What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-11-02 compared with 2021-05-03 · 194 added, 413 removed, 393 unchanged (61% 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 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.

The following table is a comparative summary of operating results for the three months ended September 30, 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.

Three Months Ended

March 31 Nine Months Ended

(In millions) 2021 2020

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Hair Care 148 136

Other 15 8 37 36

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

Returns associated with restructuring and other activities (1) —

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Asia/Pacific 1,326 1,149

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

Returns associated with restructuring and other activities (1) —

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Hair Care 2 3

Other (1) 1 (1) 7

761 134 2,575 1,212

Charges associated with restructuring and other activities (6) (9)

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Asia/Pacific 222 238

761 134 2,575 1,212

Charges associated with restructuring and other activities (6) (9)

Operating income $ 935 $ 705

(1) The net sales from our travel retail business are included in the Europe, the Middle East & Africa region, with the exception of the net sales of Dr.

Jart+ in the travel retail channel that are reflected in Korea in the Asia/Pacific region.

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

Operating income attributable to the travel retail sales included in Europe, the Middle East & Africa is included in that region and in The Americas.

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Three Months Ended

March 31 Nine Months Ended

2021 2020 2021 2020

Net sales 100.0 % 100.0 %

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Restructuring and other charges 0.1 0.2

Goodwill impairment — 8.2 0.4 6.6

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

Total operating expenses 54.6 57.0

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Provision for income taxes (4.6) (4.1)

Net earnings (loss) 11.9 (0.1) 15.1 9.7

Net earnings 15.8 14.7

Net earnings attributable to noncontrolling interests — (0.1)

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

Net earnings attributable to redeemable noncontrolling interest — —

Net earnings attributable to The Estée Lauder Companies Inc.

15.8 % 14.7 %

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Constant currency information compares results between periods as if exchange rates had remained constant period-over-period.

We calculate constant currency information by translating current-period results using prior-year period weighted-average foreign currency exchange rates and adjusting for the period-over-period impact of foreign currency cash flow hedging activities.

We calculate constant currency information by translating current-period results using prior-year period monthly average foreign currency exchange rates and adjusting for the period-over-period impact of foreign currency cash flow hedging activities.

COVID-19 Business Update

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.

The COVID-19 pandemic continued to disrupt our operating environment, impacting retail traffic and certain consumer preferences during the three months ended September 30, 2021.

The resurgence of COVID-19 cases and the rapid spread of the Delta variant in most parts of the world led to government restrictions to prevent further spread of the virus.

These restrictions included the intermittent closure of businesses deemed non-essential, curtailment of travel, social distancing and quarantines.

Retail Impact

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.

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 third quarter of fiscal 2021.

While most brick-and-mortar retail stores globally that sell our products, whether operated by us or our customers, were open during much of the fiscal 2022 first quarter there were intermittent closures throughout the world.

More specifically, in Continental Europe, much of Latin America and most of the Asia/Pacific region, many retail stores were temporarily closed for some period during the quarter due to the resurgence of COVID-19 cases.

In much of Continental Europe and parts of the Asia/Pacific region retail locations gradually reopened later in the quarter with capacity and other safety restrictions in place.

Globally, in areas where stores were open, consumer traffic has not recovered to the pre-COVID-19 pandemic levels.

While international passenger traffic remained largely curtailed globally, passenger traffic in Europe, the Middle East & Africa and The Americas was somewhat improved, albeit significantly below pre-COVID-19 pandemic levels.

The improvement was due, in part, to an increase in summer holiday travel as government restrictions were lifted, most notably in the United Kingdom, the United States, the Caribbean and Mexico.

In Asia/Pacific, a surge in COVID-19 cases led to increased travel restrictions during much of the quarter.

Net sales growth of our products online (through our own websites, third-party platforms and websites of our retailers) remained strong in Asia/Pacific and Europe, the Middle East & Africa where many retail stores were temporarily closed.

Excluding incremental online net sales attributable to the increase in our ownership of DECIEM in the fiscal 2021 fourth quarter, online net sales declined in The Americas reflecting the developing brick-and-mortar recovery.

Consumer Preferences

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 continue to implement cost control actions in certain areas of the business to effectively manage the changing business environment.

While the demand for makeup improved significantly versus the prior year, it continues to be the only category that remains below the pre-COVID-19 pandemic period, given fewer makeup usage occasions and ongoing mask wearing, while skin care, fragrance and hair care have all grown from pre-pandemic levels.

The COVID-19 pandemic has contributed to global transportation delays due to port congestion, labor and container shortages, and shipment delays.

Higher transportation and logistics costs are expected to negatively impact cost of sales and operating expenses in the remainder of fiscal 2022.

We expect to mitigate most of the impact to our business and our costs through strategic price increases, product mix, timing of shipments, use of air freight and less congested ports, and cost savings in other areas.

THE ESTÉE LAUDER COMPANIES INC.

Business Update

We are a leader in prestige beauty, which combines the repeat purchase and relative affordability of consumer goods with the high quality products and services of luxury goods.

Within prestige beauty, we are well diversified by brand, product category, product sub-category, geography, channel, consumer segment and price point.

We are a leader in prestige beauty, which combines the repeat purchase and relative affordability of consumer goods with high quality products and services.

Within prestige beauty, we are well diversified by product category, geography, brand, product sub-category, channel, consumer segment and price point.

This diversity allows us to leverage consumer analytics and insights with agility by deploying our brands to fast growing and profitable opportunities.

These analytics and insights, combined with our creativity, inform our innovation to provide a broad, locally-relevant and inclusive range of prestige products allowing us to compete effectively for a greater share of a consumer's beauty routine.

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.

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.

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 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.

Elements of our strategy are described in the Overview on pages 31-34 of our Annual Report on Form 10-K for the year ended June 30, 2021, as well as below.

During the first quarter of fiscal 2022, net sales increased 23%, reflecting a nascent recovery in The Americas and in Europe, the Middle East & Africa compared to a more difficult environment in the prior-year period.

The net sales increase includes incremental net sales attributable to the increase in our ownership of DECIEM in the fiscal 2021 fourth quarter.

• Our skin care net sales benefited from the launch of The Hydrating Infused Emulsion from La Mer, as well as continued strength in the brand’s core moisturizers.

Incremental net sales attributable to the increase in our ownership of DECIEM in the fiscal 2021 fourth quarter contributed to growth, Dr.Jart+ saw strong gains in travel retail, and Clinique’s hero franchises resonated well in The Americas and in Europe, the Middle East & Africa.

• The COVID-19 pandemic has generally resulted in more limited social and business activities and consumers overall wore less makeup.

As restrictions lift in particular locations, we generally see demand for makeup products increasing.

During the first quarter of fiscal 2022, net sales in makeup grew in part to this, and was also driven by increases in Estée Lauder foundation products, as well as strong activations and expanded consumer reach from M·A·C.

Our brands generated interest in makeup through virtual marketing efforts such as classes, virtual try on technology and greater emphasis on social media platforms.

• Our fragrance net sales rose sharply as consumers gravitated to high-end and artisanal offerings from Tom Ford Beauty, Jo Malone London, and Le Labo.

• Our hair care net sales grew, reflecting increases from both Bumble and bumble and Aveda as brick-and-mortar channels gradually reopened.

In September 2021, we announced that we are not renewing our existing license agreements for Donna Karan New York, DKNY, Michael Kors, Tommy Hilfiger and Ermenegildo Zegna when they expire in June 2023.

We expect to continue to sell products under these licenses through June 30, 2022.

Our global distribution capability and operations allow us to focus on targeted expanded consumer reach wherever consumer demographics and trends are the most attractive.

Our regional organizations, and the expertise of our people there, enable our brands to be more locally and culturally relevant in both product assortment and communications.

We are evolving the way we connect with our consumers in stores, online and where they travel, including by expanding our digital and social media presence and the engagement of global and local influencers to amplify brand or product stories.

We tailor implementation of our strategy by market to drive consumer engagement and embrace cultural diversity.

We continuously strengthen our presence in large, image-building core markets, while broadening our presence in emerging markets.

• The increase in net sales during the fiscal 2022 first quarter was led by The Americas, primarily reflecting the reopening of brick-and-mortar stores, targeted expanded consumer reach and incremental net sales attributable to the increase in our ownership of DECIEM in the fiscal 2021 fourth quarter.

• Net sales in Europe, the Middle East & Africa grew as brick-and-mortar retail reopened across the region, and robust online net sales growth continued.

• Net sales increased in Asia/Pacific, reflecting higher net sales in Greater China, Korea and several smaller markets despite COVID-19 related restrictions throughout the region during the quarter.

The COVID-19 pandemic continues to disrupt business for us, retailers and other companies with which we do business.

There have been, and are likely to continue to be, intermittent store closures and supply chain disruptions.

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

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;

In addition to impacting net sales and profitability, these and other challenges may adversely impact the goodwill and other intangible assets associated with our brands, as well as long-lived assets (i.e.

potentially resulting in impairments).

THE ESTÉE LAUDER COMPANIES INC.

We believe that the best way to increase long-term stockholder value is to continue providing superior products and services in the most efficient and effective manner while recognizing shifts in consumers’ behaviors and shopping practices.

Accordingly, our long-term strategy has numerous initiatives across geographic regions, product categories, brands, channels of distribution and functions designed to grow our sales, provide cost efficiencies, leverage our strengths and make us more productive and profitable.

We plan to build upon and leverage our history of outstanding creativity and innovation, high quality products and services, and engaging communications while investing for long-term sustainable growth.

We continue to monitor the effects of the global macroeconomic environment, including inflationary pressures;

supply chain disruptions;

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.

For example, we continue to monitor the geopolitical tensions between the United States and China, which could have a material adverse effect on our business.

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.

We believe we can, to some extent, offset the impact of more ordinary challenges by continually developing and pursuing a diversified strategy with multiple engines of growth and by accelerating initiatives focused on areas of strength, discipline and agility, and by implementing our Post-COVID Business Acceleration Program.

We believe we can, to some extent, offset the impact of more ordinary challenges by continually developing and pursuing a diversified strategy with multiple engines of growth and by accelerating initiatives focused on areas of strength, discipline and agility, and by executing upon our Post-COVID Business Acceleration Program.

As the current situation progresses, if economic and social conditions or the degree of uncertainty or volatility worsen, or the adverse conditions previously described are further prolonged, there could be a further negative effect on consumer confidence, demand, spending and willingness or ability to travel and, as a result, on our business.

We are continuing to monitor these and other risks that may affect our business.

Leading Beauty Forward Program and Post-COVID Business Acceleration Program

Information about our restructuring initiatives, the Leading Beauty Forward Program and the Post-COVID Business Acceleration Program, are described in Notes to Consolidated Financial Statements, Note 4 – Charges Associated with Restructuring and Other Activities herein, as well as, in Notes to Consolidated Financial Statements, Note 10 – Charges Associated with Restructuring and Other Activities and in the Overview on page 30 of our Annual Report on Form 10-K for the fiscal year ended June 30, 2020.

Goodwill and Other Intangible Asset Impairments

During November 2020, given the actual and the estimate of the potential future impacts relating to the uncertainty of the duration and severity of COVID-19 impacting us and lower than expected results from geographic expansion, we made further revisions to the internal forecasts relating to our GLAMGLOW reporting unit.

We concluded that the changes in circumstances in this reporting unit triggered the need for an interim impairment review of its trademark and goodwill.

These changes in circumstances were also an indicator that the carrying amounts of GLAMGLOW's long-lived assets, including customer lists, may not be recoverable.

Accordingly, we performed an interim impairment test for the trademark and a recoverability test for the long-lived assets as of November 30, 2020.

We concluded that the carrying value of the trademark for GLAMGLOW exceeded its estimated fair value, which was determined utilizing the relief-from-royalty method to determine discounted projected future cash flows, and recorded an impairment charge of $21 million.

In addition, we concluded that the carrying value of the GLAMGLOW customer lists intangible asset was fully impaired and recorded an impairment charge of $6 million.

The fair value of all other long-lived assets of GLAMGLOW exceeded their carrying values and were not impaired as of November 30, 2020.

After adjusting the carrying values of the trademark and customer lists intangible assets, we completed an interim quantitative impairment test for goodwill and recorded a goodwill impairment charge of $54 million, reducing the carrying value of goodwill for the GLAMGLOW reporting unit to zero.

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 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.

Post-COVID Business Acceleration Program

Information about our restructuring initiative, the Post-COVID Business Acceleration Program, is described in Notes to Consolidated Financial Statements, Note 4 – Charges Associated with Restructuring and Other Activities herein, as well as, in Notes to Consolidated Financial Statements, Note 8 – Charges Associated with Restructuring and Other Activities and in the Overview on page 33 of our Annual Report on Form 10-K for the year ended June 30, 2021.

Three Months Ended

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($ in millions) 2021 2020

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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.

Reported net sales increased, driven by higher net sales from every product category and in every geographic region primarily reflecting (i) brick-and-mortar and travel recovery from the prior-year challenges, which included widespread store closures, lower retail traffic, travel restrictions and quarantines, stemming from the COVID-19 pandemic;

(ii) the continued success of hero product franchises;

(iii) new product launches;

and (iv) targeted expanded consumer reach.

Net sales from our skin care, makeup and fragrance product categories each grew double digits and hair care net sales grew high single digits.

Skin care net sales increased, primarily reflecting higher net sales from La Mer and Clinique, as well as incremental net sales attributable to the increase in our ownership of DECIEM in the fiscal 2021 fourth quarter.

The makeup increase in net sales was led by higher net sales from Estée Lauder and M·A·C.

Fragrance net sales growth primarily reflected higher net sales from Tom Ford Beauty, Jo Malone London, certain of our designer fragrances and Le Labo.

Hair care net sales increased, due to higher net sales from Bumble and bumble and Aveda.

Net sales in every geographic region grew double-digits and benefited from incremental net sales attributable to the increase in our ownership of DECIEM in the fiscal 2021 fourth quarter.

The increase in net sales in The Americas reflected higher net sales throughout the region.

Net sales increased in Europe, the Middle East & Africa, led by our travel retail business, the United Kingdom and Russia.

The increase in net sales in mainland China, Korea and Hong Kong drove growth in Asia/Pacific, however, many countries in the region were negatively impacted by the resurgence of COVID-19 cases and the spread of the Delta variant, which led to government restrictions that were implemented to prevent further spread of the virus.

The total net sales increase was impacted by approximately $77 million of favorable foreign currency translation.

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.

Accordingly, the following discussions of Net sales by Product Categories and Geographic Regions exclude the fiscal 2022 first quarter impact of returns associated with restructuring and other activities of $1 million.

Product Categories

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GAAP measures.

Reported skin care net sales increased, reflecting higher net sales from La Mer, incremental net sales attributable to the increase in our ownership of DECIEM in the fiscal 2021 fourth quarter and Clinique, of approximately $315 million, combined.

Net sales from La Mer increased, led by our travel retail business and mainland China, primarily due to the continued success of hero products, such as Crème de la Mer, The Moisturizing Soft Cream and The Treatment Lotion, new product launches, such as The Hydrating Infused Emulsion, successful holiday events in mainland China, and targeted expanded consumer reach.

The increase in net sales from Clinique, led by our travel retail business and North America, was primarily driven by the continued success of existing products, such as Even Better Clinical Radical Dark Spot Corrector + Interrupter and Moisture Surge 100H Auto-Replenishing Hydrator, new product launches, such as Smart Clinical Repair Wrinkle Correcting Serum, and targeted expanded consumer reach.

The skin care net sales increase was impacted by approximately $48 million of favorable foreign currency translation.

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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GAAP measures.

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.

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.

Reported makeup net sales increased, primarily driven by higher net sales from Estée Lauder and M·A·C of approximately $131 million, combined.

The nascent recovery in makeup compared to the prior-year challenges stemming from the COVID-19 pandemic led to the increase in makeup net sales in The Americas and Europe, the Middle East & Africa.

Makeup net sales in Asia/Pacific declined, as many countries in the region were negatively impacted by the resurgence of COVID-19 cases and the spread of variants, including the Delta variant, which led to government restrictions implemented to prevent further spread of the virus.

Net sales from Estée Lauder increased, primarily reflecting the continued success of existing products, such as the Double Wear franchise and Futurist line of products;

new product launches, such as Double Wear Sheer Long-Wear Foundation and Pure Color Whipped Matte Lip Color;

successful holiday events and a new online platform launch in mainland China;

recovery from the prior-year challenges, discussed above, and new product launches in North America.

The increase in net sales from M·A·C was primarily due to brick-and-mortar recovery in North America and travel recovery in Europe, the Middle East & Africa and The Americas compared to the prior-year challenges, as discussed above, as well as new product launches, such as Love Me Liquid Lipcolour and Lustreglass Lipstick and the timing of shipments, including holiday shipments, compared to the prior-year period.

The makeup net sales increase was impacted by approximately $17 million of favorable foreign currency translation.

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GAAP measures.

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.

THE ESTÉE LAUDER COMPANIES INC.

Reported fragrance net sales increased, primarily driven by Tom Ford Beauty, Jo Malone London, certain of our designer fragrances and Le Labo of approximately $159 million, combined.

The higher fragrance net sales partially reflected a brick-and-mortar and travel recovery in various parts of the world compared to the prior-year challenges stemming from the COVID-19 pandemic and the timing of shipments, including holiday shipments, compared to the prior-year period.

Our fragrance brands were well positioned to capture consumers through the continued success of our hero products, such as Wood Sage & Sea Salt, Peony & Blush Suede and English Pear & Freesia from Jo Malone London.

The increase in fragrance net sales also reflected higher net sales from certain Private Blend fragrances from Tom Ford Beauty, targeted expanded consumer reach from Jo Malone London and new product launches from certain of our designer fragrances, such as Michael Kors Super Gorgeous!.

The fragrance net sales increase was impacted by approximately $10 million of favorable foreign currency translation.

Three Months Ended

March 31 Nine Months Ended

($ in millions) 2021 2020

6 unchanged sentences

GAAP measures.

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.

Reported hair care net sales increased, reflecting higher net sales from Bumble and bumble and Aveda primarily due to salon and retail store recovery in North America compared to the prior-year challenges stemming from the COVID-19 pandemic.

The increase in net sales from Bumble and bumble also reflected the success of hero products, such as Hairdresser's Invisible Oil Primer, and new product launches, such Hairdresser's Invisible Oil Ultra Rich and Bb.

Illuminated Blonde, and targeted expanded consumer reach.

Net sales from Aveda increased, also benefiting from the success of existing product franchises, such as Nutriplenish and Botanical Repair.

Geographic Regions

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

Three Months Ended

March 31 Nine Months Ended

($ in millions) 2021 2020

6 unchanged sentences

GAAP measures.

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.

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.

Reported net sales in The Americas increased in every country, reflecting brick-and-mortar and makeup recovery from the prior-year challenges, including store closures, lower retail traffic and quarantines, stemming from the COVID-19 pandemic, as well as the timing of shipments, including holiday shipments, compared to the prior-year period in North America.

The increase in net sales in The Americas was led by North America of approximately $299 million, primarily benefiting from incremental net sales attributable to the increase in our ownership of DECIEM in the fiscal 2021 fourth quarter and higher net sales from M·A·C, Clinique, Tom Ford Beauty, Jo Malone London and Le Labo.

The increase in net sales in Latin America reflected growth in every country and every product category.

Net sales in The Americas were impacted by approximately $6 million of favorable foreign currency translation.

Europe, the Middle East & Africa

Three Months Ended

March 31 Nine Months Ended

($ in millions) 2021 2020

6 unchanged sentences

GAAP measures.

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.

Reported net sales increased in Europe, the Middle East & Africa, reflecting nascent recovery across the region compared to the prior-year challenges stemming from the COVID-19 pandemic, led by our travel retail business, the United Kingdom and Russia of approximately $259 million, combined.

Net sales increased in our travel retail business, reflecting strength of our brands with the Chinese consumer, the easing of travel restrictions, which drove increased traffic levels, and continued success of hero product franchises from La Mer, Origins, Clinique and Tom Ford.

These benefits were partially offset by lower net sales from Estée Lauder products, primarily reflecting a decrease in promotional activity and lower net sales from the Advanced Night Repair product franchise primarily due to the prior-period launch of Advanced Night Repair Synchronized Multi-Recovery Complex.

Net sales in the United Kingdom and Russia increased, primarily reflecting brick-and-mortar recovery, as noted above.

The increase in net sales in the United Kingdom also reflected incremental net sales attributable to the increase in our ownership of DECIEM in the fiscal 2021 fourth quarter.

Net sales in Europe, the Middle East & Africa were impacted by approximately $15 million of favorable foreign currency translation.

Three Months Ended

March 31 Nine Months Ended

($ in millions) 2021 2020

6 unchanged sentences

GAAP measures.

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.

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.

Reported net sales increased in Asia/Pacific, reflecting higher net sales in mainland China and Korea of approximately $180 million, combined.

The increase in net sales in mainland China was primarily due to the continued success of hero products franchises from La Mer and Estée Lauder, new product launches, successful holiday events and a new online platform launch.

Net sales increased in Korea, despite the challenging brick-and-mortar retail environment, primarily reflecting the continued success of hero product franchises from Dr.Jart+, Jo Malone London and Estée Lauder and continued growth from online net sales.

Net sales in Asia/Pacific were impacted by approximately $56 million of favorable foreign currency translation.

Gross margin decreased to 75.9% for the three months ended September 30, 2021 as compared with 76.8% in the prior-year period.

Favorable (Unfavorable) Basis Points

March 31, 2021

Three Months Ended Nine Months Ended

Three Months Ended September 30, 2021

Mix of business (50)

4 unchanged sentences

Charges associated with restructuring and other activities 10

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.

The unfavorable impact from our mix of business was primarily due to higher costs from product sets and the impact of the increase in our ownership of DECIEM in the fiscal 2021 fourth quarter.

These unfavorable impacts were partially offset by strategic price increases.

OPERATING EXPENSES

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.

Operating expenses as a percentage of net sales was 54.6% for the three months ended September 30, 2021 as compared with 57.0% in the prior-year period.

Favorable (Unfavorable) Basis Points

March 31, 2021

Three Months Ended Nine Months Ended

Three Months Ended September 30, 2021

General and administrative expenses 80

Advertising, merchandising, sampling and product development 100

Selling 520 320

Stock-based compensation (20) (40)

Store operating costs 30

1 unchanged sentence

Foreign exchange transactions (10)

Subtotal 530 200

Charges associated with restructuring and other activities —

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

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

Total 1,190 940

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.

The favorable change in operating expense margin was driven by the increase in net sales, primarily due to the brick-and-mortar and travel recovery in various parts of the world compared to the prior-year challenges stemming from the COVID-19 pandemic, as discussed above.

Partially offsetting the impact of the increase in net sales were higher advertising and promotional activities to support hero products, new product launches, strategic investments in fragrances and to support the makeup recovery, and digital advertising and social media spending.

The increase in selling expenses due to the brick-and-mortar recovery, incremental expenses attributable to the increase in our ownership of DECIEM in the fiscal 2021 fourth quarter and higher employee incentive compensation compared to the prior-year period, which reflected lower accrued employee incentive compensation attributable to the impacts of the COVID-19 pandemic, further offset the impact of the increase in net sales.

OPERATING RESULTS

Three Months Ended

March 31 Nine Months Ended

($ in millions) 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, other intangible and long-lived asset impairments and changes in fair value of contingent consideration 66 % 16 %

% Change in operating income from the prior-year period adjusting for the impact of charges associated with restructuring and other activities 32 %

(1) See “ Reconciliations of Non-GAAP Financial Measures” beginning on page 48 for reconciliations between non-GAAP financial measures and the most directly comparable U.S.

GAAP measures.

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 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.

The increase in reported operating margin for the three months ended September 30, 2021 from the prior-year period was primarily driven by the increase in net sales, partially offset by higher cost of sales and the increase in operating expenses, discussed above.

Charges associated with restructuring and other activities are not allocated to the 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.

Product Categories

Three Months Ended

March 31 Nine Months Ended

($ in millions) 2021 2020

2 unchanged sentences

% Change from prior-year period (1) %

Non-GAAP Financial Measure (1) :

% 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 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.

Reported skin care operating income decreased, reflecting lower results from Estée Lauder primarily due to the decrease in skin care net sales, primarily related to our travel retail business, higher advertising and promotional activities to support hero products and new product launches, and the increase in cost of sales primarily due to higher costs for promotional items.

The decrease in skin care operating income was also attributable to higher employee incentive compensation compared to the prior-year period, which reflected lower accrued employee incentive compensation attributable to the impacts of the COVID-19 pandemic.

THE ESTÉE LAUDER COMPANIES INC.

Partially offsetting these decreases was higher results from La Mer, primarily reflecting the increase in net sales, partially offset by higher advertising and promotional activities primarily to support promotional events and new product launches.

Three Months Ended

March 31 Nine Months Ended

($ in millions) 2021 2020

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

Operating income (loss) $ 91 $ (71)

$ Change from prior-year period 162

% Change from prior-year period 100+%

Non-GAAP Financial Measure (1) :

% 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 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.

Reported makeup operating results increased, primarily driven by higher results from Estée Lauder, M·A·C, and to a lesser extent Clinique and Tom Ford Beauty of approximately $148 million, combined.

The higher results from Estée Lauder, Tom Ford Beauty and Clinique were primarily due to the increases in net sales.

Operating results from M·A·C increased, primarily reflecting higher net sales, partially offset by the increase in advertising and promotional activities relating to strategic investments to support the makeup recovery, digital advertising and social media spending, as well as higher selling expenses and store operating costs due to the brick-and-mortar recovery from the prior-year challenges stemming from the COVID-19 pandemic, including store closures.

Three Months Ended

March 31 Nine Months Ended

($ in millions) 2021 2020

2 unchanged sentences

% Change from prior-year period 100+%

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.

Reported fragrance operating income increased, primarily driven by higher results from Tom Ford Beauty, Jo Malone London, certain of our designer fragrances and Le Labo of approximately $80 million, combined.

Operating results from Tom Ford Beauty increased, primarily due to higher net sales, partially offset by the increase in advertising and promotional activities relating to strategic investments in digital advertising and social media spending (including costs associated with influencers), as well as higher selling expenses due to the brick-and-mortar recovery from the prior-year challenges stemming from the COVID-19 pandemic, including store closures.

The higher results from Jo Malone London primarily reflected the increase in net sales, partially offset by higher cost of sales given the growth of the home subcategory and the increase in advertising and promotional activities primarily to support holiday and promotional events and new product launches.

Operating results from certain of our designer fragrances and Le Labo increased, primarily driven by the increases in net sales.

Partially offsetting these increases in fragrance operating income was higher employee incentive compensation compared to the prior-year period, which reflected lower accrued employee incentive compensation attributable to the impacts of the COVID-19 pandemic.

Three Months Ended

March 31 Nine Months Ended

($ in millions) 2021 2020

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

Operating income $ 2 $ 3

$ Change from prior-year period (1)

% Change from prior-year period (33) %

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.

THE ESTÉE LAUDER COMPANIES INC.

Reported hair care operating results decreased, due to higher employee incentive compensation compared to the prior-year period, which reflected lower accrued employee incentive compensation attributable to the impacts of the COVID-19 pandemic, as well as strategic investments in advertising and promotional activity to support the salon and retail store recovery.

These increases in expenses were partially offset by higher operating results from Bumble and bumble and Aveda, primarily driven by higher net sales as previously discussed.

Geographic Regions

Three Months Ended

March 31 Nine Months Ended

($ in millions) 2021 2020

Operating income (loss) $ 155 $ (217) $ 256 $ (571)

Operating income $ 254 $ 65

$ Change from prior-year period 189

% Change from prior-year period 100+%

Non-GAAP Financial Measure (1) :

% 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 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.

Reported operating results increased in The Americas, primarily reflecting higher operating results in the United States of approximately $179 million, primarily due to the increase in net sales and higher intercompany royalty income primarily from growth in our travel retail business.

Partially offsetting these increases in operating results in the United States were the increase in advertising and promotional activities, as discussed above;

higher selling expenses and store operating costs due to the brick-and-mortar recovery from the prior-year challenges stemming from the COVID-19 pandemic, including store closures;

and higher employee incentive compensation compared to the prior-year period, which reflected lower accrued employee incentive compensation attributable to the impacts of the COVID-19 pandemic.

Europe, the Middle East & Africa

Three Months Ended

March 31 Nine Months Ended

($ in millions) 2021 2020

2 unchanged sentences

% Change from prior-year period 13 %

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.

Reported operating income increased in Europe, the Middle East & Africa, primarily driven by higher results from our travel retail business, Russia and the United Kingdom of approximately $38 million, combined.

Operating income increased from our travel retail business primarily due to the increase in net sales, partially offset by the increase in intercompany royalty expense to The Americas primarily due to the growth of our travel retail business.

The higher results from Russia primarily reflected the increase in net sales.

Operating income in the United Kingdom increased, primarily driven by the increase in net sales, partially offset by the increase in advertising and promotional activity to support strategic investments across the brands.

THE ESTÉE LAUDER COMPANIES INC.

Three Months Ended

March 31 Nine Months Ended

($ in millions) 2021 2020

2 unchanged sentences

% Change from prior-year period (7) %

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.

Reported operating income decreased in Asia/Pacific, led by Japan and Thailand of approximately $21 million, combined, primarily driven by the decrease in net sales due the challenging retail environment that continues to be negatively impacted by the resurgence of COVID-19 cases and the spread of the Delta variant.

Partially offsetting these decreases was higher results from Korea, primarily reflecting higher net sales, partially offset by the increase in advertising and promotional activity to support hero products and new product launches.

INTEREST AND INVESTMENT INCOME

Three Months Ended

March 31 Nine Months Ended

(In millions) 2021 2020

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Interest income and investment income, net $ 4 $ 14

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.

(“Have & Be”), the global skin care company behind Dr.

Jart+ and men’s grooming brand Do The Right Thing, for $1,268 million in cash.

Based on the final purchase price and working capital adjustments, we estimated a refund receivable of $32 million that was outstanding as of June 30, 2020 and was received in the first quarter of fiscal 2021.

We originally acquired a minority interest in Have & Be in December 2015, which included a formula-based call option for the remaining equity interest.

The original minority interest was accounted for as an equity method investment, which had a carrying value of $133 million at the acquisition date.

The acquisition of the remaining equity interest in Have & Be was considered a step acquisition, whereby we remeasured the previously held equity method investment to its fair value of $682 million, resulting in the recognition of a gain of $549 million.

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 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 nine months ended March 31, 2020.

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

Interest income and investment income, net decreased due to equity method investment income recognized in the prior-year period relating to our previously held equity method investment in DECIEM.

PROVISION FOR INCOME TAXES

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The effective rate differs from the federal statutory rate primarily due to the effect of state and local income taxes, the tax impact of share-based compensation, the taxation of foreign income and income tax reserve adjustments, which represent changes in our net liability for unrecognized tax benefits including tax settlements and lapses of the applicable statutes of limitations.

Our effective tax rate will change from quarter to quarter based on recurring and non-recurring factors including the geographical mix of earnings, enacted tax legislation, state and local income taxes, tax reserve adjustments, the tax impact of share-based compensation and the interaction of various global tax strategies.

Our effective tax rate will change from quarter-to-quarter based on recurring and non-recurring factors including the geographical mix of earnings, enacted tax legislation, state and local income taxes, tax reserve adjustments, the tax impact of share-based compensation, the interaction of various global tax strategies and the impact from certain acquisitions.

In addition, changes in judgment from the evaluation of new information resulting in the recognition, derecognition or remeasurement of a tax position taken in a prior annual period are recognized separately in the quarter of change.

Three Months Ended

March 31 Nine Months Ended

2021 2020 2021 2020

Effective rate for income taxes 22.5 % 21.8 %

Basis-point change from the prior-year period 70

The effective rate for income taxes was 22.5% and 21.8% for the three months ended September 30, 2021 and 2020, respectively.

The increase in the effective tax rate of 70 basis points was primarily attributable to a decrease in excess tax benefits associated with stock-based compensation arrangements and an increase in income tax reserve adjustments, partially offset by a lower effective tax rate on our foreign operations.

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.

These regulations are retroactive to the original enactment of the GILTI tax provision, which includes our 2019 and 2020 fiscal years.

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 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.

NET EARNINGS ATTRIBUTABLE TO THE ESTÉE LAUDER COMPANIES INC.

Three Months Ended

March 31 Nine Months Ended

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

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

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

Net earnings attributable to The Estée Lauder Companies Inc.

$ Change from prior-year period 169

% Change from prior-year period 32 %

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

Diluted net earnings per common share $ 1.88 $ 1.42

% Change from prior-year period 32 %

Non-GAAP Financial Measure (1) :

% 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 %

% 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 31 %

(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 (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;

the changes in the fair value of contingent consideration.

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.

THE ESTÉE LAUDER COMPANIES INC.

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GAAP measures.

Three Months Ended

March 31 Variance %

Change % Change

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

Net sales, as reported $ 3,864 $ 3,345 $ 519 16 % 13 %

Returns associated with restructuring and other activities 10 — 10

Net sales, as adjusted $ 3,874 $ 3,345 $ 529 16 % 13 %

Operating income, as reported $ 616 $ 109 $ 507 100+% 100+%

Charges associated with restructuring and other activities 145 25 120

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 (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)

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

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) Nine Months Ended

March 31 Variance % Change

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

September 30 Variance % Change

constant currency

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Charges associated with restructuring and other activities 6 9 (3)

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 $ 941 $ 714 $ 227 32 % 29 %

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

Diluted net earnings per common share, as reported $ 1.88 $ 1.42 $ .46 32 % 30 %

Charges associated with restructuring and other activities .01 .02 (.01)

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 (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.

Diluted net earnings per common share, as adjusted $ 1.89 $ 1.44 $ .45 31 % 29 %

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.

THE ESTÉE LAUDER COMPANIES INC.

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as reported % Change,

constant currency

($ in millions) Three Months Ended

March 31, 2021 Three Months Ended

March 31, 2020 Variance

By Product Category:

Skin Care $ 2,259 $ 1,723 $ 536 $ (58) $ 478 31 % 28 %

Makeup 1,018 1,146 (128) (24) (152) (11) (13)

Fragrance 454 349 105 (10) 95 30 27

Hair Care 128 119 9 (2) 7 8 6

Other 15 8 7 — 7 88 88

3,874 3,345 529 (94) 435 16 13

Returns associated with restructuring and other activities (10) — (10) (1) (11)

Total $ 3,864 $ 3,345 $ 519 $ (95) $ 424 16 % 13 %

The Americas $ 916 $ 892 $ 24 $ 10 $ 34 3 % 4 %

Europe, the Middle East & Africa 1,706 1,525 181 (24) 157 12 10

Asia/Pacific 1,252 928 324 (80) 244 35 26

3,874 3,345 529 (94) 435 16 13

Returns associated with restructuring and other activities (10) — (10) (1) (11)

Total $ 3,864 $ 3,345 $ 519 $ (95) $ 424 16 % 13 %

THE ESTÉE LAUDER COMPANIES INC.

As Reported Impact of foreign currency translation Variance,

in constant currency

as reported %

constant currency

($ in millions) Nine Months Ended

March 31, 2021 Nine Months Ended

March 31, 2020 Variance

Three Months Ended

($ in millions) 2021 2020 Variance

By Product Category:

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Total $ 4,392 $ 3,562 $ 830 $ (77) $ 753 23 % 21 %

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, other intangible and long-lived asset impairments and changes in fair value of contingent consideration:

($ in millions) Three Months Ended

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

By Product Category:

Skin Care $ 804 $ 418 $ 386 $ (54) $ — $ 332 92 % 70 %

Makeup (72) (283) 211 (265) — (54) 75 (100+)

Fragrance 47 — 47 7 2 56 — —

Hair Care (17) (2) (15) (1) — (16) (100+) (100+)

Other (1) 1 (2) — — (2) (100+) (100+)

761 134 627 $ (313) $ 2 $ 316 100+% 66 %

Charges associated with restructuring and other activities (145) (25) (120)

Total $ 616 $ 109 $ 507

The Americas $ 155 $ (217) $ 372 $ (346) $ — $ 26 100+% 20 %

Europe, the Middle East & Africa 361 202 159 33 2 194 79 97

Asia/Pacific 245 149 96 — — 96 64 64

761 134 627 $ (313) $ 2 $ 316 100+% 66 %

Charges associated with restructuring and other activities (145) (25) (120)

Total $ 616 $ 109 $ 507

THE ESTÉE LAUDER COMPANIES INC.

As Reported 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) Nine Months Ended

March 31, 2021 Nine Months Ended

March 31, 2020 Variance

By Product Category:

Skin Care $ 2,453 $ 1,822 $ 631 $ 27 $ 3 $ 661 35 % 35 %

Makeup (115) (790) 675 (1,042) — (367) 85 (100+)

Fragrance 248 163 85 7 4 96 52 60

Hair Care (10) 10 (20) (1) — (21) (100+) (100+)

Other (1) 7 (8) — — (8) (100+) (100+)

2,575 1,212 1,363 $ (1,009) $ 7 $ 361 100+% 16 %

Charges associated with restructuring and other activities (191) (63) (128)

Total $ 2,384 $ 1,149 $ 1,235

The Americas $ 256 $ (571) $ 827 $ (1,042) $ 3 $ (212) 100+% (39) %

Europe, the Middle East & Africa 1,429 1,084 345 33 4 382 32 35

Asia/Pacific 890 699 191 — — 191 27 27

2,575 1,212 1,363 $ (1,009) $ 7 $ 361 100+% 16 %

Charges associated with restructuring and other activities (191) (63) (128)

Total $ 2,384 $ 1,149 $ 1,235

FINANCIAL CONDITION

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

At September 30, 2021, we had cash and cash equivalents of $3,995 million compared with $4,958 million at June 30, 2021.

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.

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.

The Tax Cuts and Jobs Act (“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.

federal income tax.

As a result, we changed our indefinite reinvestment assertion related to certain foreign earnings, and we continue to analyze the indefinite reinvestment assertion on our remaining applicable foreign earnings.

The issuance of guidance subsequent to the enactment of the TCJA has enabled us to access a substantial portion of the cash in offshore jurisdictions associated with our permanently reinvested earnings without significant cost.

We do not believe that continuing to reinvest our foreign earnings impairs our ability to meet our domestic debt or working capital obligations.

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THE ESTÉE LAUDER COMPANIES INC.

The effects of inflation have not been significant to our overall operating results in recent years.

The effects of inflation have not been significant to our overall operating results in recent years, however we are mindful of emerging inflationary pressures.

Generally, we have been able to introduce new products at higher prices, increase prices and implement other operating efficiencies to sufficiently offset cost increases, which have been moderate.

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

As of October 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.

At September 30, 2021, our outstanding borrowings were as follows:

($ in millions) Long-term

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2.35% Senior Notes, due August 15, 2022 (“2022 Senior Notes”) (12), (13)

1.70% Senior Notes, due May 10, 2021 (“2021 Senior Notes”) (13), (14), (15)

Other long-term borrowings 20 — 20

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(6) Consists of $200 million principal, unamortized debt discount of $2 million and debt issuance costs of $1 million.

(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.

(7) Consists of $600 million, principal, unamortized debt discount of $4 million, debt issuance costs of $4 million and a $5 million gain to reflect the fair value of interest rate swaps.

(8) Consists of $700 million principal, unamortized debt discount of $1 million, debt issuance costs of $4 million and a $4 million loss 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 $3 million.

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(11) Consists of $500 million principal, unamortized debt discount of $2 million and debt issuance costs of $2 million.

(12) Consists of $250 million principal and a $6 million adjustment to reflect the fair value of interest rate swaps.

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

(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 52% and 61% at March 31, 2021 and June 30, 2020, respectively.

(12) Consists of $250 million principal and a $4 million gain 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.

Total debt as a percent of total capitalization (excluding noncontrolling interests) was 48% at September 30, 2021 and June 30, 2021.

See Note 15 – Subsequent Event for further information relating to the Company's revolving credit facility.

THE ESTÉE LAUDER COMPANIES INC.

Nine Months Ended

Three Months Ended

(In millions) 2021 2020

Net cash provided by operating activities $ 2,777 $ 1,945

Net cash provided by (used for) operating activities $ (81) $ 358

Net cash used for investing activities $ (153) $ (242)

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

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 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 .

Net cash used for financing activities $ (714) $ (890)

The change in net cash flows from operations primarily reflected the unfavorable net change in working capital as working capital needs returned to a more normalized level compared to the prior-year period.

In particular, other accrued liabilities, including the settlement of foreign currency forward contracts and accounts payable.

These changes were partially offset by higher earnings before taxes, excluding non-cash items.

The change in net cash flows used for investing activities primarily reflected a favorable impact from the settlement of net investment hedges, which is offset by the unfavorable change in other accrued liabilities discussed above, partially offset by the increase in capital expenditures.

The change in net cash flows used for financing activities primarily reflected a decrease relating to the repayment of borrowings under our revolving credit facility made in the prior-year period, partially offset by higher treasury stock repurchases.

For a summary of quarterly cash dividends declared per share on our Class A and Class B Common Stock during the three months ended September 30, 2021, see Notes to Consolidated Financial Statements, Note 12 – Equity and Redeemable Noncontrolling Interest .

Pension and Post-retirement Plan Funding

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Commitments, Contractual Obligations and Contingencies

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.

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, 2021.

For a discussion of contingencies, see Notes to Consolidated Financial Statements, Note 9 – Contingencies .

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For a discussion of credit risk, see Notes to Consolidated Financial Statements, Note 5 – 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 $198 million and $222 million as of March 31, 2021 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 $210 million and $218 million as of September 30, 2021 and June 30, 2021, respectively.

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

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 (decrease) by approximately $(58) million and $9 million as of March 31, 2021 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 decrease by approximately $79 million and $83 million as of September 30, 2021 and June 30, 2021, respectively.

THE ESTÉE LAUDER COMPANIES INC.

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