What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-05-03 compared with 2021-02-05 · 267 added, 230 removed, 539 unchanged (48% of the section changed)

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We manufacture, market and sell beauty products including those in the skin care, makeup, fragrance and hair care categories, which are distributed in approximately 150 countries and territories.

The following table is a comparative summary of operating results for the three and six months ended December 31, 2020 and 2019, and reflects the basis of presentation described in Notes to Consolidated Financial Statements, Note 1 – Summary of Significant Accounting Policies for all periods presented.

The following table is a comparative summary of operating results for the three and nine months ended March 31, 2021 and 2020, and reflects the basis of presentation described in Notes to Consolidated Financial Statements, Note 1 – Summary of Significant Accounting Policies for all periods presented.

Products and services that do not meet our definition of skin care, makeup, fragrance and hair care have been included in the “other” category.

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December 31 Six Months Ended

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(In millions) 2021 2020 2021 2020

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Other 15 8 37 36

3,874 3,345 12,289 11,864

Returns associated with restructuring and other activities (10) — (10) —

Net sales $ 3,864 $ 3,345 $ 12,279 $ 11,864

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Asia/Pacific 1,252 928 4,176 3,305

3,874 3,345 12,289 11,864

Returns associated with restructuring and other activities (10) — (10) —

Net sales $ 3,864 $ 3,345 $ 12,279 $ 11,864

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Three Months Ended

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2021 2020 2021 2020

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Goodwill impairment — 8.2 0.4 6.6

Impairment of other intangible assets 0.6 5.8 0.3 3.1

Impairment of other intangible and long-lived assets 0.9 2.1 0.5 2.8

Total operating expenses 59.8 71.7 57.4 66.8

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Provision for income taxes (3.2) (2.5) (3.4) (4.2)

Net earnings 18.1 12.1 16.7 13.6

Net earnings (loss) 11.9 (0.1) 15.1 9.7

Net earnings attributable to noncontrolling interests (0.1) (0.1) (0.1) —

Net earnings attributable to The Estée Lauder Companies Inc.

Net earnings (loss) attributable to The Estée Lauder Companies Inc.

11.8 % (0.2) % 15.1 % 9.7 %

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COVID-19 Business Update

The COVID-19 pandemic continues to cause significant disruption to our operating environment, temporarily impacting retail traffic and certain consumer preferences.

During the three months ended December 31, 2020, countries around the world continued to be challenged by the pandemic with different levels of recovery from temporary business closures and other restrictions.

The COVID-19 pandemic continues to disrupt our operating environment, temporarily impacting retail traffic and certain consumer preferences.

During the three months ended March 31, 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 temporary business closures, curtailment of travel, social distancing and quarantines.

Retail impact

Most brick-and-mortar retail stores globally that sell our products, whether operated by us or our customers, were open during the second quarter of fiscal 2021, although consumer traffic was significantly reduced as compared to the prior-year period and some retail stores were temporarily closed due to the resurgence of COVID-19 cases.

In addition, 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.

Somewhat offsetting the significant declines in brick-and-mortar channels, net sales growth of our products online (through our own websites, third-party platforms and websites of our retailers) has remained strong in every region during the second quarter of fiscal 2021.

The resurgence of COVID-19 cases in various parts of the world, including the United States, the United Kingdom and other countries in Europe, and Japan, has caused the reimplementation of government restrictions to prevent further spread of the virus.

These restrictions included the temporary closure of businesses deemed “non-essential,” travel bans and restrictions, social distancing and quarantines.

We will continue to monitor the impacts of the COVID-19 pandemic and adjust our action plans accordingly as the situation progresses.

While most brick-and-mortar retail stores globally that sell our products, whether operated by us or our 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 third quarter of fiscal 2021 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.

Demand for skin care, fragrance and hair care products has generally been more resilient than the demand for makeup.

Manufacturing and Distribution

By the end of the first quarter of fiscal 2021, and throughout the second quarter of fiscal 2021, all of our manufacturing and distribution facilities were operating at sufficient levels.

The COVID-19 pandemic-related closures of offices, retail stores and other businesses and the significant decline in social gatherings have 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, we continued to implement cost control actions to effectively manage the changing business environment.

Areas where we took actions included advertising and promotion activities, travel, meetings, consulting, and certain employee costs, including implementing furloughs and similar unpaid temporary leaves of absence for many point of sale employees, temporary salary reductions for senior executives and other management employees, and a temporary elimination of cash retainers for the Board of Directors.

Some of these cost control actions were lifted during the second quarter of fiscal 2021.

THE ESTÉE LAUDER COMPANIES INC.

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

Business Update

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Elements of our strategy are described in the Overview on pages 28-31 of our Annual Report on Form 10-K for the fiscal year ended June 30, 2020, as well as below.

During the second quarter of fiscal 2021, net sales increased 5% from the prior-year period, reflecting growth in our skin care product category and in our Asia/Pacific region, as well as strong growth online and the incremental net sales from our acquisition of Dr.

Jart+ at the end of the fiscal 2020 second quarter.

THE ESTÉE LAUDER COMPANIES INC.

During the third quarter of fiscal 2021, net sales increased approximately 16% from the prior-year period, reflecting an easier comparison against the outbreak of COVID-19 in early calendar 2020.

We saw increases across most product categories and all regions, as well as strong growth online.

• Our skin care net sales benefited from the launch of the new Estée Lauder Advanced Night Repair Synchronized Multi-Recovery Complex, the launch of the new The Concentrate from La Mer and strength in basic skin care from Clinique.

The new products support high-loyalty hero franchises.

Skin care net sales grew internationally, reflecting the renewed consumer focus on self-care during the COVID-19 pandemic.

Jart+ and Origins also contributed to skin care growth.

These new products support high-loyalty hero franchises.

• The COVID-19 pandemic limited social and business activities and consumers wore less makeup.

Demand for lipstick and foundation were most acutely impacted, contributing to lower makeup net sales across the portfolio.

Our brands continued to generate interest in makeup through virtual marketing efforts such as classes, virtual try on technology and greater emphasis on social media platforms, as well as a focus on subcategories that continue to resonate with consumers.

• Our fragrance net sales increased in the second quarter of fiscal 2021, reflecting holiday gifting and continued strength in bath, body and home fragrances.

Fragrance net sales growth was led by Tom Ford Beauty, Jo Malone London and Le Labo.

• Our hair care net sales declined, reflecting pandemic related salon closures and limited capacity re-openings, partially offset by strong double-digit online growth and Aveda's launch of Botanical Repair in August 2020.

Our net sales growth by geographic region in the second quarter of fiscal 2021 reflects, in part, the cadence of COVID-19 recovery and resurgence around the world.

• Net sales declined in The Americas, where COVID-19 cases continue to rise across much of the region and strong online net sales were not enough to offset the decline of brick-and-mortar distribution.

• The Europe, the Middle East & Africa region net sales declined overall, as the resurgence of COVID-19 cases led to the reimplementation of government restrictions and temporary store closures, while robust online net sales growth continued.

• The Asia/Pacific region grew, reflecting good momentum in mainland China, Korea, and several smaller markets.

While we continue to face strong competition and economic challenges globally, the COVID-19 pandemic has caused a more significant disruption to our business and the retail industry generally.

There have been restructurings and bankruptcies in the retail industry, including among our customers;

destocking and tighter working capital management by retailers;

challenges for suppliers;

and an acceleration in the shifts in consumer preferences as to where and how they shop, as well as changes in their preferences for certain products.

Our brands continued to generate interest in makeup through virtual marketing efforts such as classes, virtual try on technology and greater emphasis on social media platforms, as well as a focus on sub-categories that continue to resonate with consumers.

• Our fragrance net sales increased in the third quarter of fiscal 2021, reflecting strength in luxury and artisanal scents.

Fragrance net sales growth was led by Jo Malone London, Tom Ford Beauty, Kilian Paris and Le Labo.

The category also benefited from the launch of Beautiful Magnolia from Estée Lauder.

• Our hair care net sales increased, reflecting Aveda's launch of Botanical Repair in the first quarter of fiscal 2021.

Our net sales growth by geographic region in the third quarter of fiscal 2021 reflects, in part, the cadence of COVID-19 recovery and resurgence around the world.

• Net sales increased in The Americas, reflecting some recovery in North America compared to the prior year where brick-and-mortar retail locations were shut down toward the end of the fiscal 2020 third quarter as COVID-19 spread globally.

This was partially offset by declines in Latin America where many retail locations closed as the resurgence of COVID-19 led to increased government restrictions and store closures during the third quarter of fiscal 2021.

• The Europe, the Middle East & Africa region net sales returned to growth, led by our travel retail business, direct-to-consumer online and retailer restocking in advance of further recovery.

• The Asia/Pacific region grew, reflecting increases in mainland China, Australia, Korea, and several smaller markets.

The COVID-19 pandemic has disrupted business both for our Company and for the retailers who sell our products.

There have been restructurings and bankruptcies in the retail industry, including among our customers and an acceleration in the shifts in preferences as to where and how consumers shop, as well as changes in their preferences for certain products.

We are mindful that these trends may continue to impact the pace of recovery.

The severe decline in international travel is also affecting our travel retail business in most of the world, which had been historically one of our most profitable channels.

In addition to impacting net sales and profitability, these and other challenges may impact our ability to collect receivables and our operating cash flows generally and may adversely impact the goodwill, other intangibles and long-lived assets associated with our acquired brands.

THE ESTÉE LAUDER COMPANIES INC.

We continue to monitor the geopolitical tensions between the United States and China and the uncertainties caused by the evolving trade policy dispute, which could increase our cost of sales and negatively impact our overall net sales, or otherwise have a material adverse effect on our business.

The United Kingdom reached a trade agreement and completed its transition out of the European Union (“EU”) in December 2020 (i.e.

The trade agreement is being provisionally applied from January 1, 2021 until ratification by the EU, which is expected later in 2021.

To date, there has been minimal interruption to our business relating to the end of the Brexit transition period.

We will continue to monitor the potential political and economic uncertainties from Brexit for which we have developed risk mitigation strategies.

These strategies include changes related to regulatory and legislative compliance, assessing alternatives to supply chain routing, revising customer arrangements and analyzing inventory levels.

Additionally, we continue to monitor the effects of the global macroeconomic environment;

The continued curtailment in international travel is also affecting our travel retail business in most of the world, which had been historically one of our fastest growth areas.

In addition to impacting net sales and profitability, these and other challenges may impact our ability to collect receivables and our operating cash flows generally, and may adversely impact the goodwill and other intangible assets associated with our brands and the long-lived assets in certain of our freestanding stores (i.e.

resulting in impairments).

We continue to monitor the effects of the global macroeconomic environment;

social and political issues;

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and global security issues.

For example, we continue to monitor the geopolitical tensions between the United States and China and the uncertainties caused by the evolving trade policy dispute, which could increase our cost of sales and negatively impact our overall net sales, or otherwise have a material adverse effect on our business.

We also note that the United Kingdom reached a trade agreement and completed its transition out of the European Union (“EU”) in December 2020 (i.e.

“Brexit”), and we continue to monitor the potential political and economic uncertainties from Brexit.

THE ESTÉE LAUDER COMPANIES INC.

The uncertainty around the timing, speed and duration of the recovery from the adverse impacts of the COVID-19 pandemic will continue to affect our ability to grow sales profitably.

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The fair value of the GLAMGLOW reporting unit was based upon an equal weighting of the income and market approaches, utilizing estimated cash flows and a terminal value, discounted at a rate of return that reflects the relative risk of the cash flows, as well as valuation multiples derived from comparable publicly traded companies that are applied to operating performance of the reporting unit.

The impairment charges for the three and six months ended December 31, 2020 were reflected in the skin care product category and in the Americas region.

As of December 31, 2020, the remaining carrying value of the trademark related to the GLAMGLOW reporting unit were $36 million.

THE ESTÉE LAUDER COMPANIES INC.

The impairment charges for the nine months ended March 31, 2021 were reflected in the skin care product category and in the Americas region.

As of March 31, 2021, the remaining carrying value of the trademark related to the GLAMGLOW reporting unit was $36 million.

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GAAP measures.

Reported net sales increased for the three months ended December 31, 2020, primarily reflecting higher net sales in our skin care and fragrance product categories and in our Asia/Pacific region.

The net sales increase in our skin care product category was primarily driven by Estée Lauder and La Mer, reflecting the success of hero product franchises, new product launches and successful holiday and promotional events.

Fragrance net sales increased, benefiting from higher net sales from Tom Ford Beauty and Jo Malone London.

Net sales in Asia/Pacific increased, primarily due to higher net sales in mainland China and Korea.

The incremental net sales attributable to our acquisition of Dr.

Jart+ at the end of the fiscal 2020 second quarter benefited our skin care category and Asia/Pacific.

Direct-to-consumer online net sales continued to have strong growth, representing approximately 23% of fiscal 2021 second quarter net sales compared to approximately 15% in the prior-year period and benefiting from successful holiday and promotional events.

Reported net sales decreased for the six months ended December 31, 2020, primarily reflecting lower net sales in all product categories, except skin care, and all geographic regions, except for Asia/Pacific, due to the continued challenges of the COVID-19 pandemic, including temporary retail store closures and reduced consumer foot traffic in brick-and-mortar retail locations, the continued curtailment of international travel, and continued social distancing and quarantines.

Despite the overall decrease, net sales continued to grow in our skin care category and in our Asia/Pacific region, both reflecting double-digit growth and the incremental net sales attributable to our acquisition of Dr.

Jart+ at the end of the fiscal 2020 second quarter.

Direct-to-consumer online net sales continued to have strong growth, representing approximately 19% of net sales for the six months ended December 31, 2020 compared to approximately 12% in the prior-year period.

The total net sales changes were impacted by approximately $102 million and $117 million of favorable foreign currency translation for the three and six months ended December 31, 2020, respectively.

THE ESTÉE LAUDER COMPANIES INC.

Reported net sales increased for the three months ended March 31, 2021, primarily reflecting higher net sales in our skin care and fragrance product categories and in all geographic regions.

The net sales growth in our skin care product category reflected higher net sales from Estée Lauder, La Mer and Clinique, as well as net sales growth from Dr.

Jart+ and Origins.

Fragrance net sales increased, primarily benefiting from higher net sales from Jo Malone London and Tom Ford Beauty.

The net sales growth in the skin care and fragrance product categories reflected the success of hero product franchises, new product offerings and successful holiday events.

Net sales grew internationally, led by higher net sales in mainland China and in our travel retail business, as well as net sales growth in Australia, Korea and and Hong Kong.

Direct-to-consumer online net sales grew double-digits, representing approximately 15% of net sales for the three months ended March 31, 2021 compared to approximately 12% in the prior-year period.

Reported net sales increased for the nine months ended March 31, 2021, primarily reflecting higher net sales in our skin care and fragrance product categories and in our Asia/Pacific region.

The net sales increase in our skin care product category was primarily driven by higher net sales from Estée Lauder, La Mer, Dr.

Jart+ and Clinique.

Fragrance net sales increased, primarily benefiting from higher net sales from Jo Malone London and Tom Ford Beauty.

Net sales in Asia/Pacific increased, primarily due to higher net sales in mainland China and Korea.

Despite the net sales growth in our travel retail business (primarily in Hainan), net sales in our Europe, the Middle East & Africa region declined due to the continued challenges of the COVID-19 pandemic, including temporary retail store closures and reduced consumer foot traffic in brick-and-mortar retail locations, the continued curtailment of international travel, and continued social distancing and quarantines.

Direct-to-consumer online net sales continued to have strong growth, representing approximately 18% of net sales for the nine months ended March 31, 2021 compared to approximately 12% in the prior-year period.

The total net sales changes were impacted by approximately $95 million and $212 million of favorable foreign currency translation for the three and nine months ended March 31, 2021, respectively.

Returns associated with restructuring and other activities are not allocated to our product categories or geographic regions because they result from activities that are deemed a Company-wide initiative to redesign, resize and reorganize select corporate functions and go-to-market structures.

Accordingly, the following discussions of Net sales by Product Categories and Geographic Regions exclude the fiscal 2021 third quarter impact of returns associated with restructuring and other activities of approximately $10 million.

Product Categories

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Reported skin care net sales increased for the three and six months ended December 31, 2020, reflecting higher net sales from Estée Lauder and La Mer, as well as incremental net sales attributable to our acquisition of Dr.

Jart+ at the end of the fiscal 2020 second quarter, combined, of approximately $609 million and $944 million, respectively.

For the three and six months ended December 31, 2020, net sales increased from Estée Lauder and La Mer, led by mainland China and our travel retail business (primarily in Hainan), reflecting high double-digit growth from direct-to-consumer online net sales of products from these brands primarily due to the successful holiday and promotional events.

The continued success of existing product franchises, such as Advanced Night Repair, Nutritious, Micro Essence and Perfectionist, and new product launches, such as the new Advanced Night Repair Synchronized Multi-Recovery Complex, contributed to the increase in net sales from Estée Lauder in both periods.

Net sales from La Mer increased for the three and six months ended December 31, 2020, benefiting from the continued success of existing product franchises, such as Créme de la Mer and Treatment Lotion, new product launches, such as the Genaissance de la Mer The Concentrated Night Balm and the fiscal 2021 first quarter launch of the new The Concentrate, and targeted expanded consumer reach.

The skin care net sales increases were impacted by approximately $70 million and $81 million of favorable foreign currency translation for the three and six months ended December 31, 2020, respectively.

THE ESTÉE LAUDER COMPANIES INC.

Reported skin care net sales increased for the three months ended March 31, 2021, reflecting higher net sales from Estée Lauder, La Mer and Clinique of approximately $502 million, combined.

Net sales increased from Estée Lauder and La Mer, led by our travel retail business (primarily in Hainan) and mainland China, reflecting strong growth from direct-to-consumer online net sales of products from these brands primarily due to the successful holiday and promotional events.

Net sales increased from Estée Lauder, reflecting the continued success of hero product franchises, such as Advanced Night Repair, Revitalizing Supreme+ and Daywear, as well as fiscal 2021 product launches, such as Advanced Night Repair Synchronized Multi-Recovery Complex, Revitalizing Supreme+ Bright, and the relaunch of Perfectionist Pro.

The increase in net sales from La Mer also benefited from the continued success of hero products, such as Crème de la Mer, The Concentrate, The Treatment Lotion and The Eye Concentrate, as well as the fiscal 2021 launch of the Genaissance de la Mer The Concentrated Night Balm and targeted expanded consumer reach.

Net sales increased from Clinique for the three months ended March 31, 2021, primarily due to higher net sales in our travel retail business (primarily in Hainan) and in North America, reflecting the continued success of existing products, such as Dramatically Different products and Even Better Clinical Radical Dark Spot Corrector + Interrupter, and new product launches, such as Moisture Surge 100H Auto-Replenishing Hydrator.

Reported skin care net sales increased for the nine months ended March 31, 2021, reflecting higher net sales from Estée Lauder, La Mer, and Clinique, as well as incremental net sales attributable to our acquisition of Dr.

Jart+ at the end of the fiscal 2020 second quarter, of approximately $1,452 million, combined.

Net sales increased from Estée Lauder, La Mer and Clinique, as noted above.

The skin care net sales increases were impacted by approximately $58 million and $139 million of favorable foreign currency translation for the three and nine months ended March 31, 2021, respectively.

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THE ESTÉE LAUDER COMPANIES INC.

Reported makeup net sales decreased for the three and six months ended December 31, 2020, primarily driven by lower net sales from M·A·C, Estée Lauder, Bobbi Brown and Clinique, combined, of approximately $342 million and $706 million, respectively.

For the three and six months ended December 31, 2020, net sales decreased from these brands, reflecting the challenging environment, especially in brick-and-mortar retail locations, and the continued consumer preference for skin care products due to the COVID-19 pandemic.

Reported makeup net sales decreased for the three and nine months ended March 31, 2021, due to lower net sales from virtually all brands, led by M·A·C, Estée Lauder and Clinique, combined, of approximately $115 million and $766 million, respectively.

The makeup product category continues to be more negatively impacted by the effects of the COVID-19 pandemic, especially the challenging environment in brick-and-mortar retail locations, the continued consumer preference for skin care products, and the limited use of makeup.

The continued decline in prestige makeup and ongoing competitive activity in North America also contributed to the decline in net sales from these brands in both periods.

For the three and six months ended December 31, 2020, our direct-to-consumer online net sales of products from these brands grew double digits.

The makeup net sales decreases were impacted by approximately $20 million and $22 million of favorable foreign currency translation for the three and six months ended December 31, 2020, respectively.

The makeup net sales decreases were impacted by approximately $24 million and $46 million of favorable foreign currency translation for the three and nine months ended March 31, 2021, respectively.

THE ESTÉE LAUDER COMPANIES INC.

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Reported fragrance net sales increased for the three months ended December 31, 2020, reflecting higher net sales primarily from Tom Ford Beauty and Jo Malone London, of approximately $38 million, combined.

Net sales from Tom Ford Beauty increased, primarily due to the success of hero product franchises, such as Oud Wood and Ombre Leather, and new product launches, such as Bitter Peach.

The increase in net sales from Jo Malone London, led by mainland China, benefited from successful holiday and promotional events, the success of certain hero product franchises, and new product launches, such as Scents for the Season.

Partially offsetting these increases for the three months ended December 31, 2020, were lower net sales from certain of our designer fragrances, led by our travel retail business and the United Kingdom, primarily due to the continued challenging environment as a result of the COVID-19 pandemic, including the continued curtailment of international travel and the resurgence of COVID-19 cases that caused the reimplementation of government restrictions.

Reported fragrance net sales decreased for the six months ended December 31, 2020, reflecting lower net sales primarily from certain of our designer fragrances and Estée Lauder of approximately $41 million, combined.

Net sales declined from these brands, led by our travel retail business and the United Kingdom, primarily due to the continued challenging environment as a result of the COVID-19 pandemic, including the continued curtailment of international travel and the resurgence of COVID-19 cases that caused the reimplementation of government restrictions.

Partially offsetting these decreases for the six months ended December 31, 2020, were higher net sales from Tom Ford Beauty, primarily due to the success of hero product franchises and new product launches.

The changes in fragrance net sales were impacted by approximately $9 million and $11 million of favorable foreign currency translation for the three and six months ended December 31, 2020, respectively.

THE ESTÉE LAUDER COMPANIES INC.

Reported fragrance net sales increased for the three months ended March 31, 2021, primarily due to higher net sales from Jo Malone London and Tom Ford Beauty of approximately $86 million, combined, and net sales of products from these brands increased in all geographic regions.

Jo Malone London benefited from successful holiday and promotional events and new product launches, such as the Blossoms Collection and Scarlet Poppy Cologne Intense.

The increase in net sales from Tom Ford Beauty was primarily due to the continued success of hero product franchises, such as Oud Wood and Black Orchid, the continued success of the fiscal 2021 second quarter launch of Bitter Peach, and new product launches in the third quarter of fiscal 2021, such as Tubereuse Nue and Costa Azzurra.

Reported fragrance net sales increased for the nine months ended March 31, 2021, primarily due to higher net sales from Jo Malone London and Tom Ford Beauty of approximately $110 million, combined.

The increase in net sales from Jo Malone London, led by mainland China and North America, was primarily due to successful holiday and promotional events, the success of certain hero product franchises and new product launches, such as Scents for the Season, the Blossoms Collection and Scarlet Poppy.

Net sales from Tom Ford Beauty increased for the nine months ended March 31, 2021, reflecting growth in all geographic regions, benefiting from the continued success of hero product franchises and new product launches, such as Bitter Peach, Tubereuse Nue and Costa Azzurra.

Partially offsetting these increases in net sales for the nine months ended March 31, 2021, were lower net sales from certain of our designer fragrances, led by our travel retail business, primarily due to the continued challenging environment as a result of the COVID-19 pandemic.

The fragrance net sales increases were impacted by approximately $10 million and $21 million of favorable foreign currency translation for the three and nine months ended March 31, 2021, respectively.

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Reported hair care net sales decreased for the three and six months ended December 31, 2020, reflecting lower net sales primarily from Bumble and bumble driven by the net sales decline in North America primarily due to temporary salon and freestanding store closures as a result of the COVID-19 pandemic and the shift in consumer preferences.

Partially offsetting the decreases in reported hair care net sales for the six months ended December 31, 2020, were higher net sales from Aveda.

The increase in net sales from Aveda was driven by the success of existing product franchises, such as Nutriplenish, the launch of Botanical Repair, and successful holiday events, which led to growth in all geographic regions.

THE ESTÉE LAUDER COMPANIES INC.

Reported hair care net sales increased for the three months ended March 31, 2021, primarily due to higher net sales from Aveda driven by the success of existing product franchises, such as Nutriplenish, and the continued success of the fiscal 2021 first quarter launch of Botanical Repair, which led to growth in all geographic regions.

Reported hair care net sales for the nine months ended March 31, 2021 were virtually flat, reflecting higher net sales primarily from Aveda, as noted above, partially offset by lower net sales from Bumble and bumble, reflecting the net sales decline in North America primarily due to temporary salon and freestanding store closures as a result of the COVID-19 pandemic.

The increases in net sales for the three and nine months ended March 31, 2021 from Aveda also reflected strong growth from direct-to-consumer online net sales.

Geographic Regions

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Reported net sales in The Americas decreased in virtually all countries for the three and six months ended December 31, 2020, led by the United States of approximately $157 million and $415 million, respectively.

Net sales decreased in the United States for the three and six months ended December 31, 2020, reflecting lower net sales from M·A·C and Estée Lauder (primarily due to the declines in the makeup category) as a result of the continued challenging environment caused by the COVID-19 pandemic, including the resurgence of COVID-19 cases, reduced consumer traffic in brick-and-mortar retail locations, the continued consumer preference for skin care products, and continued social distancing.

Reported net sales in The Americas increased for the three months ended March 31, 2021, led by the United States of approximately $26 million, and in all product categories, except makeup.

The increase in the United States partially reflected a recovery compared to the prior-year challenges stemming from the outbreak of COVID-19.

Partially offsetting this increase in net sales for the three months ended March 31, 2021, were lower net sales in Latin America due to the resurgence of COVID-19 cases in certain countries that led to government restrictions, as well as the continued decline in North America prestige makeup and the ongoing competitive activity.

Reported net sales in The Americas decreased in virtually all countries for the nine months ended March 31, 2021, led by the United States of approximately $387 million, and in all product categories, led by makeup.

The net sales decrease in the region was led by M·A·C and Estée Lauder (primarily due to the declines in the makeup category), as a result of the continued challenging environment caused by the COVID-19 pandemic, including the resurgence of COVID-19 cases, reduced consumer traffic in brick-and-mortar retail locations, and continued social distancing.

The decline in North America prestige beauty, primarily makeup, and the ongoing competitive activity also contributed to the decline in net sales.

Despite the overall decrease in net sales, direct-to-consumer online net sales in The Americas grew double digits for the three and six months ended December 31, 2020, with growth from virtually all brands, and represented approximately 27% and 23% of total net sales in the region compared to approximately 18% and 14% in the prior-year periods, respectively.

Net sales in The Americas were impacted by approximately $15 million and $29 million of unfavorable foreign currency translation for the three and six months ended December 31, 2020, respectively.

Direct-to-consumer online net sales in The Americas grew double digits for the three and nine months ended March 31, 2021, and represented approximately 19% and 22% of total net sales in the region compared to approximately 15% and 14% in the prior-year periods, respectively.

Net sales in The Americas were impacted by approximately $10 million and $39 million of unfavorable foreign currency translation for the three and nine months ended March 31, 2021, respectively.

THE ESTÉE LAUDER COMPANIES INC.

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6 unchanged sentences

GAAP measures.

Reported net sales for the three and six months ended December 31, 2020 decreased in most markets in Europe, the Middle East & Africa, primarily driven by the United Kingdom, France and Iberia, reflecting the continued challenges across the region from the COVID-19 pandemic, including the resurgence of COVID-19 cases that caused the reimplementation of government restrictions, such as temporary store closures and quarantines, and reduced consumer traffic in brick-and-mortar retail.

The adverse macroeconomic conditions and the liquidation of a key retailer also contributed to the decrease in net sales in the United Kingdom.

Partially offsetting these decreases for the three and six months ended December 31, 2020, were higher net sales from our travel retail business, primarily driven by the increases in net sales in China travel retail (primarily Hainan).

These increases were led by Estée Lauder and La Mer, reflecting the continued success of certain hero franchises, such as the Advanced Night Repair line of products from Estée Lauder and La Mer Treatment Lotion, and the continued consumer preference for skin care products.

For the three and six months ended December 31, 2020, despite the challenges in brick-and-mortar retail locations, direct-to-consumer online net sales in Europe, the Middle East & Africa more than doubled, representing approximately 7% and 5% of total net sales in the region compared to approximately 3% and 2% in the prior-year periods, respectively.

Net sales in Europe, the Middle East & Africa were impacted by approximately $20 million and $30 million of favorable foreign currency translation for the three and six months ended December 31, 2020, respectively.

Reported net sales for the three months ended March 31, 2021 increased in Europe, the Middle East & Africa, reflecting higher net sales in our travel retail business and Russia of approximately $221 million, combined.

Despite the continued curtailment of international travel as a result of the COVID-19 pandemic, the increase in net sales from our travel retail business was led by the continued success of hero product franchises from Estée Lauder, La Mer and Origins, reflecting the increase in China travel retail (primarily Hainan) due, in part, to increased duty-free purchase limits and the acceleration of new digital selling models.

The net sales increase from Russia primarily reflects the timing of shipments related to retailer restocking and the shift in sales orders from some retailers in the prior-year period related to a system implementation.

Partially offsetting these increases in net sales for the three months ended March 31, 2021, were lower net sales from the United Kingdom, reflecting the continued challenges from the resurgence of COVID-19 cases that led to government restrictions, such as quarantines and temporary closures of businesses deemed non-essential.

Reported net sales for the nine months ended March 31, 2021 decreased in Europe, the Middle East & Africa, reflecting lower net sales in most markets across the region, led by the United Kingdom, France and Iberia of approximately $159 million, combined.

The decrease in net sales from these markets reflects the continued challenges from the COVID-19 pandemic, including the resurgence of COVID-19 cases that led to government restrictions, such as temporary store closures and quarantines, and reduced consumer traffic in brick-and-mortar retail.

The adverse macroeconomic conditions and the liquidation of a key retailer in the fiscal 2021 second quarter also contributed to the decrease in net sales in the United Kingdom.

Partially offsetting these decreases for the nine months ended March 31, 2021, were higher net sales from our travel retail business, led by the continued success of hero product franchises from Estée Lauder and La Mer, primarily driven by the increases in net sales in China travel retail (primarily Hainan), as noted above.

For the three and nine months ended March 31, 2021, despite the challenges in brick-and-mortar retail locations, direct-to-consumer online net sales in Europe, the Middle East & Africa more than doubled, representing approximately 4% and 5%, respectively, of total net sales in the region compared to approximately 2% in both prior-year periods.

Net sales in Europe, the Middle East & Africa were impacted by approximately $24 million and $54 million of favorable foreign currency translation for the three and nine months ended March 31, 2021, respectively.

THE ESTÉE LAUDER COMPANIES INC.

Three Months Ended

December 31 Six Months Ended

March 31 Nine Months Ended

($ in millions) 2021 2020 2021 2020

6 unchanged sentences

GAAP measures.

THE ESTÉE LAUDER COMPANIES INC.

Reported net sales in Asia/Pacific increased for the three and six months ended December 31, 2020, reflecting higher net sales in mainland China and Korea, which included incremental net sales from our acquisition of Dr.

Jart+ at the end of the fiscal 2020 second quarter, combined, of approximately $490 million and $672 million, respectively.

For the three and six months ended December 31, 2020, net sales in mainland China increased primarily due to growth in our skin care product category, driven by Estée Lauder, La Mer and incremental net sales attributable to our acquisition of Dr.

Jart+, and in our fragrance product category, led by Jo Malone London and Tom Ford Beauty.

The success of holiday and promotional events in mainland China contributed to growth in virtually all channels in both periods, led by third-party platforms and department stores.

For the three and six months ended December 31, 2020 net sales increased in Korea, reflecting growth in all product categories, except makeup, and benefited from the increase in net sales from Jo Malone London, Estée Lauder and La Mer, as well as incremental net sales from our acquisition of Dr.

For the three and six month ended December 31, 2020, direct-to-consumer online net sales of our products in Korea grew high double digits.

Direct-to-consumer online net sales in Asia/Pacific for the three and six months ended December 31, 2020 grew high double digits, representing approximately 41% and 33% of total net sales in the region compared to approximately 31% and 25% in the prior-year periods, respectively.

Partially offsetting these increases for the three and six months ended December 31, 2020 were lower net sales in Hong Kong and Japan, combined, of approximately $39 million and $116 million, respectively.

In both periods, the decline in net sales were primarily due to the ongoing challenges stemming from the COVID-19 pandemic, including reduced consumer traffic in brick-and-mortar retail locations, the continued curtailment of international travel, social distancing and quarantines, and border closures in Hong Kong.

Net sales in Asia/Pacific were impacted by approximately $97 million and $116 million of favorable foreign currency translation for the three and six months ended December 31, 2020, respectively.

Reported net sales in Asia/Pacific increased for the three months ended March 31, 2021, reflecting higher net sales primarily in mainland China, Australia, Korea and Hong Kong of approximately $334 million, combined, and in all product categories.

The increase in net sales in mainland China reflected higher net sales in all product categories, led by skin care.

The success of holiday and promotional events in mainland China contributed to growth in virtually all brands and all channels, led by Estée Lauder and La Mer and department stores and third-party platforms, respectively.

Net sales in Australia increased in all product categories and from all brands, led by Estée Lauder and Clinique, driven by a recovery compared to the prior-year challenges stemming from the outbreak of COVID-19.

Net sales increased in Korea, reflecting growth in all product categories, except makeup, and benefited from the increase in net sales from Dr.

Jart+ and Jo Malone London.

Net sales in Hong Kong increased for the three months ended March 31, 2021, in all product categories, except makeup, and from most brands, led by La Mer and Estée Lauder, reflecting an easy comparison to the prior-year period as a result of the outbreak of COVID-19.

Direct-to-consumer online net sales in Asia/Pacific for the three months ended March 31, 2021 grew double digits.

Partially offsetting these increases in net sales for the three months ended March 31, 2021 were lower net sales in Japan primarily due to the ongoing challenges stemming from the COVID-19 pandemic, including reduced consumer traffic in brick-and-mortar retail locations, the continued curtailment of international travel, and social distancing and quarantines.

Reported net sales in Asia/Pacific increased for the nine months ended March 31, 2021, reflecting higher net sales primarily in mainland China and Korea of approximately $984 million, combined, and in our skin care product category.

The increase in net sales in mainland China reflected higher net sales primarily in our skin care product category, led by Estée Lauder, La Mer and Dr.

Jart+, as well as third-party platforms and department stores.

Net sales increased in Korea, primarily benefiting from incremental net sales from our acquisition of Dr.

Jart+ at the end of the fiscal 2020 second quarter and higher net sales from Jo Malone London.

Direct-to-consumer online net sales in Asia/Pacific for the nine months ended March 31, 2021 grew double digits, representing approximately 31% of total net sales in the region compared to approximately 25% in the prior-year period.

Partially offsetting these increases for the nine months ended March 31, 2021, were lower net sales in Japan and Hong Kong of approximately $122 million, combined, primarily due to the ongoing challenges stemming from the COVID-19 pandemic, including reduced consumer traffic in brick-and-mortar retail locations, the continued curtailment of international travel, social distancing and quarantines, and border closures in Hong Kong.

Net sales in Asia/Pacific were impacted by approximately $80 million and $196 million of favorable foreign currency translation for the three and nine months ended March 31, 2021, respectively.

We strategically stagger our new product launches by geographic market, which may account for differences in regional sales growth.

Gross margin increased to 77.7% and 77.3% for the three and six months ended December 31, 2020, respectively, as compared with 77.5% and 77.1% in the prior-year periods.

THE ESTÉE LAUDER COMPANIES INC.

Gross margin increased to 75.7% and 76.8% for the three and nine months ended March 31, 2021, respectively, as compared with 75.0% and 76.5% in the prior-year periods.

Favorable (Unfavorable) Basis Points

December 31, 2020

Three Months Ended Six Months Ended

March 31, 2021

Three Months Ended Nine Months Ended

Mix of business 235 100

4 unchanged sentences

Charges associated with restructuring and other activities (20) —

The favorable impact from our mix of business for the three and six months ended December 31, 2020 was primarily due to lower costs of testers as a result of reduced consumer traffic in brick-and-mortar retail locations, the favorable change in channel mix (i.e.

from department stores to online), the favorable change in product category mix (i.e.

a decline in our lower margin makeup category, primarily in North America and our travel retail business, and an increase in our higher margin skin care category, primarily within Asia/Pacific and our travel retail business), and favorable changes in strategic pricing.

The favorable impact from our mix of business for the six months ended December 31, 2020 also reflected lower costs from product sets.

For the three and six months ended December 31, 2020, the factors causing favorability due to changes in our mix of business were partially offset by the impact of lower margin sales of Dr.

Jart+, which we acquired at the end of the fiscal 2020 second quarter.

THE ESTÉE LAUDER COMPANIES INC.

Partially offsetting the favorable impact from our mix of business for the three months ended December 31, 2020, were increases in obsolescence charges, driven by lower demand due to the impacts of the COVID-19 pandemic, that led to higher provisions for excess inventory.

The favorable impact from our mix of business for the three and nine months ended March 31, 2021 was primarily due to the favorable change in product category mix (i.e.

a decline in net sales of our lower margin makeup category, led by North America and Europe, the Middle East & Africa (primarily our travel retail business)), favorable changes in strategic pricing, lower costs from product sets, and lower costs of promotional items as a result of reduced consumer traffic in brick-and-mortar retail locations.

For the three months ended March 31, 2021, the favorable impact from our mix of business was also driven by an increase in net sales of our higher margin luxury and artisanal fragrance brands.

OPERATING EXPENSES

Operating expenses as a percentage of net sales was 55.8% and 56.3% for the three and six months ended December 31, 2020, respectively, as compared with 71.8% and 64.9% in the prior-year periods.

Operating expenses as a percentage of net sales was 59.8% and 57.4% for the three and nine months ended March 31, 2021, respectively, as compared with 71.7% and 66.8% in the prior-year periods.

Favorable (Unfavorable) Basis Points

December 31, 2020

Three Months Ended Six Months Ended

March 31, 2021

Three Months Ended Nine Months Ended

General and administrative expenses (230) (180)

7 unchanged sentences

Charges associated with restructuring and other activities (270) (90)

Goodwill and other intangible asset impairments 1,510 820

Goodwill, other intangible and long-lived asset impairments 940 850

Changes in fair value of contingent consideration (10) (20)

Total 1,190 940

For the three and six months ended December 31, 2020, the decreases in operating expense margin were driven by the year-over-year impact of goodwill and other intangible asset impairments of $696 million and a decrease in selling expense, due to the impacts of the COVID-19 pandemic on brick-and-mortar retail locations, including the decline in consumer traffic, temporary store closures, and the continued shift in consumer preference to online.

Partially offsetting these favorable impacts were increases in general and administrative expenses, primarily due to an increase in employee incentive compensation and amortization expense relating to the acquired intangible assets of Dr.

THE ESTÉE LAUDER COMPANIES INC.

For the three months ended March 31, 2021, the decrease in operating expense margin was driven by higher net sales compared to the prior-year period that reflected the negative impact of the outbreak of COVID-19;

the year-over-year impact of goodwill, other intangible and long-lived asset impairments of $313 million;

and a decrease in selling expense, due to the impacts of the COVID-19 pandemic on brick-and-mortar retail locations, including the decline in consumer traffic, store closures, and the continued shift in consumer preference to online.

The advertising, merchandising, sampling and product development favorability was driven by the increase in net sales, partially offset by the increase in advertising and promotional expense, primarily due to continued strategic investments and a difficult comparison to the prior-year period that reflected cost saving actions implemented in response to the impacts of the COVID-19 pandemic.

For the nine months ended March 31, 2021, the decrease in operating expense margin was driven by the year-over-year impact of goodwill, other intangible and long-lived asset impairments of $1,009 million, as well as favorability from selling expense and advertising and promotional expense, as noted above.

Partially offsetting these favorable impacts for the three and nine months ended March 31, 2021 were increases in general and administrative expenses, primarily due to an increase in employee incentive compensation from the prior-year period, which reflected lower accrued employee incentive compensation as a result of the anticipated impacts of the COVID-19 pandemic.

OPERATING RESULTS

Three Months Ended

December 31 Six Months Ended

March 31 Nine Months Ended

($ in millions) 2021 2020 2021 2020

4 unchanged sentences

Non-GAAP Financial Measure (1) :

% Change in operating income from the prior-year period adjusting for the impact of charges associated with restructuring and other activities, goodwill and other intangible asset impairments and changes in fair value of contingent consideration 13 % 2 %

% Change in operating income from the prior-year period adjusting for the impact of charges associated with restructuring and other activities, goodwill, other intangible and long-lived asset impairments and changes in fair value of contingent consideration 66 % 16 %

(1) See “ Reconciliations of Non-GAAP Financial Measures” beginning on page 61 for reconciliations between non-GAAP financial measures and the most directly comparable U.S.

GAAP measures.

THE ESTÉE LAUDER COMPANIES INC.

The reported operating margin for the three and six months ended December 31, 2020 increased from the prior-year periods driven by the year-over-year impact of goodwill and other intangible asset impairments of $696 million and the decrease in selling expenses, as discussed above.

The reported operating margin for the three and nine months ended March 31, 2021 increased from the prior-year periods driven by the year-over-year impact of goodwill, other intangible and long-lived asset impairments of $313 million and $1,009 million for the three and nine months end March 31, 2021, respectively, the decrease in operating expenses as a percentage of net sales and the increase in gross margin, as previously noted.

Charges associated with restructuring and other activities are not allocated to our product categories or geographic regions because they are centrally directed and controlled, are not included in internal measures of product category or geographic region performance and result from activities that are deemed Company-wide initiatives to redesign, resize and reorganize select areas of the business.

Accordingly, the following discussions of Operating income by Product Categories and Geographic Regions exclude the impact of charges associated with restructuring and other activities.

Accordingly, the following discussions of Operating income by Product Categories and Geographic Regions exclude the impact of charges associated with restructuring and other activities of $145 million, or 4% of net sales and $25 million, or 1% of net sales for the three months ended March 31, 2021 and 2020, respectively, and $191 million, or 2% of net sales and $63 million, or 1% of net sales for the nine months ended March 31, 2021 and 2020, respectively.

THE ESTÉE LAUDER COMPANIES INC.

Product Categories

Three Months Ended

December 31 Six Months Ended

March 31 Nine Months Ended

($ in millions) 2021 2020 2021 2020

3 unchanged sentences

Non-GAAP Financial Measure (1) :

% Change in operating income from the prior-year period adjusting for the impact of goodwill and other intangible asset impairments and changes in fair value of contingent consideration 31 % 23 %

% Change in operating income from the prior-year period adjusting for the impact of goodwill, other intangible and long-lived asset impairments and changes in fair value of contingent consideration 70 % 35 %

(1) See “ Reconciliations of Non-GAAP Financial Measures” beginning on page 61 for reconciliations between non-GAAP financial measures and the most directly comparable U.S.

GAAP measures.

Reported skin care operating income increased for the three and six months ended December 31, 2020, primarily driven by higher results from Estée Lauder and La Mer, combined, of approximately $306 million and $465 million, respectively.

For the three and six month ended December 31, 2020, the increases in operating income from Estée Lauder and La Mer primarily reflected higher net sales, as well as lower selling expenses due to the impacts of the COVID-19 pandemic on brick-and-mortar retail locations, including the decline in consumer traffic, store closures, and the continued shift in consumer preference to online.

In both periods, these changes from Estée Lauder and La Mer were partially offset by increased advertising and promotional activities primarily to support holiday and promotional events and new product launches.

Partially offsetting the increases in operating income for the three and six months ended December 31, 2020 were lower results from GLAMGLOW due to the current year goodwill and other intangible asset impairment charges of $81 million, as well as increases in general and administrative expenses, including employee incentive compensation.

Reported skin care operating income increased for the three months ended March 31, 2021, primarily driven by higher results from Estée Lauder, La Mer, GLAMGLOW and Clinique of approximately $454 million, combined.

The increases in operating income from Estée Lauder, La Mer and Clinique were primarily driven by the increases in net sales.

The higher results from La Mer were partially offset by the increase in advertising and promotional expense, primarily due to investments to support holiday and promotional events and a difficult comparison to the prior-year period that reflected cost saving actions implemented in response to the impacts of the COVID-19 pandemic.

Operating income from GLAMGLOW increased for the three months ended March 31, 2021, driven by the favorable year-over-year impact of goodwill and other intangible asset impairments of $53 million.

Partially offsetting the increase in operating income for the three months ended March 31, 2021, were higher general and administrative expenses, primarily due to increased employee incentive compensation from the prior-year period, which reflected lower accrued employee incentive compensation as a result of the anticipated impacts of the COVID-19 pandemic.

Reported skin care operating income increased for the nine months ended March 31, 2021, primarily driven by higher results from Estée Lauder, La Mer and Clinique of approximately $888 million, combined.

The increases in operating income from these brands primarily reflected higher net sales, as well as lower selling expenses due to the impacts of the COVID-19 pandemic on brick-and-mortar retail locations, including the decline in consumer traffic, store closures, and the continued shift in consumer preference to online.

These increases were partially offset by increased advertising and promotional activities primarily to support holiday and promotional events and new product launches.

Partially offsetting the increase in operating income for the nine months ended March 31, 2021, were higher general and administrative expenses, primarily due to increased employee incentive compensation and lower results from GLAMGLOW driven by the unfavorable year-over-year impact of goodwill and other intangible asset impairments of $28 million.

THE ESTÉE LAUDER COMPANIES INC.

Three Months Ended

December 31 Six Months Ended

March 31 Nine Months Ended

($ in millions) 2021 2020 2021 2020

Operating income (loss) $ 28 $ (611) $ (43) $ (507)

Operating loss $ (72) $ (283) $ (115) $ (790)

$ Change from prior-year period 211 675

1 unchanged sentence

Non-GAAP Financial Measure (1) :

% Change in operating income from the prior-year period adjusting for the impact of goodwill and other intangible asset impairments (83) % (100+)%

% Change in operating loss from the prior-year period adjusting for the impact of goodwill, other intangible and long-lived asset impairments (100+)% (100+)%

(1) See “ Reconciliations of Non-GAAP Financial Measures” beginning on page 61 for reconciliations between non-GAAP financial measures and the most directly comparable U.S.

GAAP measures.

Reported makeup operating results increased for the three and six months ended December 31, 2020, driven by the favorable year-over-year impact of goodwill and other intangible asset impairments related to Too Faced, BECCA and Smashbox of approximately $777 million, combined.

Partially offsetting the increases in operating income for the three and six months ended December 31, 2020, were lower results from M·A·C due to the decrease in net sales, offset by lower selling expenses, due to the impacts of the COVID-19 pandemic on brick-and-mortar retail locations, including the decline in consumer traffic, temporary store closures, and the continued shift in consumer preference to online, and disciplined expense management.

For the six months ended December 31, 2020, the higher results were also partially offset by an increase in general and administrative expenses, including employee incentive compensation.

Reported makeup operating results increased for the three and nine months ended March 31, 2021, driven by the favorable year-over-year impact of goodwill and other intangible asset impairments related to Too Faced, BECCA and Smashbox, combined, of approximately $280 million and $1,057 million for the three and nine months, respectively.

Partially offsetting the decreases in operating loss for the three and nine months ended March 31, 2021, were lower results from M·A·C primarily due to the decrease in net sales, offset by lower selling expense and store operating costs, due to the impacts of the COVID-19 pandemic on brick-and-mortar retail locations, including the decline in consumer traffic, store closures, and the continued shift in consumer preference to online, as well as disciplined expense management.

Also offsetting the decreases in operating loss for the three and nine months ended March 31, 2021 were higher general and administrative expenses, primarily due to increased employee incentive compensation from the prior-year period, which reflected lower accrued employee incentive compensation as a result of the anticipated impacts of the COVID-19 pandemic, as well as the unfavorable year-over-year impact of long-lived asset impairments in certain of our freestanding stores relating to COVID-19 of $14 million.

Three Months Ended

December 31 Six Months Ended

March 31 Nine Months Ended

($ in millions) 2021 2020 2021 2020

2 unchanged sentences

% Change from prior-year period — % 52 %

Reported fragrance operating income increased for the three and six months ended December 31, 2020, reflecting higher results from Tom Ford Beauty and Jo Malone London primarily driven by the increase in net sales and disciplined expense management.

Partially offsetting these increases for the three and six months ended December 31, 2020 were increases in general and administrative expenses, including employee incentive compensation.

Reported fragrance operating income for the six months ended December 31, 2020, also reflected higher results from certain of our designer fragrances due to disciplined expense management.

Non-GAAP Financial Measure (1) :

% Change in operating income from the prior-year period adjusting for the impact of long-lived asset impairments and changes in fair value of contingent consideration — % 60 %

(1) See “ Reconciliations of Non-GAAP Financial Measures” beginning on page 61 for reconciliations between non-GAAP financial measures and the most directly comparable U.S.

GAAP measures.

Reported fragrance operating income increased for the three and nine months ended March 31, 2021, primarily reflecting higher results from Tom Ford Beauty and Jo Malone London, combined, of approximately $62 million and $110 million, respectively.

In both periods, the increases in operating income from these brands reflected higher net sales and lower selling expenses due to the impacts of the COVID-19 pandemic on brick-and-mortar retail locations, including the decline in consumer traffic, store closures, and the continued shift in consumer preference to online.

THE ESTÉE LAUDER COMPANIES INC.

Partially offsetting the increases in operating income for the three and nine months ended March 31, 2021, were increases from Jo Malone London in advertising and promotional activities primarily driven by increased spend for digital advertising and to support new product launches and a difficult comparison to the prior-year period that reflected cost saving actions implemented in response to the impacts of the COVID-19 pandemic.

Also offsetting the increases in fragrance operating income for the three and nine months ended March 31, 2021 were higher general and administrative expenses, primarily due to increased employee incentive compensation from the prior-year period, which reflected lower accrued employee incentive compensation as a result of the anticipated impacts of the COVID-19 pandemic, as well as the unfavorable year-over-year impact of long-lived asset impairments in certain of our freestanding stores relating to COVID-19 of $8 million.

Three Months Ended

December 31 Six Months Ended

March 31 Nine Months Ended

($ in millions) 2021 2020 2021 2020

Operating income $ 4 $ 12 $ 7 $ 12

Operating income (loss) $ (17) $ (2) $ (10) $ 10

$ Change from prior-year period (15) (20)

% Change from prior-year period (100+)% (100+)%

Reported hair care operating results decreased for the three and six months ended December 31, 2020, primarily driven by an increase in general and administrative expenses, including employee incentive compensation.

Partially offsetting the decreases in operating income for the three and six months ended December 31, 2020, were higher results from Aveda, primarily due to disciplined expense management.

The increase in operating income from Aveda for the six months ended December 31, 2020 also benefited from the increase in net sales driven by the success of existing product franchises, such as Nutriplenish, the launch of Botanical Repair, and successful holiday events, as discussed above.

Reported hair care operating results decreased for the three and nine months ended March 31, 2021, primarily driven by higher general and administrative expenses, primarily due to increased employee incentive compensation from the prior-year period, which reflected lower accrued employee incentive compensation as a result of the anticipated impacts of the COVID-19 pandemic.

Partially offsetting the decrease in operating results for the nine months ended March 31, 2021, were higher results from Aveda driven by the successes of existing product franchises, a new launch and holiday events, as discussed above.

Geographic Regions

Three Months Ended

December 31 Six Months Ended

March 31 Nine Months Ended

($ in millions) 2021 2020 2021 2020

3 unchanged sentences

Non-GAAP Financial Measure (1) :

% Change in operating income from the prior-year period adjusting for the impact of goodwill and other intangible asset impairments and changes in fair value of contingent consideration (52) % (57) %

% Change in operating income (loss) from the prior-year period adjusting for the impact of goodwill, other intangible and long-lived asset impairments and changes in fair value of contingent consideration 20 % (39) %

(1) See “ Reconciliations of Non-GAAP Financial Measures” beginning on page 61 for reconciliations between non-GAAP financial measures and the most directly comparable U.S.

GAAP measures.

Reported operating results increased in The Americas for the three and six months ended December 31, 2020, primarily due to the year-over-year impact of goodwill and other intangible asset impairments of $696 million and lower selling expenses, due to the impacts of the COVID-19 pandemic on brick-and-mortar retail locations, as discussed above.

Partially offsetting the increases in operating results for the three and six months ended December 31, 2020 were lower net sales, primarily in the United States.

Reported operating results increased in The Americas for the three and nine months ended March 31, 2021, driven by the favorable year-over-year impact of goodwill, other intangible and long-lived asset impairments of approximately $346 million and $1,042 million, for the three and nine months, respectively, and lower selling expenses due to the impacts of the COVID-19 pandemic on brick-and-mortar retail locations, discussed above.

THE ESTÉE LAUDER COMPANIES INC.

Partially offsetting the increases in operating results for the three and nine months ended March 31, 2021 were higher general and administrative expenses, primarily due to increased employee incentive compensation from the prior-year period, which reflected lower accrued employee incentive compensation as a result of the anticipated impacts of the COVID-19 pandemic.

Europe, the Middle East & Africa

Three Months Ended

December 31 Six Months Ended

March 31 Nine Months Ended

($ in millions) 2021 2020 2021 2020

2 unchanged sentences

% Change from prior-year period 79 % 32 %

Reported operating income increased in Europe, the Middle East & Africa for the three and six months ended December 31, 2020, primarily driven by higher results from our travel retail business, reflecting the increases in net sales and disciplined expense management.

Partially offsetting the increases in operating results for the three and six months ended December 31, 2020 were lower results from the United Kingdom, primarily driven by the declines in net sales.

Non-GAAP Financial Measure (1) :

% Change in operating income from the prior-year period adjusting for the impact of long-lived asset impairments and changes in fair value of contingent consideration 97 % 35 %

(1) See “ Reconciliations of Non-GAAP Financial Measures” beginning on page 61 for reconciliations between non-GAAP financial measures and the most directly comparable U.S.

GAAP measures.

Reported operating income increased in Europe, the Middle East & Africa for the three and nine months ended March 31, 2021, primarily driven by higher results from our travel retail business and Russia, combined, of approximately $194 million and $458 million, respectively, reflecting the increase in net sales and disciplined expense management.

Partially offsetting the increases in operating income for the three and nine months ended March 31, 2021 is the impact of long-lived asset impairments in certain of our freestanding stores relating to COVID-19 of $33 million.

Also offsetting the increase in operating results for the nine months ended March 31, 2021 were lower results from most markets across the region, primarily driven by the declines in net sales.

Three Months Ended

December 31 Six Months Ended

March 31 Nine Months Ended

($ in millions) 2021 2020 2021 2020

2 unchanged sentences

% Change from prior-year period 64 % 27 %

Reported operating income increased in Asia/Pacific for the three and six months ended December 31, 2020, primarily reflecting higher results from mainland China.

In both periods, the increase in operating income from mainland China was primarily driven by the increase in net sales, partially offset by the increase in advertising and promotional activities to support holiday events and campaigns, new product launches, and digital advertising and social media spending.

Partially offsetting the increases in operating income for the three and six months ended December 31, 2020 were lower results from Japan, reflecting the decrease in net sales.

Reported operating income increased in Asia/Pacific for the three and nine months ended March 31, 2021, primarily reflecting higher results from mainland China.

In both periods, the increase in operating income from mainland China was driven by the increase in net sales, partially offset by the increase in advertising and promotional expense, primarily due to investments to support holiday events and campaigns and new product launches and a difficult comparison to the prior-year period that reflected cost saving actions implemented in response to the impacts of the COVID-19 pandemic.

Partially offsetting the increases in operating income for the three and nine months ended March 31, 2021 were lower results from Japan, reflecting the decrease in net sales.

THE ESTÉE LAUDER COMPANIES INC.

INTEREST AND INVESTMENT INCOME

Three Months Ended

December 31 Six Months Ended

March 31 Nine Months Ended

(In millions) 2021 2020 2021 2020

1 unchanged sentence

Interest income and investment income, net $ 9 $ 14 $ 40 $ 41

Interest expense increased for both periods, primarily due to the issuance of additional long-term debt in November 2019 and April 2020.

Interest income and investment income, net increased for both periods, reflecting higher equity method investment income from our minority investments, partially offset by decreases in investment income due to lower interest rates.

THE ESTÉE LAUDER COMPANIES INC.

Interest expense increased for the nine months ended March 31, 2021, primarily due to the issuance of additional long-term debt in November 2019 and April 2020.

Interest income and investment income, net decreased for the three and nine months ended March 31, 2021, reflecting decreases in investment income due to lower interest rates, partially offset by higher equity method investment income from our minority investments.

On December 18, 2019, we acquired the remaining equity interest in Have&Be Co.

6 unchanged sentences

The acquisition of the remaining equity interest also resulted in the recognition of a previously unrealized foreign currency gain of $4 million, which was reclassified from accumulated other comprehensive income.

The total gain on our previously held equity method investment of $553 million is included in Other income in the accompanying consolidated statements of earnings for the three and six months ended December 31, 2019.

The total gain on our previously held equity method investment of $553 million is included in Other income in the accompanying consolidated statements of earnings for the nine months ended March 31, 2020.

The amount paid at closing was funded by cash on hand including the proceeds from the issuance of debt.

In anticipation of the closing, we transferred cash to a foreign subsidiary for purposes of making the closing payment.

As a result, we recognized a foreign currency gain of $23 million, which is also included in Other income in the accompanying consolidated statements of earnings for the three and six months ended December 31, 2019.

As a result, we recognized a foreign currency gain of $23 million, which is also included in Other income in the accompanying consolidated statements of earnings for the nine months ended March 31, 2020.

See Notes to Consolidated Financial Statements, Note 2 – Acquisition of Business for additional information.

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Three Months Ended

December 31 Six Months Ended

March 31 Nine Months Ended

2021 2020 2021 2020

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Basis-point change from the prior-year period (8,400) (1,150)

For the three and six months ended December 31, 2020, the decrease in the effective tax rate was primarily attributable to a lower effective tax rate on our foreign operations and the impact of nondeductible goodwill charges recognized in the second quarter of fiscal 2020.

The effective tax rate for the three and six months ended December 31, 2020 included the impact of the U.S.

THE ESTÉE LAUDER COMPANIES INC.

For the three and nine months ended March 31, 2021, the decrease in the effective tax rate was primarily attributable to the impact of nondeductible goodwill charges recognized in the three and nine months ended March 31, 2020 and a lower effective tax rate on our foreign operations.

The lower amount of earnings before income taxes for the three and nine months ended March 31, 2020 increased the impact of the nondeductible charges.

The effective tax rate for the three and nine months ended March 31, 2021 included the impact of the U.S.

government issuance of final global intangible low-taxed income (“GILTI”) tax regulations in July 2020 under the Tax Cuts and Jobs Act (the “TCJA”) that provide for a high-tax exception to the GILTI tax.

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We have elected to apply the GILTI high-tax exception to fiscal 2021, 2020 and 2019.

The election for fiscal 2021 resulted in reductions of 160 basis points and 150 basis points to the effective tax rates for the three and six months ended December 31, 2020, respectively.

The impact of the elections with respect to fiscal 2020 and 2019 was recognized as a discrete item in the provision for income taxes in the second quarter of fiscal 2021 and resulted in reductions of 470 basis points and 280 basis points to the effective tax rates for the three and six months ended December 31, 2020, respectively.

THE ESTÉE LAUDER COMPANIES INC.

NET EARNINGS ATTRIBUTABLE TO THE ESTÉE LAUDER COMPANIES INC.

The election for fiscal 2021 resulted in reductions of 100 basis points and 110 basis points to the effective tax rates for the three and nine months ended March 31, 2021, respectively.

The impact of the elections with respect to fiscal 2020 and 2019 was recognized as a discrete item in the provision for income taxes in the second and third quarters of fiscal 2021 and resulted in reductions of 30 basis points and 220 basis points to the effective tax rates for the three and nine months ended March 31, 2021, respectively.

NET EARNINGS (LOSS) ATTRIBUTABLE TO THE ESTÉE LAUDER COMPANIES INC.

Three Months Ended

December 31 Six Months Ended

March 31 Nine Months Ended

($ in millions, except per share data) 2021 2020 2021 2020

Net earnings attributable to The Estée Lauder Companies Inc.

Net earnings (loss) attributable to The Estée Lauder Companies Inc.

$ 456 $ (6) $ 1,852 $ 1,146

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% Change from prior-year period 100+% 62 %

Diluted net earnings per common share $ 2.37 $ 1.52 $ 3.79 $ 3.13

Diluted net earnings (loss) per common share $ 1.24 $ (.02) $ 5.03 $ 3.12

% Change from prior-year period 100+% 61 %

Non-GAAP Financial Measure (1) :

% Change in diluted net earnings per common share from the prior-year period adjusting for the impact of charges associated with restructuring and other activities, goodwill and other intangible asset impairments, other income and changes in fair value of contingent consideration 24 % 7 %

% Change in diluted net earnings (loss) per common share from the prior-year period adjusting for the impact of charges associated with restructuring and other activities, goodwill, other intangible and long-lived asset impairments, other income and changes in fair value of contingent consideration 92 % 23 %

(1) See “ Reconciliations of Non-GAAP Financial Measures” below for reconciliations between non-GAAP financial measures and the most directly comparable U.S.

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While we consider the non-GAAP measures useful in analyzing our 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 U.S.

The following tables present Net sales, Operating income and Diluted net earnings per common share adjusted to exclude the impact of charges associated with restructuring and other activities;

goodwill and other intangible assets impairments;

The following tables present Net sales, Operating income and Diluted net earnings (loss) per common share adjusted to exclude the impact of charges associated with restructuring and other activities;

goodwill, other intangible and long-lived asset impairments relating to COVID-19;

other income;

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Three Months Ended

December 31 Variance %

March 31 Variance %

Change % Change

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Charges associated with restructuring and other activities 145 25 120

Goodwill and other intangible asset impairments 81 777 (696)

Goodwill, other intangible and long-lived asset impairments 33 346 (313)

Changes in fair value of contingent consideration — (2) 2

Operating income, as adjusted $ 794 $ 478 $ 316 66 % 64 %

Diluted net earnings per common share, as reported $ 2.37 $ 1.52 $ .85 56 % 52 %

Diluted net earnings (loss) per common share, as reported $ 1.24 $ (.02) $ 1.26 100+% 100+%

Charges associated with restructuring and other activities .31 .05 .26

Goodwill and other intangible asset impairments .07 .83 (.76)

Other income — (1.23) 1.23

Changes in fair value of contingent consideration — (.01) .01

Diluted net earnings per common share, as adjusted $ 2.61 $ 2.11 $ .50 24 % 21 %

Diluted net earnings (loss) per common share, as adjusted $ 1.62 $ 0.85 $ .77 92 % 88 %

THE ESTÉE LAUDER COMPANIES INC.

($ in millions, except per share data) Six Months Ended

December 31 Variance % Change

($ in millions, except per share data) Nine Months Ended

March 31 Variance % Change

constant currency

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Charges associated with restructuring and other activities 191 63 128

Goodwill and other intangible asset impairments 81 777 (696)

Goodwill, other intangible and long-lived asset impairments 114 1,123 (1,009)

Changes in fair value of contingent consideration (2) (9) 7

Operating income, as adjusted $ 2,687 $ 2,326 $ 361 16 % 14 %

Diluted net earnings per common share, as reported $ 3.79 $ 3.13 $ .66 21 % 19 %

Diluted net earnings (loss) per common share, as reported $ 5.03 $ 3.12 $ 1.91 61 % 59 %

Charges associated with restructuring and other activities .41 .14 .27

Goodwill and other intangible asset impairments .17 1.80 (1.63)

Goodwill, other intangible and long-lived asset impairments .25 2.62 (2.37)

Other income — (1.23) 1.23

Changes in fair value of contingent consideration (.01) (.02) .01

Diluted net earnings per common share, as adjusted $ 4.04 $ 3.78 $ .26 7 % 5 %

As diluted net earnings per common share, as adjusted, is used as a measure of the Company’s performance, we consider the impact of current and deferred income taxes when calculating the per-share impact of each of the reconciling items.

Diluted net earnings (loss) per common share, as adjusted $ 5.68 $ 4.63 $ 1.05 23 % 20 %

As diluted net earnings (loss) per common share, as adjusted, is used as a measure of the Company’s performance, we consider the impact of current and deferred income taxes when calculating the per-share impact of each of the reconciling items.

THE ESTÉE LAUDER COMPANIES INC.

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($ in millions) Three Months Ended

December 31, 2020 Three Months Ended

December 31, 2019 Variance

March 31, 2021 Three Months Ended

March 31, 2020 Variance

By Product Category:

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constant currency

($ in millions) Six Months Ended

December 31, 2020 Six Months Ended

December 31, 2019 Variance

($ in millions) Nine Months Ended

March 31, 2021 Nine Months Ended

March 31, 2020 Variance

By Product Category:

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THE ESTÉE LAUDER COMPANIES INC.

The following table reconciles the change in operating results by product category and geographic region, as reported, to the change in operating income excluding the impact of goodwill and other intangible asset impairments and changes in fair value of contingent consideration:

The following table reconciles the change in operating results by product category and geographic region, as reported, to the change in operating income excluding the impact of goodwill, other intangible and long-lived asset impairments and changes in fair value of contingent consideration:

($ in millions) Three Months Ended

December 31, 2020 Three Months Ended

December 31, 2019 Variance Add:

Goodwill and other intangible asset impairments Add:

March 31, 2021 Three Months Ended

March 31, 2020 Variance Add:

Goodwill, other intangible and long-lived asset impairments Add:

Changes in fair value of contingent consideration Variance, as adjusted % Change, as reported % Change, as adjusted

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As Reported Add:

other intangible asset impairments Add:

other intangible and long-lived asset impairments Add:

Changes in fair value of contingent consideration Variance, as adjusted % Change, as reported % Change, as adjusted

($ in millions) Six Months Ended

December 31, 2020 Six Months Ended

December 31, 2019 Variance

($ in millions) Nine Months Ended

March 31, 2021 Nine Months Ended

March 31, 2020 Variance

By Product Category:

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Our principal sources of funds historically have been cash flows from operations, borrowings pursuant to our commercial paper program, borrowings from the issuance of long-term debt and committed and uncommitted credit lines provided by banks and other lenders in the United States and abroad.

At December 31, 2020, we had cash and cash equivalents of $5,545 million compared with $5,022 million at June 30, 2020.

At March 31, 2021, we had cash and cash equivalents of $6,399 million compared with $5,022 million at June 30, 2020.

Our cash and cash equivalents are maintained at a number of financial institutions.

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Based on past performance and current expectations, we believe that cash on hand, cash generated from operations, available credit lines and access to credit markets will be adequate to support seasonal working capital needs, currently planned business operations, information technology enhancements, capital expenditures, acquisitions, dividends, stock repurchases, restructuring initiatives, commitments and other contractual obligations on both a near-term and long-term basis.

See Overview – COVID-19 Business Update for actions taken by us, in response to the impact of the COVID-19 pandemic on our business.

The TCJA resulted in the Transition Tax on unrepatriated earnings of our foreign subsidiaries and changed the tax law in ways that present opportunities to repatriate cash without additional U.S.

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A credit rating is not a recommendation to buy, sell, or hold securities, is subject to revision or withdrawal at any time by the assigning rating organization, and should be evaluated independently of any other rating.

As of January 29, 2021, our long-term debt is rated A+ with a negative outlook by Standard & Poor’s and A1 with a stable outlook by Moody’s.

As of April 26, 2021, our long-term debt is rated A+ with a stable outlook by Standard & Poor’s and A1 with a stable outlook by Moody’s.

THE ESTÉE LAUDER COMPANIES INC.

At December 31, 2020, our outstanding borrowings were as follows:

At March 31, 2021, our outstanding borrowings were as follows:

($ in millions) Long-term

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5.75% Senior Notes, due October 15, 2033 (“2033 Senior Notes”) (6)

1.950% Senior Notes, due March 15, 2031 (“2031 Senior Notes”) (7), (14),(15)

2.600% Senior Notes, due April 15, 2030 (“2030 Senior Notes”) (8), (14)

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$ 5,487 $ 471 $ 5,958

______________________________________________

(1) Consists of $650 million principal, unamortized debt discount of $8 million and debt issuance costs of $7 million.

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(7) Consists of $600 million principal, unamortized debt discount of $4 million and debt issuance costs of $4 million.

(8) Consists of $700 million principal, unamortized debt discount of $1 million, debt issuance costs of $4 million and a $15 million adjustment to reflect the fair value of interest rate swaps.

(9) Consists of $650 million principal, unamortized debt discount of $5 million and debt issuance costs of $4 million.

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(13) Consists of $450 million principal and a $1 million adjustment to reflect the fair value of interest rate swaps.

(13) The Senior Notes contain certain customary incurrence–based covenants, including limitations on indebtedness secured by liens.

(14) The Senior Notes contain certain customary covenants, including limitations on indebtedness secured by liens.

(15) See Note 16 – Subsequent Events for further information relating to the repayment of the $450 million principal amount made and the interest rate swap agreement relating to the 2031 Senior Notes entered into subsequent to March 31, 2021.

In August 2020, we repaid the remaining $750 million borrowed under our $1,500 million revolving credit facility that was outstanding as of June 30, 2020.

Total debt as a percent of total capitalization (excluding noncontrolling interests) was 50% and 61% at December 31, 2020 and June 30, 2020, respectively.

Total debt as a percent of total capitalization (excluding noncontrolling interests) was 52% and 61% at March 31, 2021 and June 30, 2020, respectively.

THE ESTÉE LAUDER COMPANIES INC.

Six Months Ended

Nine Months Ended

(In millions) 2021 2020

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Net cash provided by (used for) financing activities $ (862) $ 1,525

The change in net cash flows from operations primarily reflected the improvement in working capital, primarily due to other accrued liabilities, including an increase in accrued employee incentive compensation and higher advertising and promotional accruals, and accounts payable, partially offset by the unfavorable change in accounts receivable due to the increase in net sales.

The change in net cash flows from operations reflected the improvement in working capital, primarily due to other accrued liabilities, driven by an increase in accrued employee incentive compensation, as previously discussed, and accounts payable, partially offset by the unfavorable change in accounts receivable due to the increase in net sales.

The change in net cash flows from operations also reflects higher earnings before taxes, excluding non-cash items.

The change in net cash flows used for investing activities primarily reflected cash paid in fiscal 2020 relating to the second quarter acquisition of Have&Be Co.

Ltd., partially offset by the settlement of net investment hedges.

The change in net cash flows from financing activities primarily reflected proceeds in fiscal 2020 from the November 2019 issuance of long term-debt, the fiscal 2021 repayment of borrowings under our revolving credit facility, partially offset by lower treasury stock repurchases.

For a summary of quarterly cash dividends declared per share on our Class A and Class B Common Stock during the six months ended December 31, 2020, see Notes to Consolidated Financial Statements, Note 12 – Equity .

The change in net cash flows from financing activities primarily reflected lower proceeds relating to the issuance of long-term debt (the November 2019 and April 2020 issuances in fiscal 2020, compared to the March 2021 issuance in fiscal 2021), the fiscal 2021 repayment of borrowings under our revolving credit facility, partially offset by lower treasury stock repurchases.

For a summary of quarterly cash dividends declared per share on our Class A and Class B Common Stock during the nine months ended March 31, 2021, see Notes to Consolidated Financial Statements, Note 13 – Equity .

Pension and Post-retirement Plan Funding

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Commitments, Contractual Obligations and Contingencies

There have been no significant changes to our commitments and contractual obligations as discussed in our Annual Report on Form 10-K for the fiscal year ended June 30, 2020.

In February 2021, we agreed to acquire additional shares in DECIEM Beauty Group Inc.

(“DECIEM”) that will increase our existing equity interest from approximately 29% to approximately 76%.

Upon closing, which is expected to occur in May 2021, we will pay approximately $1,000 million and will also have the right to purchase, and will grant the remaining investors a right to sell to us, the remaining interests after a three-year period, with a purchase price based on the future performance of DECIEM.

There have been no other significant changes to our commitments and contractual obligations as discussed in our Annual Report on Form 10-K for the fiscal year ended June 30, 2020.

For a discussion of contingencies, see Notes to Consolidated Financial Statements, Note 10 – Contingencies .

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For a discussion of credit risk, see Notes to Consolidated Financial Statements, Note 6 – Derivative Financial Instruments (Credit Risk) .

THE ESTÉE LAUDER COMPANIES INC.

We address certain financial exposures through a controlled program of market risk management that includes the use of foreign currency forward contracts to reduce the effects of fluctuating foreign currency exchange rates and to mitigate the change in fair value of specific assets and liabilities on the balance sheet.

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A hypothetical 10% weakening of the U.S.

dollar against the foreign exchange rates for the currencies in our portfolio would have resulted in a net decrease in the fair value of our portfolio of approximately $184 million and $222 million as of December 31, 2020 and June 30, 2020, respectively.

dollar against the foreign exchange rates for the currencies in our portfolio would have resulted in a net decrease in the fair value of our portfolio of approximately $198 million and $222 million as of March 31, 2021 and June 30, 2020, respectively.

This potential change does not consider our underlying foreign currency exposures.

THE ESTÉE LAUDER COMPANIES INC.

In addition, we enter into interest rate derivatives to manage the effects of interest rate movements on our aggregate liability portfolio, including future debt issuances.

Based on a hypothetical 100 basis point increase in interest rates, the estimated fair value of our interest rate derivatives would increase by approximately $13 million and $9 million as of December 31, 2020 and June 30, 2020, respectively.

Based on a hypothetical 100 basis point increase in interest rates, the estimated fair value of our interest rate derivatives would increase (decrease) by approximately $(58) million and $9 million as of March 31, 2021 and June 30, 2020, respectively.

Our sensitivity analysis represents an estimate of reasonably possible net losses that would be recognized on our portfolio of derivative financial instruments assuming hypothetical movements in future market rates and is not necessarily indicative of actual results, which may or may not occur.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis