ESTEE LAUDER COMPANIES INC 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. RESULTS OF OPERATIONS 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 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 September 30 (In millions) 2021 2020 NET SALES By Product Category: Skin Care $ 2,449 $ 2,035 Makeup 1,174 978 Fragrance 609 406 Hair Care 148 136 Other 13 7 4,393 3,562 Returns associated with restructuring and other activities (1) — Net sales $ 4,392 $ 3,562 By Region (1) : The Americas $ 1,194 $ 873 Europe, the Middle East & Africa 1,873 1,540 Asia/Pacific 1,326 1,149 4,393 3,562 Returns associated with restructuring and other activities (1) — Net sales $ 4,392 $ 3,562 OPERATING INCOME (LOSS) By Product Category: Skin Care $ 717 $ 721 Makeup 91 (71) Fragrance 131 60 Hair Care 2 3 Other — 1 941 714 Charges associated with restructuring and other activities (6) (9) Operating income $ 935 $ 705 By Region (1) : The Americas $ 254 $ 65 Europe, the Middle East & Africa 465 411 Asia/Pacific 222 238 941 714 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. Operating income attributable to the travel retail sales included in Europe, the Middle East & Africa is included in that region and in The Americas. 34 Table of Contents THE ESTÉE LAUDER COMPANIES INC. The following table presents certain consolidated earnings data as a percentage of net sales: Three Months Ended September 30 2021 2020 Net sales 100.0 % 100.0 % Cost of sales 24.1 23.2 Gross profit 75.9 76.8 Operating expenses: Selling, general and administrative 54.5 56.9 Restructuring and other charges 0.1 0.2 Total operating expenses 54.6 57.0 Operating income 21.3 19.8 Interest expense 1.0 1.3 Interest income and investment income, net 0.1 0.4 Other components of net periodic benefit cost — 0.1 Other income — — Earnings before income taxes 20.4 18.8 Provision for income taxes (4.6) (4.1) Net earnings 15.8 14.7 Net earnings attributable to noncontrolling interests — (0.1) Net earnings attributable to redeemable noncontrolling interest — — Net earnings attributable to The Estée Lauder Companies Inc. 15.8 % 14.7 % Not adjusted for differences caused by rounding We continually introduce new products, support new and established products through advertising, merchandising and sampling and phase out existing products that no longer meet the needs of our consumers or our objectives. The economics of developing, producing, launching, supporting and discontinuing products impact our sales and operating performance each period. The introduction of new products may have some cannibalizing effect on sales of existing products, which we take into account in our business planning. Non-GAAP Financial Measures We use certain non-GAAP financial measures, among other financial measures, to evaluate our operating performance, which represent the manner in which we conduct and view our business. Management believes that excluding certain items that are not comparable from period to period helps investors and others compare operating performance between periods. 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. GAAP. 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. 35 Table of Contents THE ESTÉE LAUDER COMPANIES INC. We operate on a global basis, with the majority of our net sales generated outside the United States. Accordingly, fluctuations in foreign currency exchange rates can affect our results of operations. Therefore, we present certain net sales, operating results and diluted net earnings per common share information excluding the effect of foreign currency rate fluctuations to provide a framework for assessing the performance of our underlying business outside the United States. 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 monthly average foreign currency exchange rates and adjusting for the period-over-period impact of foreign currency cash flow hedging activities. Overview COVID-19 Business Update 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 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. 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. Supply Chain 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. 36 Table of Contents 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 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 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. Outlook 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 adversely impact the goodwill and other intangible assets associated with our brands, as well as long-lived assets (i.e. potentially resulting in impairments). 37 Table of Contents 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; regulatory matters, including the imposition of tariffs; geopolitical tensions; and global security issues. 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 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. 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. NET SALES Three Months Ended September 30 ($ in millions) 2021 2020 As Reported: Net sales $ 4,392 $ 3,562 $ Change from prior-year period 830 % Change from prior-year period 23 % Non-GAAP Financial Measure (1) : % Change from prior-year period in constant currency 21 % (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. 38 Table of Contents THE ESTÉE LAUDER COMPANIES INC. 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 2022 first quarter impact of returns associated with restructuring and other activities of $1 million. Product Categories Skin Care Three Months Ended September 30 ($ in millions) 2021 2020 As Reported: Net sales $ 2,449 $ 2,035 $ Change from prior-year period 414 % Change from prior-year period 20 % Non-GAAP Financial Measure (1) : % Change from prior-year period in constant currency 18 % (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. 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 $48 million of favorable foreign currency translation. 39 Table of Contents THE ESTÉE LAUDER COMPANIES INC. Makeup Three Months Ended September 30 ($ in millions) 2021 2020 As Reported: Net sales $ 1,174 $ 978 $ Change from prior-year period 196 % Change from prior-year period 20 % Non-GAAP Financial Measure (1) : % Change from prior-year period in constant currency 18 % (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. 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 $17 million of favorable foreign currency translation. Fragrance Three Months Ended September 30 ($ in millions) 2021 2020 As Reported: Net sales $ 609 $ 406 $ Change from prior-year period 203 % Change from prior-year period 50 % Non-GAAP Financial Measure (1) : % Change from prior-year period in constant currency 48 % (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. 40 Table of Contents 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 $10 million of favorable foreign currency translation. Hair Care Three Months Ended September 30 ($ in millions) 2021 2020 As Reported: Net sales $ 148 $ 136 $ Change from prior-year period 12 % Change from prior-year period 9 % Non-GAAP Financial Measure (1) : % Change from prior-year period in constant currency 8 % (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. 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. The Americas Three Months Ended September 30 ($ in millions) 2021 2020 As Reported: Net sales $ 1,194 $ 873 $ Change from prior-year period 321 % Change from prior-year period 37 % Non-GAAP Financial Measure (1) : % Change from prior-year period in constant currency 36 % (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. 41 Table of Contents 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 $6 million of favorable foreign currency translation. Europe, the Middle East & Africa Three Months Ended September 30 ($ in millions) 2021 2020 As Reported: Net sales $ 1,873 $ 1,540 $ Change from prior-year period 333 % Change from prior-year period 22 % Non-GAAP Financial Measure (1) : % Change from prior-year period in constant currency 21 % (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. 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 $15 million of favorable foreign currency translation. Asia/Pacific Three Months Ended September 30 ($ in millions) 2021 2020 As Reported: Net sales $ 1,326 $ 1,149 $ Change from prior-year period 177 % Change from prior-year period 15 % Non-GAAP Financial Measure (1) : % Change from prior-year period in constant currency 11 % (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. 42 Table of Contents THE ESTÉE LAUDER COMPANIES INC. 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 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 Three Months Ended September 30, 2021 Mix of business (50) Obsolescence charges (85) Manufacturing costs and other (10) Foreign exchange transactions 45 Subtotal (100) Charges associated with restructuring and other activities 10 Total (90) 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 54.6% for the three months ended September 30, 2021 as compared with 57.0% in the prior-year period. Favorable (Unfavorable) Basis Points Three Months Ended September 30, 2021 General and administrative expenses 80 Advertising, merchandising, sampling and product development 100 Selling 70 Store operating costs 30 Shipping (30) Foreign exchange transactions (10) Subtotal 240 Charges associated with restructuring and other activities — Total 240 43 Table of Contents THE ESTÉE LAUDER COMPANIES INC. 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 September 30 ($ in millions) 2021 2020 As Reported: Operating income $ 935 $ 705 $ Change from prior-year period 230 % Change from prior-year period 33 % Operating margin 21.3 % 19.8 % 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 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 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 Skin Care Three Months Ended September 30 ($ in millions) 2021 2020 As Reported: Operating income $ 717 $ 721 $ Change from prior-year period (4) % Change from prior-year period (1) % 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. 44 Table of Contents 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. Makeup Three Months Ended September 30 ($ in millions) 2021 2020 As Reported: Operating income (loss) $ 91 $ (71) $ Change from prior-year period 162 % Change from prior-year period 100+% 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 $148 million, combined. The higher results from Estée Lauder, Tom Ford Beauty and Clinique were primarily due to the increases in net sales. Operating results from M·A·C increased, primarily reflecting higher net sales, partially offset by the increase in advertising and promotional activities relating to strategic investments to support the makeup recovery, digital advertising and social media spending, as well as higher selling expenses and store operating costs due to the brick-and-mortar recovery from the prior-year challenges stemming from the COVID-19 pandemic, including store closures. Fragrance Three Months Ended September 30 ($ in millions) 2021 2020 As Reported: Operating income $ 131 $ 60 $ Change from prior-year period 71 % Change from prior-year period 100+% 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 $80 million, combined. Operating results from Tom Ford Beauty increased, primarily due to higher net sales, partially offset by the increase in advertising and promotional activities relating to strategic investments in digital advertising and social media spending (including costs associated with influencers), as well as higher selling expenses due to the brick-and-mortar recovery from the prior-year challenges stemming from the COVID-19 pandemic, including store closures. The higher results from Jo Malone London primarily reflected the increase in net sales, partially offset by higher cost of sales given the growth of the home subcategory and the increase in advertising and promotional activities primarily to support holiday and promotional events and new product launches. Operating results from certain of our designer fragrances and Le Labo increased, primarily driven by the increases in net sales. Partially offsetting these increases in fragrance operating income was higher employee incentive compensation compared to the prior-year period, which reflected lower accrued employee incentive compensation attributable to the impacts of the COVID-19 pandemic. Hair Care Three Months Ended September 30 ($ in millions) 2021 2020 As Reported: Operating income $ 2 $ 3 $ Change from prior-year period (1) % Change from prior-year period (33) % 45 Table of Contents 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 The Americas Three Months Ended September 30 ($ in millions) 2021 2020 As Reported: Operating income $ 254 $ 65 $ Change from prior-year period 189 % Change from prior-year period 100+% Reported operating results increased in The Americas, primarily reflecting higher operating results in the United States of approximately $179 million, primarily due to the increase in net sales and higher intercompany royalty income primarily from growth in our travel retail business. Partially offsetting these increases in operating results in the United States were the increase in advertising and promotional activities, as discussed above; higher selling expenses and store operating costs due to the brick-and-mortar recovery from the prior-year challenges stemming from the COVID-19 pandemic, including store closures; and higher employee incentive compensation compared to the prior-year period, which reflected lower accrued employee incentive compensation attributable to the impacts of the COVID-19 pandemic. Europe, the Middle East & Africa Three Months Ended September 30 ($ in millions) 2021 2020 As Reported: Operating income $ 465 $ 411 $ Change from prior-year period 54 % Change from prior-year period 13 % 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 $38 million, combined. Operating income increased from our travel retail business primarily due to the increase in net sales, partially offset by the increase in intercompany royalty expense to The Americas primarily due to the growth of our travel retail business. The higher results from Russia primarily reflected the increase in net sales. Operating income in the United Kingdom increased, primarily driven by the increase in net sales, partially offset by the increase in advertising and promotional activity to support strategic investments across the brands. 46 Table of Contents THE ESTÉE LAUDER COMPANIES INC. Asia/Pacific Three Months Ended September 30 ($ in millions) 2021 2020 As Reported: Operating income $ 222 $ 238 $ Change from prior-year period (16) % Change from prior-year period (7) % 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 September 30 (In millions) 2021 2020 Interest expense $ 42 $ 45 Interest income and investment income, net $ 4 $ 14 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 The provision for income taxes represents U.S. federal, foreign, state and local income taxes. 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, 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 September 30 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. 47 Table of Contents THE ESTÉE LAUDER COMPANIES INC. NET EARNINGS ATTRIBUTABLE TO THE ESTÉE LAUDER COMPANIES INC. Three Months Ended September 30 ($ in millions, except per share data) 2021 2020 As Reported: Net earnings attributable to The Estée Lauder Companies Inc. $ 692 $ 523 $ Change from prior-year period 169 % Change from prior-year period 32 % 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 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. GAAP measures. RECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES We use certain non-GAAP financial measures, among other financial measures, to evaluate our operating performance, which represent the manner in which we conduct and view our business. Management believes that excluding certain items that are not comparable from period to period, or do not reflect the Company’s underlying ongoing business, provides transparency for such items and helps investors and others compare and analyze our operating performance from period to period. In the future, we expect to incur charges or adjustments similar in nature to those presented below; however, the impact to the Company’s results in a given period may be highly variable and difficult to predict. Our non-GAAP financial measures may not be comparable to similarly titled measures used by, or determined in a manner consistent with, other companies. While 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. GAAP. 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. 48 Table of Contents THE ESTÉE LAUDER COMPANIES INC. The following tables provide reconciliations between these non-GAAP financial measures and the most directly comparable U.S. GAAP measures. ($ in millions, except per share data) Three Months Ended September 30 Variance % Change % Change in constant currency 2021 2020 Net sales, as reported $ 4,392 $ 3,562 $ 830 23 % 21 % Returns associated with restructuring and other activities 1 — 1 Net sales, as adjusted $ 4,393 $ 3,562 $ 831 23 % 21 % Operating income, as reported $ 935 $ 705 $ 230 33 % 30 % Charges associated with restructuring and other activities 6 9 (3) Operating income, as adjusted $ 941 $ 714 $ 227 32 % 29 % 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) 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. 49 Table of Contents THE ESTÉE LAUDER COMPANIES INC. The following tables reconcile the change in net sales by product category and geographic region, as reported, to the change in net sales excluding the effects of foreign currency translation: As Reported Impact of foreign currency translation Variance, in constant currency % Change, as reported % Change, in constant currency Three Months Ended September 30 ($ in millions) 2021 2020 Variance By Product Category: Skin Care $ 2,449 $ 2,035 $ 414 $ (48) $ 366 20 % 18 % Makeup 1,174 978 196 (17) 179 20 18 Fragrance 609 406 203 (10) 193 50 48 Hair Care 148 136 12 (1) 11 9 8 Other 13 7 6 (1) 5 86 71 4,393 3,562 831 (77) 754 23 21 Returns associated with restructuring and other activities (1) — (1) — (1) Total $ 4,392 $ 3,562 $ 830 $ (77) $ 753 23 % 21 % By Region: The Americas $ 1,194 $ 873 $ 321 $ (6) $ 315 37 % 36 % Europe, the Middle East & Africa 1,873 1,540 333 (15) 318 22 21 Asia/Pacific 1,326 1,149 177 (56) 121 15 11 4,393 3,562 831 (77) 754 23 21 Returns associated with restructuring and other activities (1) — (1) — (1) Total $ 4,392 $ 3,562 $ 830 $ (77) $ 753 23 % 21 % FINANCIAL CONDITION LIQUIDITY AND CAPITAL RESOURCES Overview 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 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. To mitigate the risk of uninsured balances, we select financial institutions based on their credit ratings and financial strength, and we perform ongoing evaluations of these institutions to limit our concentration risk exposure. 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 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. We do not believe that continuing to reinvest our foreign earnings impairs our ability to meet our domestic debt or working capital obligations. If these reinvested earnings were repatriated into the United States as dividends, we would be subject to state income taxes and applicable foreign taxes in certain jurisdictions. 50 Table of Contents THE ESTÉE LAUDER COMPANIES INC. 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. Credit Ratings Changes in our credit ratings will likely result in changes in our borrowing costs. Our credit ratings also impact the cost of our revolving credit facility. Downgrades in our credit ratings may reduce our ability to issue commercial paper and/or long-term debt and would likely increase the relative costs of borrowing. 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 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. Debt At September 30, 2021, our outstanding borrowings were as follows: ($ in millions) Long-term Debt Current Debt Total Debt 3.125% Senior Notes, due December 1, 2049 (“2049 Senior Notes”) (1), (13) $ 636 $ — $ 636 4.15% Senior Notes, due March 15, 2047 (“2047 Senior Notes”) (2), (13) 494 — 494 4.375% Senior Notes, due June 15, 2045 (“2045 Senior Notes”) (3), (13) 455 — 455 3.70% Senior Notes, due August 15, 2042 (“2042 Senior Notes”) (4), (13) 247 — 247 6.00% Senior Notes, due May 15, 2037 (“2037 Senior Notes”) (5), (13) 294 — 294 5.75% Senior Notes, due October 15, 2033 (“2033 Senior Notes”) (6) 197 — 197 1.950% Senior Notes, due March 15, 2031 ("2031 Senior Notes") (7), (13) 597 — 597 2.600% Senior Notes, due April 15, 2030 ("2030 Senior Notes") (8), (13) 691 — 691 2.375% Senior Notes, due December 1, 2029 (“2029 Senior Notes”) (9), (13) 642 — 642 3.15% Senior Notes, due March 15, 2027 (“2027 Senior Notes”) (10), (13) 498 — 498 2.00% Senior Notes, due December 1, 2024 (“2024 Senior Notes”) (11), (13) 496 — 496 2.35% Senior Notes, due August 15, 2022 (“2022 Senior Notes”) (12), (13) — 254 254 Other long-term borrowings 20 — 20 Other current borrowings — 27 27 $ 5,267 $ 281 $ 5,548 (1) Consists of $650 million principal, unamortized debt discount of $7 million and debt issuance costs of $7 million. (2) Consists of $500 million principal, unamortized debt discount of $1 million and debt issuance costs of $5 million. (3) Consists of $450 million principal, net unamortized debt premium of $9 million and debt issuance costs of $4 million. (4) Consists of $250 million principal, unamortized debt discount of $1 million and debt issuance costs of $2 million. (5) Consists of $300 million principal, unamortized debt discount of $3 million and debt issuance costs of $3 million. (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, 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. (10) Consists of $500 million principal and debt issuance costs of $2 million. (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 $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. 51 Table of Contents THE ESTÉE LAUDER COMPANIES INC. Cash Flows Three Months Ended September 30 (In millions) 2021 2020 Net cash provided by (used for) operating activities $ (81) $ 358 Net cash used for investing activities $ (153) $ (242) 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. Dividends 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 There have been no significant changes to our pension and post-retirement funding as discussed in our Annual Report on Form 10-K for the fiscal year ended June 30, 2021. Commitments, Contractual Obligations and Contingencies There have been no significant changes to our commitments and contractual obligations as discussed in our Annual Report on Form 10-K for the fiscal year ended June 30, 2021. For a discussion of contingencies, see Notes to Consolidated Financial Statements, Note 9 – Contingencies . Derivative Financial Instruments and Hedging Activities For a discussion of our derivative financial instruments and hedging activities, see Notes to Consolidated Financial Statements, Note 5 – Derivative Financial Instruments . Foreign Exchange Risk Management For a discussion of foreign exchange risk management, see Notes to Consolidated Financial Statements, Note 5 – Derivative Financial Instruments (Cash Flow Hedges, Net Investment Hedges ) . Credit Risk For a discussion of credit risk, see Notes to Consolidated Financial Statements, Note 5 – Derivative Financial Instruments (Credit Risk) . Market Risk 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. To perform a sensitivity analysis of our foreign currency forward contracts, we assess the change in fair values from the impact of hypothetical changes in foreign currency exchange rates. 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 $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 decrease by approximately $79 million and $83 million as of September 30, 2021 and June 30, 2021, respectively. 52 Table of Contents 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. It does not represent the maximum possible loss or any expected loss that may occur, since actual future gains and losses will differ from those estimated, based upon actual fluctuations in market rates, operating exposures, and the timing thereof, and changes in our portfolio of derivative financial instruments during the year. We believe, however, that any such loss incurred would be offset by the effects of market rate movements on the respective underlying transactions for which the derivative financial instrument was intended. OFF-BALANCE SHEET ARRANGEMENTS We do not maintain any off-balance sheet arrangements, transactions, obligations or other relationships with unconsolidated entities that would be expected to have a material current or future effect upon our financial condition or results of operations. CRITICAL ACCOUNTING POLICIES As disclosed in our Annual Report on Form 10-K for the fiscal year ended June 30, 2021, the discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in conformity with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and assumptions that affect the amounts of assets, liabilities, revenues and expenses reported in those financial statements. These estimates and assumptions can be subjective and complex, and consequently, actual results could differ from those estimates. Our most critical accounting policies relate to goodwill, other intangible assets and long-lived assets, income taxes and business combinations. Since June 30, 2021, there have been no significant changes to the assumptions and estimates related to our critical accounting policies. RECENTLY ISSUED ACCOUNTING STANDARDS For a discussion regarding the impact of accounting standards that were recently issued but not yet effective, on the Company’s consolidated financial statements, see Notes to Consolidated Financial Statements, Note 1 – Summary of Significant Accounting Policies . 53 Table of Contents THE ESTÉE LAUDER COMPANIES INC. CAUTIONARY NOTE REGARDING FORWARD-LOOKING INFORMATION We and our representatives from time to time make written or oral forward-looking statements, including in this and other filings with the Securities and Exchange Commission, in our press releases and in our reports to stockholders, which may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements may address our expectations regarding sales, earnings or other future financial performance and liquidity, other performance measures, product introductions, entry into new geographic regions, information technology initiatives, new methods of sale, our long-term strategy, restructuring and other charges and resulting cost savings, and future operations or operating results. These statements may contain words like “expect,” “will,” “will likely result,” “would,” “believe,” “estimate,” “planned,” “plans,” “intends,” “may,” “should,” “could,” “anticipate,” “estimate,” “project,” “projected,” “forecast,” and “forecasted” or similar expressions. Although we believe that our expectations are based on reasonable assumptions within the bounds of our knowledge of our business and operations, actual results may differ materially from our expectations. Factors that could cause actual results to differ from expectations include, without limitation: (1) increased competitive activity from companies in the skin care, makeup, fragrance and hair care businesses; (2) our ability to develop, produce and market new products on which future operating results may depend and to successfully address challenges in our business; (3) consolidations, restructurings, bankruptcies and reorganizations in the retail industry causing a decrease in the number of stores that sell our products, an increase in the ownership concentration within the retail industry, ownership of retailers by our competitors or ownership of competitors by our customers that are retailers and our inability to collect receivables; (4) destocking and tighter working capital management by retailers; (5) the success, or changes in timing or scope, of new product launches and the success, or changes in timing or scope, of advertising, sampling and merchandising programs; (6) shifts in the preferences of consumers as to where and how they shop; (7) social, political and economic risks to our foreign or domestic manufacturing, distribution and retail operations, including changes in foreign investment and trade policies and regulations of the host countries and of the United States; (8) changes in the laws, regulations and policies (including the interpretations and enforcement thereof) that affect, or will affect, our business, including those relating to our products or distribution networks, changes in accounting standards, tax laws and regulations, environmental or climate change laws, regulations or accords, trade rules and customs regulations, and the outcome and expense of legal or regulatory proceedings, and any action we may take as a result; (9) foreign currency fluctuations affecting our results of operations and the value of our foreign assets, the relative prices at which we and our foreign competitors sell products in the same markets and our operating and manufacturing costs outside of the United States; (10) changes in global or local conditions, including those due to the volatility in the global credit and equity markets, natural or man-made disasters, real or perceived epidemics, or energy costs, that could affect consumer purchasing, the willingness or ability of consumers to travel and/or purchase our products while traveling, the financial strength of our customers, suppliers or other contract counterparties, our operations, the cost and availability of capital which we may need for new equipment, facilities or acquisitions, the returns that we are able to generate on our pension assets and the resulting impact on funding obligations, the cost and availability of raw materials and the assumptions underlying our critical accounting estimates; (11) impacts attributable to the COVID-19 pandemic, including disruptions to our global business; (12) shipment delays, commodity pricing, depletion of inventory and increased production costs resulting from disruptions of operations at any of the facilities that manufacture our products or at our distribution or inventory centers, including disruptions that may be caused by the implementation of information technology initiatives, or by restructurings; 54 Table of Contents THE ESTÉE LAUDER COMPANIES INC. (13) real estate rates and availability, which may affect our ability to increase or maintain the number of retail locations at which we sell our products and the costs associated with our other facilities; (14) changes in product mix to products which are less profitable; (15) our ability to acquire, develop or implement new information and distribution technologies and initiatives on a timely basis and within our cost estimates and our ability to maintain continuous operations of such systems and the security of data and other information that may be stored in such systems or other systems or media; (16) our ability to capitalize on opportunities for improved efficiency, such as publicly-announced strategies and restructuring and cost-savings initiatives, and to integrate acquired businesses and realize value therefrom; (17) consequences attributable to local or international conflicts around the world, as well as from any terrorist action, retaliation and the threat of further action or retaliation; (18) the timing and impact of acquisitions, investments and divestitures; and (19) additional factors as described in our filings with the Securities and Exchange Commission, including the Annual Report on Form 10-K for the fiscal year ended June 30, 2021. We assume no responsibility to update forward-looking statements made herein or otherwise. Item 3. Quantitative and Qualitative Disclosures About Market Risk. The information required by this item is set forth in Item 2 of this Quarterly Report on Form 10-Q under the caption Liquidity and Capital Resources - Market Risk and is incorporated herein by reference.