ESTEE LAUDER COMPANIES INC Q3 FY2025 earnings call

Beauty Reimagined Action Plan Priorities - Accelerate best-in-class consumer coverage: Moved quickly across brands and platforms, e.g., The Ordinary on Amazon Premium Beauty store and U.K. ticked up shop, and expansion in various markets. - Create transformative innovation: Introduced innovations like Clinique's Moisture Surge Active Glow Serum, Estée Lauder's double wear concealer, M·A·C's new collection, La Mer's night recovery concentrate, and TOM FORD's Slim Lip Color Shine lipstick. - Boost consumer-facing investment: Increased investment, concentrating primarily in China and the U.S., with examples like Too Faced's AI-driven marketing launch. - Fuel sustainable growth through bold efficiencies: PRGP with over 2,600 net positions reduced, streamlining middle management by 20%, and progress in procurement and outsourcing. - Reimagine the way we work: New executive team with reduced layers, P&L to be owned by regions from fiscal 2026, and cascading the Beauty Reimagined vision through global and regional efforts. ### PRGP Progress: Recorded $498 million cumulative charges under the program, primarily in employee-related costs, with progress in reducing non-consumer-facing costs and driving gross margin expansion every quarter.

Organic net sales declined 9%. Excluding travel retail, the business decreased 3% organically, an improvement from the 4% decline in the second quarter. Travel retail declined 28% organically and continues to shrink as a percentage of the business towards the low teens. Diluted earnings per share decreased 33%. Gross margin expanded over 300 basis points for the fourth consecutive quarter. Operating margin was 11.4%, contracting 270 basis points due to increased consumer-facing spending and volume deleverage from travel retail offset by PRGP benefits.

Expect travel retail headwind to be greater in fiscal 2025 Q4. Outside travel retail, organic sales decline to moderate and retail sales growth to continue. Confident in returning to sales growth in fiscal 2026. Total organic net sales expected to decrease 9%-8% in full year 2025. Gross margin is approximately 73.5%, effective tax rate is 38%, and EPS is $1.30-$1.55. Consider risks like geopolitical landscape, tariffs, and consumer sentiment.

Elevated macroeconomic challenges, weakened consumer sentiment in the U.S., Europe, prolonged weak sentiment in China and Korea, impact of tariffs on profitability, and supply chain pressures.

Q: Steve Powers inquired about trade inventories and risks around the outlook.

A: Akhil stated significant progress in travel retail inventory, monitoring retail fluctuations, and noting the 6/18 volatility was factored into guidance.

Q: Bonnie Herzog asked about FY 2026 planning.

A: Stéphane mentioned market share gains in key markets, travel retail de-risking, PRGP progress, and tariff mitigation efforts.

Q: Lauren Lieberman questioned sourcing from China and the U.S.

A: Stéphane and Akhil said confident of being below 10% sourcing from the U.S. to China by fiscal year end, with 75% of U.S. sales sourced from U.S. and Canada, 25% from Europe, and work on supply chain regionalization.

Q: Filippo Falorni asked about PRGP savings and reinvestment.

A: Stéphane and Akhil said on track for PRGP 1.0, expanding PRGP for outsourcing and procurement, expecting more savings, and reinvesting to fuel growth and margin.

Q: Peter Grom asked about fiscal 2026 growth and tariff guardrails.

A: Stéphane said return to growth is a full-year goal, and Akhil noted basing on brand share gains, monitoring tariffs, and looking at flow of goods, pricing, and PRGP for mitigation.

Q: Dara Mohsenian asked about market share performance.

A: Stéphane said share gains in U.S., China, Japan, with learnings applied to other markets and travel retail focusing on retail.

Q: Bryan Spillane asked about balancing margin and revenue.

A: Stéphane and Akhil said clear roles of brand, region, and function, PRGP progress, changing work methods, seeing growth green shoots, and focusing on growth, margin, and cash.