Unless otherwise stated, references to net sales refer to organic net sales, which excludes the noncomparable impacts of acquisitions, divestitures, brand closures, and the impact of foreign currency translation. You can find reconciliations between GAAP and non-GAAP measures in our press release and on the investor section of our website. Retail sales performance discussed is based on information available as of October 30th, 2026. As a reminder, references to online sales include sales we make directly to our consumers through our brand.com sites and through third-party platforms. It also includes estimated sales of our products or our retailers' websites. Throughout our discussion, our profit recovery and growth plan will be referred to as our PRGP. During the Q&A session, we ask that you please limit yourself to one question so we can respond to as many participants as possible within the time scheduled for this webcast. now we have a brand video before Stefan begins. Thank you for watching. We'll be right back. Thank you, Reni, and hello to everyone. Our first quarter performance marks another powerful step forward for the Estée Lauder companies. Growth is accelerating, profitability is strengthening significantly, and the impact of Beauty Reimagined is becoming increasingly evident across our business. Simply said, we have moved beyond restoring growth. Through Beauty Reimagined, we are creating a stronger foundation for sustained, profitable growth, and the progress that we are making gives us even greater confidence in the future we are building. I know there has been a lot of debate regarding the durability of our recovery. This quarter, we delivered another data point to prove our momentum is real and durable. We have placed the consumer at the center of how we operate, From the way we build our brands, to the innovation we bring to market, to the investment we make. I am incredibly proud of our team around the world. Your hard work is translating into our much improved performance. With the strong first quarter result, today we are raising our fiscal 2027 outlook. For organic sales growth, we now expect to deliver 4% to 5.5%, up from 3% percent to five percent previously and an acceleration from the three percent in fiscal 26. With the favorable impact of foreign exchange translation our reported sales growth forecast become five percent to 6.5 percent. For operating margin we are now expect 170 to 250 basis point expansion up from 150 to 230 basis points marking an overstep change in profitability on top of the 320 basis point improvement we achieve in fiscal 26. now let's get into our first quarter numbers reported sales increased seven percent and organic sales rose six percent three of four categories grew. Every geographic region grew. This is exactly the kind of diversified growth we sought to deliver when we designed Beauty Reimagined. Our profitability improved significantly, driven by operating leverage and PRGP benefits. Gross margin expanded 240 basis points, operating margin expanded 480 basis points and diluted EPS grew 125%. And underpinning this result, we increased consumer-facing investment by 8%. Fragrance outperformed as organic sales rose 20%. We committed to create and capture growing demand in this vibrant category by strengthening our leadership in the luxury price tier and building our presence in the prestige price tier. And we are doing just that. Hero fragrances and innovation from Le Labo, Tom Ford, Joe Malone London, and Kylian Paris were highly sought after. Le Labon again delivered strong double-digit organic sales growth with like-for-like door also up double digits, while Tom Ford's new ombre leather reserve was a spectacular success while also creating a halo on the iconic ombre Leather. Kilian Paris was our fastest growing brand, as ongoing strength in luxury complemented its blockbuster launch of the cocktails collection in the prestige price tier. And this was not our only success in that price tier, strong demand from prestige launches from all of Estée Lauder, Balmain Beauty and Kilian Parise highlights the significant opportunity ahead, with each brand bringing a distinctive offering to the tier. And we were just getting started with rollouts with Estée Lauder's glimmer success in the U.S. and U.K., budding well as we take it around the world. In Western European markets, our France retail sales grew over four times faster than the industry, driving strong share gains while we also outperformed the industry in the US. In Japan, our luxury and artisanal brands soared as Delabo and Tom Ford realized strong double-digit retail sales growth, driving prestige share gain in the category. Skincare rose 4% organically. Iconic hero product and innovation were a powerful combination across price tiers. From La Mer in luxury to Estée Lauder in the art of prestige to the ordinary in the entry price tier, we are demonstrating the strengths of our brands across the consumer landscape. Looking at makeup, we have reignited our performance, delivering a second consecutive quarter of organic sales growth. Innovation across Leap, Face and Eye fueled MAC as well as Tom Ford, with both brands up double digits. Strategically, we are driving broad-based performance for these two brands, fueled by launches in the quarter and earlier in calendar 26, demonstrating how well innovation is resonating. In the U.S., Mac has gained prestige makeup share for seven consecutive months, while for the quarter, Mac gained share in China, Japan, and Korea. Equally impressive, Tom Ford outperformed prestige makeup in China, Japan, and Korea in the quarter. For hair care, we stabilized performance, progressing sequentially from a modest decline. The Ordinary's Hair Dance City Serum drove strong growth, offsetting Aveda's brand-specific supply chain logistic challenges, which we are aggressively working to resolve. We remain encouraged by Aveda's improving trends across brand health, share in the U.S. salon, and innovation. The brand is also driving strong share gains in the US and UK beyond the salon net channels. Now for the regions. We grew across the board for the second consecutive quarter. Every region would have accelerated sequentially if not for the Americas benefiting in the fourth quarter from the gift card liability reversal. Asia-Pacific led the growth. Global travel retail was a strong contributor in the region, with retail sales stabilizing thanks to Korea and the online business in Hainan. For travel retail in the West, while a smaller piece of our business, retail sales growth accelerated sequentially to mid-single-digit, outpacing the industry. Mainland China delivered 9% organic sales growth as skincare and makeup each rose high single-digits, while France increased double-digIT. We outperformed the industry to gain prestige beauty share for the seven consecutive quarters led by Tom Ford, The Ordinary, Le Labo and La Mer, even on a much harder comparison. Our priority emerging market excelled with organic sales up 15% driven by Turkey, Mexico and India. We are thrilled to have completed the acquisition of Forest Essentials in October and have confidence it will be a strong contributor to our emerging market portfolio, which we continue to expect to reach 15% of our business in the next several years. Our diversified growth extends beyond categories and geographic regions. We delivered high single-digit organic sales growth online, driven by both established platforms and expansion. Encouragingly, online growth was also well-balanced. Asia-Pacific rose double-digits, while each of the over three regions grew high single digits. In the US and China, we gained share online, with retail sales growth more than two times faster than the industry in our two biggest markets. We are particularly pleased by the strong results we are seeing as the anniversary launches. For example, Max US TikTok shop sales more than doubled from its year-ago launch. Complementing online growth, brick-and-mortar, which includes travel retail, rose mid-single-digit organically. We are investing in experiential retail across all platforms in specialty multi, department stores, and our freestanding stores, and seeing the benefit through new consumer acquisition. Our first quarter performance truly embodies Beauty Reimagined in action as we doubled down in our strengths in fiscal 27, expanding more brands into high-growth channels across more markets, launching a bigger and bolder innovation pipeline, continuing to increase consumer-facing investments, and increasingly benefiting from OneELC, our new operating model. Before I close, I am proud to highlight that last week we published our Fiscal 2026 Social Impact and Sustainability Report. I am deeply grateful to our employees whose passion, resilience, and creativity are driving progress towards our 2030 goals, as you will find in this report. I also want to thank our partners and communities whose collaboration and shared commitment are essential to drive meaningful change. In closing, we are becoming a faster, more agile, and more disciplined organization. Beauty Reimagined has transformed our company and positioned us for more diversified and sustainable long-term sales growth. Prestige Beauty shares gained and stronger profitability. This Wednesday, we are excited to share more about how Beauty Reimagined has come to life across the organization and especially in China at our capital market experience, which will be webcasts. To our colleagues around the world, thank you. These strong results are yours. Five consecutive quarters of organic sales growth and margin expansion, with performance in the most recent two quarters especially strong. Onward and upward. Akhil, over to you. Thank you, Stefan. Hello, everyone, and thank you for joining us. We are pleased with our strong start to fiscal 2027. Our first quarter results demonstrate our focus on growth and disciplined execution against beauty reimagined, supported by a more agile organization and strong operating model. We remain focused on delivering sustainable growth, expanding margins, and strengthening cash generation. We are doing this while strategically investing behind consumer-centric opportunities to sustain our momentum and drive long-term value creation. I'll start with a brief recap of our first quarter results and then turn to our raised outlook for the full year. Please refer to a press release issued this morning for more information on our first quarter performance. In the quarter, organic net sales grew 6%, led by strong double-digit growth in fragrance and mid-single-digIT growth in skincare, supported by robust innovation. Sales growth accelerated in Asia-Pacific, mainland China, and UKEM, while performance in the Americas improved year-over-year. These results demonstrate our progress in building more diversified growth across product categories and geographic regions. Now turning to margins. Gross margin was 75.7%, an expansion of 240 basis points from 73.3% last year. This improvement reflects our mindset of operational excellence and the transformative actions we have taken across our supply chain. Net benefits from strategic pricing actions, procurement savings, and manufacturing efficiencies helped drive greater leverage in the quarter. Operating margin was 12.1%, an expansion of 480 basis points from 7.3% last year. This expansion reflects sales leverage and disciplined cost management across the organization. In line with our strategic investment allocation approach, we increased consumer-facing investments by 8% to fuel growth and strengthen long-term brand equity and desirability. These investments include higher advertising and promotional activities to deepen consumer engagement and support innovation, along with our focus on enhancing selling productivity. At the same time, we continue to manage costs in a disciplined way, reducing non-consumer facing expenses by 1% to expand margin and create fuel for growth. We are also continuing to advance OneELC, the work underway across our operating ecosystem including EBS, a more unified media model, as well as digital and direct-to-consumers capabilities. This enables superior consumer experiences, greater speed, simpler processes, and improved productivity. This can be seen in our Shopify deployment and the partnering with Profound, an AI marketing platform bringing global insights into how our brands appear across AI platforms. At the same time, our focus on efficiencies remains embedded in how we operate. The approval phase of the restructuring component of our PRGP is behind us, but our commitment to everyday efficiency continues. We are executing the approved initiatives, capturing savings and simplifying our cost base. This creates flexibility to invest for growth while expanding profitability. As we have said before, we continue to expect the vast majority of the PRGPs full run rate benefits to be realized by the end of fiscal 2027. Our effective tax rate improved to 31.9% from 40.5% last year. Diluted EPS increased to 72 cents from 32 cents last year, growth of 125%. We remain laser focused on cash productivity. Cash flow used for operating activities was $166 million in the quarter, an improvement from $340 million in the prior year. While our first quarter typically represents the seasonal use of cash, our teams have improved our use by approximately 50% in each of the past two years, driving meaningful progress in cash productivity. This reflects higher net earnings excluding non-cash items despite higher restructuring payments and working capital investments we saw a favorable change in operating assets and liabilities capital expenditure were 69 million dollars down from 96 million dollars this reflects the timing of projects and our continued focus on prioritizing consumer-facing investments our strong cash productivity and disciplined capital spending drove a notable improvement in free cash flow in the quarter, a use of $235 million compared with a use $436 million. Before turning to Outlook, we are pleased to have completed the acquisition of the remaining interest in Forest Essentials on October 5th. This builds on our long-standing partnership and strengthens our presence in India's fast-growing prestige beauty industry with an opportunity to expand the brand's consumer reach globally. The brand's results are not expected to have a material impact on a fiscal 27 full-year consolidated results. Turning now to a fiscal 2027 full- year outlook, we raised our outlook to reflect the momentum in the business and our progress against the priorities we set at the beginning of the year. Our outlook assumes no further deterioration in the geopolitical landscape or related impacts, including no material impact from the conflict in the Middle East and the stabilization of current disruptions in other key markets in UKEM. While we remain cautious amid ongoing geopolitical and macroeconomic uncertainty, we are controlling the controllables, focused on disciplined execution, and maintaining flexibility to respond as conditions evolve. For the full year, we now expect organic net sales growth of 4 to 5.5%, up from a previously communicated range of 3 to 5%. with stronger growth still expected in the first half of the year compared to the second. Full year operating margin is now expected to range between 12.9 to 13.7% up from a previous range of 12.7 to 13,5%. EPS is now expected to range between $3.20 to $3 and 45 cents up from $3 10 cents to $2 and 35 cents we now expect to generate net cash flow from operating activities between 1.4 and 1.5 billion dollars up from a previous rate expected range of 1.3 and 1 point 4 billion dollars In closing, fiscal 2027 is off to a very strong start. Our results reflect our focus on the consumer, investments in brand desirability and innovation, a more disciplined operating model, and strong execution across the organization. We remain focused on translating this momentum into sustainable growth and long-term value creation. We are grateful to our teammates around the world for their commitment, innovation, creativity, and execution with excellence. That concludes our prepared remarks. I'll now turn it over to the operator to begin the Q&A session. The floor is now open for questions. At this time, if you would like to ask a question, please click on the raise hand button, which can be found on the black bar at the bottom of your screen. When it is your turn, you will receive a message on your screen from the host allowing you to talk and then you will hear your name called. Please accept, unmute your audio, and ask your question. As a reminder, we are allowing analysts one question. Time permitting, we will return to you for additional questions. We will wait one moment to allow the queue to form. Your first question comes from Lauren Lieberman with Barclays. Please unmute your audio and ask your question. Lauren, not sure we are. Maybe you're still muted. Maybe we can go to the next person and we'll go back to Lauren. Absolutely. Moving on to Dara Mohizian with MS. Please unmute your audio and ask your question. Hey, can you guys hear me? Yes, Dara. Hi. Ni hao. Looking forward to seeing you guys. Ni ha. Absolutely. So clearly a strong organic sales growth result in the quarter. Full year raise on OSG is also positive. You did have a lot of innovation contribution in Q1. So I just wanted to get a bit of an update on the pace of organic sales growth as we move through the balance of the year over the next few quarters. Is there increasing confidence you're now more at this mid-single-digit pace in the balance-of-the-year after the strong 6% Q1 result? The range for the full year does give a little bit of flexibility. So are we sort of comfortable more in that mid single digit range going forward? Or will there be some quarters more like low to mid single digits as you think about it? And maybe just within that, the beauty category looks like it's doing really well in a number of markets around the world, China, the US, despite the fact that we've seen a broader luxury slowdown outside of the beauty Category. So just given some signs of consumer stress out there, I just want to get your perspective on if you think you're seeing any impact of the beauty category and if your internal momentum is sort of enough to offset some of these external pressure points we're seeing and you know how that played out maybe towards the end of fiscal q1 or so far in october thanks oh thanks darrell that's the the entire strategy like in one question but uh none are very happy and i kill and i will tag team you know to answer your question now when it looks at the the organic sales growth so obviously we're very proud of you know the very strong uh start of like you know the fiscal year i think you've seen uh as we committed as part of beauty we imagine to a very broad uh growth from a region from a category standpoint you know generally speaking like you knows around you know all our categories our brands and our channels uh we've committed and we continue to iterate that the first half of this fiscal year is stronger in innovation uh so we have a lot of innovation that it is in skin care in frances in in makeup and in hair care that is coming in the first half of like you know this fiscal year and frankly like you now all this innovation is off to a very very strong start contributing to the strong growth that you saw in in the various categories now in the second half if you remember we said there will be a softening of the innovation as a contribution to the total now we're still committed to the 25 percent of the sales for the fiscal year in the first quarter we deliver 29 of ourselves coming from innovation but still again committed to deliver on the total year 25 some of the strengths that you see in the second half obviously will continue in retail in the second half but there is this rebalancing on innovation and also we are lapping in the second half a higher base of like you know travel retail so we'll expect like you no less growth in net sales but obviously a continuous improvement from our retail trajectory overall so i would say you know this is why we have the confidence to raise the guidance for the year uh based on this strong strong start but obviously the retail and this is what we are focusing as a team retail sales continuing to accelerate in a quarter over quarter and when it comes to your question on the beauty category look i i'm i'm very confident that the beauty category is remaining a very strong category in consumer good in general we're seeing an acceleration if you remember in the last fiscal year we guided a two to three percent actually the industry actually more or less delivered close to three person growth in fiscal 26 we're seeing about 100 basis point improvement in the bucati category overall you've mentioned market like china like the us is very strong but the emerging market also continues to be very strong and for us you saw the 15 growth that we've delivered in the emerging market so for whatever um issue that it will be uh name it like you know the middle east or like you know some disruption in europe that we are monitoring very closely we are obviously like you know really pushing like where we have strong momentum uh which are our largest market and frankly also like you know closing the market the gap where we still have like you no gap to close so overall very confident uh on the category very confident in our performance and very confident that we will be able to deliver within you know the this new guide that we're giving for the year Thanks, Stefan. Dara, I'll just add a few things to what Stefan said. One, we are very pleased with the diverse engines that Stefan talked about. Whether we look at it from a region, category, or brand perspective, the company is firing on many, many engines. So that we like. Within that, when you look at our mix of 6% growth, both Americas and UChem were 4%. percent so that that bodes well for the rest of the year of course uh asia pacific and travel retail and china were very strong and we as stefan said the base period of these businesses have a tougher comp in the back half so our our plan is to keep driving the momentum in these businesses grow share which we are doing while the market will have ups and downs we want to intend to keep growing share and in the western part of the world beauty imagine strategy is working in many places in many aspects of the business and that we intend to continue we intend to continue to fuel a business so that the the progress in western markets continues and that is what is baked into a forecast and when we started the year expectation was that first half would be stronger back half would be slightly less than that and that still holds but of course we are busy executing against that to prove out our overall guide for the year thank you as a reminder when it is your turn you will receive a message on your screen from the host allowing you to talk please accept unmute your audio and ask your question your next question comes from lauren lieberman with barclays please unmute your radio and ask your question. Hi, again. Can you guys hear me this time? Yes, Lauren, we can hear you. Good. Sorry about that. I wanted to ask about the OneELC operating model. And I know that in the prepared remarks, you mentioned a couple of the new partnerships that you announced during the quarter. I was curious if you could talk a little bit about the unlocks from OneELCs, because the restructuring it's tangible it's a number here's our gross cost savings but how should we think about um what comes out of this shift to one ELC from a you know whether profitability standpoint revenue growth unlock but how you would articulate um what opportunities that creates going forward thanks yeah I'll start like you know Lauren thank you because this is something that we've put a lot of energy behind and I want to make sure that we don't confuse like what the PRGP is enabling with this new operating model. This new operating mode is our new ways of working. Obviously, we have partners from enterprise business services with Accenture, our integrated commerce with Shopify, or even our media around the world operated by WPP. And there's many other partners such as Microsoft and Google that also are powering our technology, our cloud. Microsoft One that we've announced an extended partnership last week to really build our cloud and our data. So overall, this one ELC model, operating model, you have to think about it as really the backbone of how we are operating for the company. And it is designed for us to just bring efficiencies over time. So think about the PRGP as a one-time event, obviously, that has helped us to really reposition our cost base and reduce our fixed costs, reinvesting into consumer facing to reignite growth. But going forward, we don't see that as one moment in time. Transformation is a new way for us to operate for the future of the company, and it's going to give us efficiency in media, efficiency in the back of house, much more agility around the company. So we are really focusing on harnessing the power of our brand, the powerof our innovation, and really investing to drive growth in the future. So these partners have really allowed us to really build a very strong backbone from technology to consumer-facing activities and so on and so forth. So that also, in a way, is helping us to reduce the duplication and the fragmentation of the activities throughout the organization, like around the world. So that has been one of the key focus for us to do. And this reduction of duplication and fragmentation is allowing us to spend more time on creating innovation, boosting desirability, creating the consumer experience to obviously, like, you know, accelerate our growth, as we've demonstrated with the increase guide on the top line this year. as we demonstrated with the result in q4 of the last fiscal year as well as q1 of this fiscal year on the six percent and the five percent at the end of last uh fiscal year so think about this ecosystem as a way to really power our brands power our market and really become the best consumer-centric prestige beauty company in the world one thing that i'll add to that lauren and every time you have a meeting Stefan opens it with three pillars of one ELC it's really culture its system process and one team so these are the things that underpin the changes that Stefan just talked about and from a culture perspective we are clearly demonstrating speed agility and a culture of empowerment and accountability and from one team perspective the work we have done to make roles clearer are are we do not talk enough about it but our brands regions and affiliates are very clearly focused on their unique deliverables which was one of the points that was always talked about for the company in a big matrix of brand channels and affiliates and the third thing is when you look at the three pillars stefan talked about media ecom and back-end processes this is the company and we are going to the best in class solutions for all of them combined these things are improving not only our top line our bottom line and overall well-being of our people who will work in the company to focus on the best work. Your next question comes from Steve Powers with Deutsche Bank. Please unmute your audio and ask your question. Great. Can you hear me okay? We can hear you, Steve. Perfect. Thank you, Stefan. So I guess maybe going back a little bit to Dara's question, And clearly the results this quarter are very strong and fairly balanced geographically, though less so by category. Can you maybe discuss the strength you saw in fragrance this quarter versus the solid but less outsized performance in other areas of the business and how you see those trends unfolding over the balance of the year? And as you do that, maybe relatedly discuss any, just how you perceive consumption this quarter relative to the organic run rate and any areas of inventory build that we should consider as we think about the quarters to come. Thank you. Okay, I'll start with the finance category and the strength that we're seeing and Aikiel can just like, you know, join on the inventory. Look, we feel very good about the long-term opportunities and preferences. And I think what has been very exciting for us this quarter, there's been a long way in the making to get there. We've demonstrated that we have a very strong luxury portfolio. When you think about Tom Ford private brand, when you think about Le Labo, you think of Frédéric Malle or Joe Malo in London and on and on, we've demonstrated over the past years that we have a very strong portfolio. What we've done differently this quarter is that we've really accelerated the investment behind this brand and we've really accelerated innovation. And innovation has resonated across every single of our brands. But what is new is really what we've committed to go after also the prestige price tier. If you remember, if you look from east to west, in the east, there's a high penetration of luxury currencies. And we've always performed very well. We've demonstrated, again, strong share gain in China, in Korea, in Japan. But on the other hand, inthe west, the large majority of our France business is still done in the prestige price tier which we haven't really captured our fair share over the past few years this quarter we've launched for the first time in over a decade the estee lauder glimmer france which is after a very strong start in the us and in the uk which gives us the confidence to roll out glimmer by estelle order in the second half of this fiscal year in more market especially like you know in europe in latin america we've also had the continuous strengths of balma beauty especially with desta the france has been very very strong across the western market and now the new addition to the portfolio in prestige is the new collection the cocktail collection by kilian that has been a resounding success in absolutely every market where we've launched it all of that has contributed to very strong growth in net sales but also market share gain in pretty much every market a 20 growth in net cells we're absolutely convinced that we have one if not the best performance in the industry in france's and in retail sales we're seeing the follow-through in all key market from the us to uh where we gained share in the us we can share in at the uk we can sharing continental europe also like you know across many markets in in asia japan china you know korea so all of that is demonstrating the strength why i believe steve that this could continue there's two factors this us obviously the strong innovation continuing to expand distribution where it makes sense for our luxury finances but also going to capture market share in the prestige category where we haven't had had our fair share in the past and the second thing we are seeing still consumer younger consumer gravitating to towards this category thanks to like you know platform like tick tock shop which we are saying a lot more activities in france and we are participating into it we've launched many of our brand on tick tockshop and you'll see more activity going forward so between the strength of our innovation the strengths of our portfolio the new prestige strategy in addition to our luxury strategy and the category that i believe is still robust around the world we believe that we will continue to do so and to accelerate if you remember when we were in august on the back of a 10 growth in fiscal 26 we committed to even stronger acceleration q1 is a demonstration of that thank you stefan steve i'll say two things on on months of cover for our inventory so overall we are tracking this across region and we are shipping to retail so we are in good shape i think the one of the reason your question probably comes from is the the strength we see in a pack and tr we are shifting to retail but our base period shipment was lower so there are net shipment indexes higher than the retail we have seen but we are shipping to retail and our inventory is very balanced for each one of the markets and channels and every time it goes slightly off balance we fix it in the next quarter so this is something stefan and i had promised and that's what we are attracting against yeah and steve i want you to hear it from from your head for my account for me and for everybody we are shifting to retail that's the commitment we as as a leadership team i know you always and it's your role to just ask the question but we are laser focused to really aligning our net and our retail and saying today we're seeing retail accelerating obviously we're saying net accelerating but this is a strong commitment that we have across our categories across our brand and frankly across all channels around the world very clear thank you both thanks steve your next question comes from bonnie herzog with goldman sachs please unmute your audio and ask your question all right thank you hi everyone i had a hi i had question on your op margin targets for the year how much of the guidance raised was maybe just a function of over delivery in the quarter versus an underlying improvement in the pace of expansion that we should expect you to build upon, I guess, as the year progresses? And then how should we think about the potential risks from commodity and maybe freight inflation to revised margin guidance? I guess how much flex do you have with your PRGP savings to still deliver in that range, you know, without curtailing reinvestments? Thanks. thanks bonnie so yeah as you pointed out we we have passed on some of the beat of the first quarter or not the beat really but some of strength of the quarter uh to rest of the year and what we have what we are intend to do for rest of year is we want to invest continue investing in our brands because we are clearly seeing momentum and we want invest to drive long-term value which really comes through growth and sustainable growth and share build secondly um on the rest of the year you're right that the the deferral policies on some of the commodity complex kicks in more than the back half which is why we have we we and we knew we expected that which is why we had said on the full year in spite of a very strong gross margin that you've seen on quarter one we expect a modest growth for the fuller because we had factored these items Of course, in our business, commodity complex is not a big input cost to the materials, but, of course, freight impacts everybody. So it is factored into our guidance. And, of coarse, every time we give you a guidance, we want to have multiple paths to get there, including the work we are doing on PRGP, including managing a business with contingency and various scenario planning. So hopefully that gives you the clarity, Bonnie. Yes, thank you. Your next question comes from Chris Carey with Wells Fargo Securities. Please unmute your audio and ask your question. Hi, can you hear me? Yeah, we can hear you, Chris. Okay, great. Customary, can-you-hear-me question. Thank you for the question. I wanted to ask just about the organic sales outlook for the full year, clearly very positive with the higher outlook. And you just noted that growth in the back half will be slightly below fiscal Q1, if I heard that correctly. But can you just frame for us some of the puts and takes that would put you at the higher end of the range for the full year, perhaps discuss category growth rates by region and how you would see some of the category contribution coming through the year. Just it could be seen as a wide range, depending on how this evolves, namely in the fiscal Q2. So I just want to get a sense of what would put you at the high end or the low end and some of key drivers. Thanks so much. Yeah, so Chris, when you think about the year, and I think we've said it, and without just going too much into the detail, you've said it, we believe that the first half of the fiscal year, from a net sales standpoint, is going to be stronger than the second half, just because of like simply the phasing of innovation and as akira and i said earlier the lower base the higher base sorry of travel retail in the second half of last year that we are lapping you know this year but i want to be very clear that's not what we expect from a retail standpoint you know retail standpoint for us will like you know continue to be strong you know throughout the year uh and uh and that's very important now when you look at x travel retail we are seeing the rest of the world accelerating you know and continuing to grow uh from uh first half like you know to second half i think we have some favorable item when it comes to uk obviously because of the lower base of last year due to the disruption of like you know the middle east and we are starting to see obviously traffic is still very slow but we are starting to see like you know better retail trend in the middle east and frankly also if you remember middle east is when you think about the local market plus the airport is less than two percent of our business and with the strengths of the rest of the emerging market we're seeing like you know continuation um in the us uh we're saying obviously like you knows us continuing to reduce the gap like you now with the market but i was very happy and encouraged in the quarter not only we are continuing with volume market share gain we have also now starting to see both inferences and air care value market share again so we're moving in the right direction and if you start digging more into it we are gaining market share in mac and the ordinary so in makeup and in skin care that is showing that all categories with some of our key brands are moving in the right direction so see the the total elc x travel retail continuing with good momentum and obviously travel retail the retail is moving in the right direction but obviously we have to lap a much higher base in the second half and we are committing to ship to retail so this is why we are like you know seeing what we're seeing in the total year but what will obviously and all our objective why we give a guidance this one between four to five point five our objective is always like you know to try to just like you not deliver you know towards the top of the guidance and it will be the continuation of very strong momentum on our innovation the turnaround that we're seeing in the west the acceleration of travel retail west while we're continuing to work through the transition in travel retail east so there's a lot of good momentum and obviously we can control what we can't control you know and this is what we're doing and we're expecting a normalization i would say of the impact of the middle east conflict and some of the over uh ongoing geopolitical and macroeconomic uncertainties that we may say in other geographies. Okay, thank you so much. Thanks, Chris. Your next question comes from Rupesh Parikh with Oppenheimer. Please unmute your audio and ask your question. Good morning, and thanks for taking my question. So I just wanted to go back to mainland China. Just curious what you're seeing on the ground right now, how you feel about the sustainability, the momentum in the coming quarters, and then any early thoughts on just the 11-11 holiday. Thank you. Yeah, so Rupesh, a very good question, considering that we are already on the ground in China, and by the way, for everybody, we're doing our first ever earning calls live from China, you know, ahead of our capital market experience that is in a couple of days. look the market is healthy in china we're seeing now obviously in this quarter low single digit growth into the quarter but it's lapsing a very high quarter last year uh and which was in like you know high single digit growth for the market but overall we're saying china as a mid-single digit growth i've been very very clear china is no longer what we call an emerging market it is a natural market of a significant size when it comes to beauty so a mid single digit growth you know towards for the industry is very strong in the midst of that we are gaining share you saw that now we are on the seventh consecutive quarter of market share gain and what i love of what i'm seeing in our performance in china it is broad based we are getting market share across the three main category of skincare makeup and fragrances and we have today 11 brand in growth of which six are in double digit growth so very very strong performance in the market we grew double the market almost doubled the market in the quarter which is like you know very very strong um now when it comes to 11 11 uh it's too early you know 11 11 is so dynamic and being here in this moment always reminds me that every day is different thing our team are working towards like you know obviously achieving our goals we have very strong animation strong offers very strong innovation behind all our brands in the quarter but it's too early to tell 11 11 because telling you something on november 2nd can change on novembre 3rd let alone on noveember 11 but that will be very strong um so the retail is strong uh and that's what matters to us and in the retail that is strong we're seeing a strong momentum and now this is china mainland we also like seeing in the total china ecosystem when you include you know travel retail also travel retail being going in the right trajectory and we have double digit growth in hainan and we are seeing also strong performance in korea as the chinese consumers are trying to travel again within the asia corridor great thank you for the color thanks rupesh your next question comes from filippo falorny with city please unmute your audio and ask your question hi good evening everyone uh for everyone dialing from asia and good morning to everyone in the us um so i wanted to double We'll click on the travel retail comments, Stefan, that you just made from a retail sales standpoint. You've seen strong improvement in the business. Maybe touch about the changes that you've seen in the Shanghai and Beijing airports from last year, from a more, not necessarily a shipment standpoint, but more from a retailer sales standpoint, Has that allowed to gain more share in those airports and broadly in the mainland China travel retail business? And then in Hainan, you mentioned an improvement in retail sales online. So maybe can you expand a bit more what you're seeing in the online sale versus offline in Haina? Thank you. Thank you, Filippo, for the question. So as Akil said and as you stated, we have had strong growth in the quarter in travel retail. very proud of like you know the work that the team is doing we've committed to put back investment into creating consumer experience in this channel you know put it simply travel retail remains the second largest channel in the world after online so it's a very very important channel and we are happy to see like you no strong that sales growth in the east and also the acceleration in tr west I'll just touch one second on TR West because I think it's important to understand the total channel with our strategy of diversification. Not only are we accelerating in TR West, but we are gaining market share in TR Western thanks to the deployment of many of our brands in the channel that were not present, mainly our luxury France brand like Jo Malone, Tom Ford, Kilian, and so on. So that has been very strong. we are seeing travel retail worldwide stabilizing to a slight positive so this is like you know very strong for what we see the shrinks are really coming from Hainan and they are coming from Korea as I mentioned earlier and obviously like you the the west in our case so Hainaan double-digit growth in quarter one the west mid-single-digits growth in Quarter one but ahead of the of the industry when we look at the transition that we stated last year on the airport the transition is complete and our performance are accelerating we've worked our team has worked very very closely with our partners on the ground and all the transition in mainly in beijing and shanghai airport is completely uh you know complete at this point and we are seeing some significant improvement overall. Now, you've asked about online. Online is a fairly new phenomenon over the past few years and online for travel retail is accelerating for the entire industry. So it's not only us, it is part of an ecosystem of where we are capturing and where we ARE retaining the consumers. And today we are staying some recovery. It's still a little bit in flux, but we're working very closely to our partners like you know to just make sure that we capture like you're not the consumer so i think overall i feel confident about the trajectory that travel retail is going under and more importantly very excited about what we are doing and what our team on the ground are doing to just bring back experiential retail and using online to be able to retain the consumer throughout this channel and the same way we do it in the local market we think about an omni channel we think about exactly the same way like in travel retail so um so again the only thing i would say is retail is accelerating for us very strong performance in first quarter that most likely will continue in the second quarter but a lower net sales performance in the second half due to the higher base that we are lapsing but retail will continue to just like increase with the right momentum and obviously as i said multiple times we're really committed to ship our net sales in line with retail going forward great thank you very much we have time for one last question your final question comes with Raymond James. Please unmute your audio and ask your question. Great. Can you hear me? Yes, we can hear you. Perfect. Thank you. I wanted to ask you about China and America's obviously very strong improvement and your view on ability to sustain or accelerate those share gains that you've made and the actions that you have taken that improve your ability to drive continued growth. And then secondly, you differentiated the press release areas where you drove dollar share versus volume share so can you expand on how you think about the importance of driving volume um versus dollar share especially in makeup and and sort of balancing the volume before price mix or whether it's in lieu of price mix thanks so much uh for for the question no thank you thank you olivia i'll start i'm sure akil will want to add something um look the truth is that we are committed to go after growing above the industry you know this is our overall commitment on the total for the company and especially in the two largest markets around the world so i'm very proud of what the team has done in china with seven consecutive quarter of markets again and we intend to continue to do it i think one of the the new things that we are deploying in the market is also like you know our innovation you know i think i've mentioned it in the prior call 30 percent of our global innovation is now coming from china some is just for china some is for what we call china for the world but really accelerating not only our speed of bringing innovation to market but also the relevance of the innovation that we are bringing to market working very very closely with our china team and so we believe that will continue to help us to stay ahead of the industry uh in in an industry that i said earlier that we see uh be in the mid single digit growth so and we want to just like you know maintain this strong performance and to maintain a performance that will be broad based from a category standpoint that's why we are continuing to invest not only on our skincare brand and you know our latest addition in the market has been the ordinary there's been a resounding success now we are lapsing lapping the one year anniversary with very strong performance but we're seeing strong performance also on la mer and then continuing to accelerate on frances and on makeup so i feel good on our ability to just like you know continue to gain market share in china uh on the the future now obviously things can vary by quarter but overall our objective is to gain market share when it comes to the us we are not there yet in a value share as i said earlier we are in the volume sharing to answer your question volume has been very important for us in a market where we've lost market share for over a decade and it was very important for us to reignite the recruitment engine and the way i think about volume and value you need the volume first to just like really making sure that we reignite the recruitment will because one thing we know we have exceptional brand and exceptional innovation getting the product in the end of the consumer is the first step to getting them to loyalty and i think many of what we are doing from a consumer recruitment and the consumer retention once we get the volume will turn eventually in value and that's what we've seen this quarter with frances and air care where we've been in both cases the retail trend both from strong innovation but also strong recruitment retention excuse me we are turning the volume into value share when it comes to makeup and skincare we have more work to do obviously on the brand like the ordinary we are gaining in skincare in volume and in value and in the case of mac we're also getting in volume and in-value for the first time in a long time but we want to use the playbook that we have with mac and the ordinary that also add the entry of prestige and there's a lot of demand a lot of growth at the entry-of-prestige using this playbook to apply to every single of our brand that it is on bobby brown or on clinic on estee lauder you know to really making sure that we are bringing the entire portfolio from volume to volume plus value you know going forward olivia i'll add just a few things to stefan's point um i mean it's a great question first of all as part of the first strategy of beauty reimagine consumer coverage stefan and i constantly look at consumer penetration which is key so we are always looking at volume and value share so that they are working both in tandem secondly as part of strategic revenue management you'll see when we file our queue we of course look at volume price and mix and you'll very strong volume and units and this is something we have not had in last few years as Stefan pointed out so you'll see strong unit growth which of course augurs well for overall better flywheel and thirdly we are leveraging the whole portfolio starting from ordinary to to Lamar and Tom Ford to reach consumers at every price point across brands. And of course, within each brand, we are constantly looking to make sure consumer has access to our brands at different franchise at different price points, which builds a more strategic and more sustainable revenue model, which is what our promise to you has been and which is what we're working on. Thank you. That concludes today's question and answer session. If you were unable to join for the entire webcast, a playback will be available at 1 p.m. Eastern time today until February 2nd. Please visit the investors section of the company's website to view a replay of the webcast. That concludes today's Estee Lauder conference call. I would like to thank you all for your participation and wish you all a good day.