The Estée Lauder Companies Reports Fiscal 2021 Third Quarter Results

Net Sales Increased 16% and Diluted EPS Improved to $1.24 from a Loss of $.02

In Constant Currency, Net Sales Grew 13% and Adjusted Diluted EPS Increased 88%

Net Sales Grew 9% Fiscal Year-to-Date Compared to Fiscal 2019

The Estée Lauder Companies Inc. EL today reported net sales of $3.86 billion for its third quarter ended March 31, 2021, an increase of 16% on a reported basis, and 13% in constant currency, from $3.35 billion in the prior-year period. Net sales grew in every region and in most product categories reflecting the recovery in several areas compared to the prior year where brick-and-mortar began to shut down as COVID-19 spread globally.

The Company reported net earnings of $456 million, compared with a net loss of $(6) million in the prior-year period. Diluted net earnings per common share was $1.24, compared with a loss of $(.02) reported in the prior-year period. Excluding the benefit of currency translation, adjusted diluted earnings per common share, which excludes items detailed on page 3, increased 88%.

Fabrizio Freda, President and Chief Executive Officer said, "We exceeded our sales and earnings expectations, even as several markets experienced increasing pressure from COVID-19 throughout the quarter. Our growth engines of Skin Care and Fragrance were incredibly powerful. Sales rose in every region, led by double-digit growth in Asia/Pacific, where many markets contributed and sales growth in mainland China accelerated. Online thrived as a growth engine, with sales having increased strong double-digits around the world, and Travel Retail excelled. Estée Lauder, La Mer, Jo Malone London, Clinique, and Tom Ford Beauty led the robust performance of many brands in our portfolio.

Our fiscal year-to-date sales and adjusted operating margin exceed that of the same period in fiscal 2019, as we continue to successfully navigate the challenges of the pandemic. With strong cash flow generation, we resumed share repurchases in the third quarter. We are thrilled to have agreed to increase our ownership in DECIEM, becoming majority owners with a path to full ownership in three years. DECIEM's soaring brand The Ordinary and new brand incubation capability further enhance our superior multiple engines of growth strategy."

Freda emphasized "We have achieved these outstanding results while, first and foremost, caring for the safety and well-being of our employees and consumers amid the pandemic. Impressively, we are investing in many compelling long-term growth drivers, including end-to-end innovation with a new center in Shanghai, state of the art manufacturing in Asia/Pacific, global online, and consumer analytics. We are progressing on our environmental goals and acting on our social commitments with urgency. We expect the momentum in our sales growth to build in the fourth quarter of fiscal 2021, not only from easing comparisons but also fundamental strength, as we drive recovery."

COVID-19 Update
The COVID-19 pandemic continued to disrupt the Company's operating environment, temporarily impacting retail traffic and certain consumer preferences in the third quarter of fiscal 2021. The resurgence of COVID-19 cases in several countries, particularly in Western Europe and Latin America, led to government restrictions to prevent further spread of the virus. These restrictions included the temporary closure of businesses deemed non-essential, curtailment of travel, social distancing and quarantines.

Retail Impact
While most brick-and-mortar retail stores that sell the Company's products, whether operated by the Company or its customers, were open during the third quarter of fiscal 2021, most notably in China and the United States, there were intermittent closures throughout the rest of the world. In the United Kingdom, Japan, Canada, Italy, Spain, France, Mexico and Brazil, in particular, many retail stores were temporarily closed for some period during the quarter due to the resurgence of COVID-19 cases. Globally, in areas where stores were open, consumer traffic was significantly reduced as compared to the pre-COVID-19 pandemic period. In addition, while domestic travel in China, especially in Hainan, and some other travel corridors in Asia/Pacific, most notably Korea, were open, international travel has remained largely curtailed globally due to both government restrictions and consumer health concerns that continue to adversely impact consumer traffic in most travel retail locations.

Consumer Preferences
The COVID-19 pandemic-related closures of offices, retail stores and other businesses and the significant decline in social gatherings have also influenced consumer preferences and practices. Specifically, the demand for makeup continues to be weak given fewer makeup usage occasions while other categories have been more resilient.

Cost Controls
In response to the ongoing impacts from the COVID-19 pandemic, the Company continues to implement cost control actions in certain areas of the business to effectively manage the changing business environment.

Fiscal 2021 Third Quarter Results
Adjusted diluted earnings (loss) per share excludes restructuring and other charges and adjustments as detailed in the following table.

The fluctuations in exchange rates between the U.S. dollar in relation to most currencies had a favorable impact on net sales and operating income in the Company's product categories and regions outside of the United States.

Total reported operating income was $616 million, an increase from $109 million in the prior-year period. Operating income increased 64%, largely reflecting higher net sales and excluding the following items:

• Third quarter of fiscal 2021: $33 million of asset impairments related to some of the Company's freestanding stores and $145 million of restructuring and other charges.
• Third quarter of fiscal 2020: $333 million of goodwill and other intangible asset impairments related to Too Faced, GLAMGLOW, BECCA and Smashbox; $13 million of asset impairments related to some of the Company's freestanding stores; and $23 million of restructuring and other charges and adjustments.
• The favorable impact of currency translation of $5 million.

Skin Care

• Skin care net sales grew strongly, led by Estée Lauder, La Mer and Clinique. Dr. Jart+ and Origins also contributed to growth.
• Estée Lauder net sales grew double digits, led by increases in travel retail and in mainland China compared to the prior year where brick-and-mortar began to shut down in January 2020 due to COVID-19. Net sales growth was primarily driven by Advanced Night Repair Synchronized Multi-Recovery Complex and strong demand for high-loyalty hero products in the Revitalizing Supreme+, Daywear and Re-Nutriv franchises.
• La Mer delivered strong double-digit growth, led by Asia/Pacific, with significant gains in mainland China. The brand grew in both Europe, the Middle East & Africa and The Americas regions as well. La Mer's growth was primarily driven by strong demand for its hero products, including Crème de la Mer, The Concentrate and The Treatment Lotion. Targeted expanded consumer reach also contributed to growth.
• Clinique delivered double-digit growth in every region driven by strong demand for its hero products, including the Dramatically Different and Clinique Smart franchises as well as Even Better Clinical Radical Dark Spot Corrector + Interrupter. The launch of Moisture Surge 100H Auto-Replenishing Hydrator and the iconic 3-Step skin care system also contributed to growth.
• Dr. Jart+ net sales increased primarily due to growth in mainland China and travel retail in Korea. Targeted expanded consumer reach also contributed to growth.
• Origins net sales growth reflected the continued success of Dr. Andrew Weil for ORIGINS Mega-Mushroom Relief & Resilience Soothing Treatment Lotion and the launch of Plantscription Multi-Powered Youth Serum.
• Skin care operating income increased, primarily from higher net sales at Estée Lauder, La Mer and Clinique. Additionally, the prior year period was adversely impacted by goodwill and other intangible asset impairments related to GLAMGLOW.

Makeup

• Net sales in makeup declined across nearly all brands. The effects of the COVID-19 pandemic continued to disproportionately impact makeup usage, particularly foundation and lip, in most markets. Makeup sales rose slightly in Asia/Pacific, reflecting the more advanced recovery in the region, primarily in China where usage occasions are increasing.
• Makeup operating income improved, primarily reflecting impairments of several brands in the prior-year period.

Fragrance

• Net sales grew, primarily due to increases from Jo Malone London, Tom Ford Beauty, Kilian Paris and Estée Lauder.
• Jo Malone London's net sales grew double digits with increases in every region. Growth primarily reflected strong holiday activations around Chinese New Year and Valentine's Day and the success of new product launches, including the new Blossoms Collection and Scarlet Poppy Cologne Intense. Strong online sales more than offset the decline in brick-and-mortar stores.
• Tom Ford Beauty delivered double-digit growth, reflecting the continued success of Bitter Peach and Rose Prick Private Blend fragrances as well as hero products, including Oud Wood and Black Orchid.
• Net sales from Kilian Paris rose double digits driven by demand for hero products and the successful launch of The Liquors franchise, including Angels' Share. Targeted expanded consumer reach also contributed to growth.
• Estée Lauder net sales growth was driven by the launch of Beautiful Magnolia.
• Fragrance operating income increased, driven by higher net sales.

Hair Care

• Hair care net sales rose, primarily reflecting successful innovation, including Botanical Repair, as well as strong double-digit online growth at Aveda.
• Hair care operating income reflected higher results from Aveda, which were more than offset by the return of incentive compensation to pre-COVID-19 pandemic levels.

The Americas

• Net sales increased in the region reflecting growth in North America compared to the prior year where brick-and-mortar began to shut down in March 2020 due to COVID-19. This was somewhat offset by declines in Latin America where many retail locations closed as the resurgence of COVID-19 led to increased government restrictions during the quarter.
• Online¹ sales grew double digits in The Americas.
• The Company and many retailers continued to capture consumer demand online utilizing new and existing digital capabilities, which more than offset declines from soft traffic in brick-and-mortar doors.
• In North America, net sales growth was driven by double-digit growth in the fragrance category and growth in skin care.
• Makeup sales continued to be challenged by soft demand.
• Operating income in The Americas increased, primarily reflecting the year-over-year reduction of goodwill, other intangible and long-lived asset impairments.

¹The regional online sales discussed throughout includes sales of the Company's products from its websites and third-party platforms, as well as estimated sales of the Company's products sold through its retailers' websites.

Europe, the Middle East & Africa

• Net sales returned to growth in the region, led by travel retail and online. Russia also contributed to growth.
• Net sales from the Company's global travel retail business² increased year-over-year despite the absence of international passenger traffic in Europe, the Middle East & Africa and The Americas. This was more than offset by China domestic travel, especially in Hainan, and sales in the rest of Asia/Pacific, including Korea.
• Online sales doubled, reflecting the increased focus on reaching consumers digitally.
• In Western Europe, the resurgence of COVID-19 cases led to increased government restrictions and store closures during the quarter. As a result, net sales declined across much of the region, notably in the United Kingdom, France and Spain.
• Operating income increased, primarily driven by the growth in travel retail.

²The net sales from the Company's travel retail business are included in the Europe, the Middle East & Africa region, with the exception of the net sales of Dr. Jart+ in the travel retail channel that are reflected in Korea in the Asia/Pacific region.

Asia/Pacific

• Net sales growth reflected increases in mainland China, Australia, Korea and several smaller markets.
• Skin care, fragrance and hair care net sales grew strong double-digits in the region, while makeup net sales increased slightly.
• The Company continued to focus its investments on digital marketing, which drove strong double-digit online sales growth. Department stores and freestanding stores grew double digits as well.
• In mainland China, net sales grew strong double digits led by continued strength in skin care, an initial recovery in makeup and an acceleration in fragrance growth. Nearly every brand grew with the luxury brands outperforming. Sales increased double digits in every channel.
• Operating income increased, driven by higher net sales.

Nine-Month Results

• For the nine months ended March 31, 2021, the Company reported net sales of $12.28 billion, a 3% increase compared with $11.86 billion in the prior-year period. Net sales increased 2% in constant currency. Incremental net sales from the Company's acquisition of Have&Be Co. Ltd. ("Dr. Jart+") contributed approximately 2 percentage points of net sales growth.
• Net earnings were $1.85 billion, and diluted earnings per share was $5.03. In the prior-year nine months, the Company reported net earnings of $1.15 billion and diluted earnings per share of $3.12.
• During the nine-months ended March 31, 2021, the Company recorded restructuring and other charges, changes in contingent consideration and goodwill, other intangible and long-lived asset impairments that, combined, totaled $303 million ($237 million after tax), equal to $.65 per diluted share. The prior-year period results include restructuring and other charges, changes in contingent consideration, goodwill, other intangible and long-lived asset impairments and other income primarily related to a gain on a previously held equity investment in Have&Be Co. Ltd. that totaled $601 million ($554 million after tax), equal to $1.51 per diluted share.
• Excluding restructuring and other charges and adjustments, adjusted diluted net earnings per common share for the nine months ended March 31, 2021 increased 23%, and rose 20% in constant currency. For the nine months ended March 31, 2021, the benefit of foreign currency translation on diluted net earnings per common share was $.10.

Cash Flows

• For the nine months ended March 31, 2021, net cash flows provided by operating activities were $2.78 billion, favorable to the $1.95 billion in the prior-year period, reflecting an improvement in working capital, as well as higher earnings before taxes, excluding non-cash items.
• In March 2021, the Company resumed its repurchase of shares of the Company's Class A Common Stock and purchased approximately 1.2 million shares for $316 million as of March 31, 2021.
• The Company ended the quarter with $6.4 billion in cash and cash equivalents after returning $877 million cash to stockholders through dividends and share repurchases during the nine month period and repaying the outstanding balance of $750 million drawn on its revolving credit facility in August 2020. In March 2021, the Company issued $600 million of new senior notes and, in April 2021, the Company repaid $450 million aggregate principal amount of its Senior Notes due in May 2021.
• In February 2021, the Company announced that it will increase its ownership in DECIEM Beauty Group ("DECIEM") from approximately 29% to approximately 76% for roughly $1.0 billion. The transaction is expected to be completed in May 2021 and will be funded with a portion of the proceeds from the March 2021 senior notes and cash on hand.

Outlook
With multiple engines of growth across regions, brands, product categories and channels, the Company is confident it is well-positioned to drive a gradual recovery as macro-conditions and market dynamics support it. The Company expects to invest in areas to support the recovery, including advertising, online and supply chain, to both drive growth in areas of opportunity and help nurture emerging trends in the rest of the business.

The Company is mindful of risks related to social, economic and political matters, including restructurings and bankruptcies in the retail industry, geopolitical tensions, regulatory developments, global security issues, currency volatility, general economic challenges and changes in consumer preferences that affect consumer spending in certain countries, channels and travel corridors.

Full Year Fiscal 2021
Sales Outlook

• Reported net sales are forecasted to increase between 11% and 12% versus the prior-year period.
• The Company's acquisition of DECIEM is expected to be negligible to the Company's overall sales growth.
• Excluding the impact of currency, net sales are forecasted to increase between 9% and 10%.

Earnings per Share Outlook

• Reported diluted net earnings per common share are projected to be between $5.31 and $5.48. Excluding restructuring and other charges and adjustments, diluted net earnings per common share are projected to be between $6.05 and $6.15.
• The Company's acquisition of DECIEM is expected to be negligible to the Company's diluted net earnings per common share.
• Adjusted diluted earnings per common share are expected to increase between 45% and 47% on a constant currency basis.
  • Currency exchange rates are volatile and difficult to predict. Using March 31, 2021 spot rates for the fourth quarter of fiscal 2021, the currency benefit equates to about $.10 of diluted earnings per share.
  • The Company expects to take charges associated with previously approved restructuring and other activities.
    • Leading Beauty Forward programs are nearing completion. Charges are estimated to be between approximately $8 million to $14 million, equal to $.02 to $.03 per diluted common share.
    • Under the Post-COVID Business Acceleration Program, the Company estimates charges of approximately $199 million to $229 million, equal to $.42 to $.48 per diluted common share. The Company continues to evaluate further actions under the program.

Conference Call
The Estée Lauder Companies will host a conference call at 9:30 a.m. (ET) today, May 3, 2021 to discuss its results. The dial-in number for the call is 888-294-4716 in the U.S. or 706-902-0101 internationally (conference ID number: 5569398). The call will also be webcast live at http://www.elcompanies.com/investors/events-and-presentations.

Cautionary Note Regarding Forward-Looking Statements
Statements in this press release, in particular those in "Outlook," as well as remarks by the CEO and other members of management, may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements may address our expectations regarding sales, earnings or other future financial performance and liquidity, other performance measures, product introductions, entry into new geographic regions, information technology initiatives, new methods of sale, our long-term strategy, restructuring and other charges and resulting cost savings, and future operations or operating results. These statements may contain words like "expect," "will," "will likely result," "would," "believe," "estimate," "planned," "plans," "intends," "may," "should," "could," "anticipate," "estimate," "project," "projected," "forecast," and "forecasted" or similar expressions.

Factors that could cause actual results to differ materially from our forward-looking statements include the following:

The Company assumes no responsibility to update forward-looking statements made herein or otherwise.

The Estée Lauder Companies Inc. is one of the world's leading manufacturers and marketers of quality skin care, makeup, fragrance and hair care products. The Company's products are sold in approximately 150 countries and territories under brand names including: Estée Lauder, Aramis, Clinique, Lab Series, Origins, Tommy Hilfiger, M·A·C, La Mer, Bobbi Brown, Donna Karan New York, DKNY, Aveda, Jo Malone London, Bumble and bumble, Michael Kors, Darphin, Tom Ford Beauty, Smashbox, Ermenegildo Zegna, AERIN, RODIN olio lusso, Le Labo, Editions de Parfums Frédéric Malle, GLAMGLOW, Kilian Paris, BECCA, Too Faced and Dr. Jart+.

ELC-F
ELC-E

This earnings release includes some non-GAAP financial measures relating to charges associated with restructuring and other activities, goodwill and other intangible asset impairments, long-lived asset impairments relating to COVID-19, the changes in the fair value of contingent consideration and other income. The following is a reconciliation between the non-GAAP financial measures and the most directly comparable GAAP measures for certain consolidated statements of earnings accounts before and after these items. The Company uses certain non-GAAP financial measures, among other financial measures, to evaluate its operating performance, which represent the way the Company conducts and views its business. Management believes that excluding certain items that are not comparable from period to period, or do not reflect the Company's underlying ongoing business, provides transparency for such items and helps investors and others compare and analyze operating performance from period to period. In the future, the Company expects to incur charges or adjustments similar in nature to those presented below; however, the impact to the Company's results in a given period may be highly variable and difficult to predict. Our non-GAAP financial measures may not be comparable to similarly titled measures used by, or determined in a manner consistent with, other companies. While the Company considers the non-GAAP measures useful in analyzing its results, they are not intended to replace, or act as a substitute for, any presentation included in the consolidated financial statements prepared in conformity with GAAP.

The Company operates on a global basis, with the majority of its net sales generated outside the United States. Accordingly, fluctuations in foreign currency exchange rates can affect the Company's results of operations. Therefore, the Company presents certain net sales, operating results and diluted earnings per share information excluding the effect of foreign currency rate fluctuations to provide a framework for assessing the performance of its underlying business outside the United States. Constant currency information compares results between periods as if exchange rates had remained constant period-over-period. The Company calculates constant currency information by translating current-period results using prior-year period weighted-average foreign currency exchange rates and adjusting for the period-over-period impact of foreign currency cash flow hedging activities.