What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-02-03 compared with 2021-11-02 · 342 added, 144 removed, 443 unchanged (52% 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 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.

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

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

Three Months Ended

December 31 Six Months Ended

(In millions) 2021 2020 2021 2020

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Hair Care 180 154 328 290

Other 16 15 29 22

5,540 4,853 9,933 8,415

Returns associated with restructuring and other activities (1) — (2) —

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Asia/Pacific 1,902 1,775 3,228 2,924

5,540 4,853 9,933 8,415

Returns associated with restructuring and other activities (1) — (2) —

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Hair Care 8 4 10 7

Other 3 (1) 3 —

1,433 1,100 2,374 1,814

Charges associated with restructuring and other activities (15) (37) (21) (46)

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Asia/Pacific 431 407 653 645

1,433 1,100 2,374 1,814

Charges associated with restructuring and other activities (15) (37) (21) (46)

Operating income $ 1,418 $ 1,063 $ 2,353 $ 1,768

(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 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

December 31 Six Months Ended

2021 2020 2021 2020

Net sales 100.0 % 100.0 % 100.0 % 100.0 %

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Restructuring and other charges 0.3 0.7 0.2 0.5

Goodwill impairment — 1.1 — 0.6

Impairment of other intangible and long-lived assets — 0.6 — 0.3

Total operating expenses 52.3 55.8 53.3 56.3

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

Net earnings attributable to redeemable noncontrolling interest — —

Net loss attributable to redeemable noncontrolling interest — — — —

Net earnings attributable to The Estée Lauder Companies Inc.

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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.

The COVID-19 pandemic continued to disrupt our operating environment, impacting retail traffic and consumer preferences during the three months ended December 31, 2021.

The spread of the Delta and Omicron variants and resurgence of COVID-19 cases in most parts of the world led to periodic point-of-sale staffing shortages as well as 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, vaccination requirements for brick-and-mortar businesses, 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.

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 second quarter of fiscal 2022, there were intermittent closures throughout the world due to safety protocols or restrictions.

In much of Asia/Pacific, restrictions eased during the second quarter of fiscal 2022, although mainland China had regional lockdowns and much of Western Europe, particularly in the United Kingdom, experienced increased restrictions as the quarter progressed.

In North America in late calendar year 2021, restrictions and store closures varied by location.

COVID-19 cases generally eased in Latin America.

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

International passenger traffic remained largely curtailed globally.

However, passenger traffic in Europe, the Middle East & Africa and The Americas improved, but remained significantly below pre-pandemic levels.

The improvement was due to the partial lifting of government restrictions, most notably in the United Kingdom and the United States.

In Asia/Pacific, increased travel restrictions remained in place during much of the quarter, and traffic in Hainan was negatively impacted by fewer visitors due to intermittent domestic travel restrictions.

During the second quarter of fiscal 2022, net sales of our products online (through our own websites, third-party platforms and websites of our retailers) continued to grow in The Americas and Asia/Pacific, benefiting from strong holiday performance and key shopping moments.

The launch of a third-party online platform in mainland China also contributed to online net sales growth in Asia/Pacific.

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 Europe, the Middle East & Africa reflecting early stages of a 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.

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.

While the demand for makeup improved significantly versus the prior year, it continues to be the only category that remains below the pre-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 supply chain disruptions, including manufacturing and transportation delays, due to closures, employee absences, port congestion, labor and container shortages, and shipment delays.

As a result, we expect higher costs to negatively impact cost of sales and operating expenses for the remainder of fiscal 2022.

We expect to mitigate some 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.

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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.

This diversification 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.

During the second quarter of fiscal 2022, net sales increased 14%, reflecting early stages of a recovery and successful performance during holidays and key shopping moments in The Americas and in Europe, the Middle East & Africa as 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.

• Our skin care net sales benefited from the recent launch of The Hydrating Infused Emulsion from La Mer, as well as continued strength in the brand’s The Treatment Lotion and Crème de la Mer moisturizer.

Incremental net sales attributable to the increase in our ownership of DECIEM in the fiscal 2021 fourth quarter contributed to growth, 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.

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

During the second quarter of fiscal 2022, net sales in makeup grew in part due 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 and Too Faced.

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.

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

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

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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.

We continuously strive to 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 second quarter was led by The Americas, primarily reflecting the reopening of brick-and-mortar stores, stronger holiday performance, 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 due to ongoing increases in our travel retail business, partly relating to the increase in traffic as a result of the easing of travel restrictions.

In addition, brick-and-mortar retail reopened across the region, and online net sales growth, inclusive of DECIEM, continued.

• Net sales increased in Asia/Pacific, reflecting higher net sales in mainland China, Australia and several smaller markets.

THE ESTÉE LAUDER COMPANIES INC.

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

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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.

We expect to invest in areas to support the recovery, including advertising, online, research and development and supply chain, to drive growth in areas of opportunity and help nurture emerging trends in the rest of the business.

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.

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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;

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

supply chain disruptions;

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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.

We are also mindful of inflationary pressures on our cost base and are monitoring the impact on consumer preferences.

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.

As the current situation continues to progress, 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.

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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;

Reported net sales increased for the three and six months ended December 31, 2021, driven by higher net sales from every product category and in every geographic region primarily reflecting (i) the continued progression towards brick-and-mortar and travel recovery compared to 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.

(iii) successful performance for holiday and key shopping moments (iv) new product launches;

and (v) targeted expanded consumer reach.

For the three and six months ended December 31, 2021, reported net sales from every product category grew double digits.

Skin care net sales increased in both periods, led by 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 increases in fragrance net sales primarily reflected higher net sales from Jo Malone London, Tom Ford Beauty, Le Labo and Kilian Paris.

The net sales increases from Estée Lauder and M·A·C drove the increases in the makeup net sales.

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

For the three and six months ended December 31, 2021, reported net sales grew in every geographic region and benefited from incremental net sales attributable to the increase in our ownership of DECIEM in the fiscal 2021 fourth quarter.

Net sales increased in Europe, the Middle East & Africa in both periods, reflecting continued progression towards recovery across the region, led by our travel retail business, the United Kingdom and Russia.

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

Net sales increased in mainland China in both periods, driving the growth in Asia/Pacific, however, several countries in the region continued to be negatively impacted by the spread of COVID-19 variants and resurgence in cases, which led to government restrictions that were implemented to prevent further spread of the virus.

The total net sales increases were impacted by approximately $7 million and $84 million of favorable foreign currency translation for the three and six months ended December 31, 2021, respectively.

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

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

Accordingly, the following discussions of Net sales by Product Categories and Geographic Regions exclude the impact of returns associated with restructuring and other activities for the three and six months ended December 31, 2021 of $1 million and $2 million, respectively.

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 and six months ended December 31, 2021, 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, combined, of approximately $295 million and $610 million, respectively.

Net sales from La Mer increased in both periods, led by our travel retail business and mainland China, primarily due to successful performance during holiday and key shopping moments, the continued success of hero products, such as The Treatment Lotion, Créme de la Mer and the Genaissance line of products, the current year launch of The Hydrating Infused Emulsion, and targeted expanded consumer reach.

In both periods, net sales from Clinique increased, driven by our travel retail business and North America, primarily due to the continued success of existing products, such as Even Better Clinical Radical Dark Spot Corrector + Interrupter and the Take The Day Off line of products, the current-year launch of Smart Clinical Repair Wrinkle Correcting Serum and targeted expanded consumer reach.

The skin care net sales increases were impacted by approximately $25 million and $73 million of favorable foreign currency translation for the three and six months ended December 31, 2021, respectively.

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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.

Reported makeup net sales increased for the three and six months ended December 31, 2021, led by higher net sales from Estée Lauder and M·A·C, combined, of approximately $92 million and $223 million, respectively.

The continued progression towards recovery in makeup, including increased usage occasions compared to the prior year, led to the increase in makeup net sales in The Americas and Europe, the Middle East & Africa in both periods.

Makeup net sales in Asia/Pacific declined in both periods, as several countries in the region continued to be negatively impacted by the spread of COVID-19 variants and resurgence in cases, which led to government restrictions implemented to prevent further spread of the virus.

Net sales from Estée Lauder increased in both periods, primarily driven by the continued success of existing products, such as the Double Wear and Futurist product franchises;

new product launches, such as the current-year launches of Double Wear Sheer Long-Wear Foundation;

successful performance during holiday and key shopping moments;

new third-party online platform launch in mainland China;

and the continued progression towards brick-and-mortar recovery in North America.

The increase in net sales from M·A·C, in both periods, was primarily due to the continued progression towards brick-and-mortar recovery and successful performance during holiday and key shopping moments in North America and in Europe, the Middle East & Africa.

Reported makeup net sales for the six months ended December 31, 2021 also benefited from higher net sales from Tom Ford Beauty primarily due to continued strength in lip products, such as Scarlet Rouge and Equus, and the continued progression towards brick-and-mortar recovery in North America.

The makeup net sales increases were impacted by approximately $12 million of unfavorable and $5 million of favorable foreign currency translation for the three and six months ended December 31, 2021, respectively.

THE ESTÉE LAUDER COMPANIES INC.

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GAAP measures.

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.

Reported fragrance net sales increased for the three and six months ended December 31, 2021, primarily driven by Jo Malone London, Tom Ford Beauty, Le Labo, Kilian Paris, combined, of approximately $161 million and $305 million, respectively.

In both periods, fragrance net sales grew double digits in every geographic region, partially reflecting the continued progression towards brick-and-mortar and travel recovery in various parts of the world due to more store openings, increased retail traffic, and the easing of travel restrictions compared to the prior year.

The increases in net sales from Jo Malone London also reflected the continued success of our hero products, such as English Pear & Freesia, successful performance during holiday and key shopping moments and continued growth of the home subcategory.

Net sales increased from Tom Ford Beauty in both periods, also benefiting from successful campaigns during holiday and key shopping moments, the continued success of Private Blend fragrances, such as Oud Wood and Rose Prick, and Signature fragrances, such as the Ombre Leather line of products, and the diversification of product offerings by region.

In both periods, net sales from Le Labo grew strong double digits in every geographic region, also reflecting the continued success of hero product franchises, such as Santal 33, the new product launch of Thé Matcha 26 and targeted expanded consumer reach.

Net sales increased from Kilian Paris in both periods, also benefiting from the success of hero fragrances, such as Good girl gone Bad by KILIAN and Love, don't be shy, as well as current-year launches, including Apple Brandy on the Rocks.

Reported fragrance net sales for the six months ended December 31, 2021 also benefited from higher net sales from certain of our designer fragrances, primarily due to the continued progression towards brick-and-mortar and travel recovery in various parts of the world, as discussed above, and the current-year launch of Michael Kors Super Gorgeous!

The fragrance net sales increases were impacted by approximately $4 million of unfavorable and $6 million of favorable foreign currency translation for the three and six months ended December 31, 2021, respectively.

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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.

THE ESTÉE LAUDER COMPANIES INC.

Reported hair care net sales increased for the three and six months ended December 31, 2021, reflecting higher net sales from Aveda and Bumble and bumble primarily due to the continued progression towards salon and retail store recovery in North America.

Net sales from Aveda increased in both periods, also reflecting successful performance during holiday in North America and the continued success of existing product franchises, such as Invati, Nutriplenish and Botanical Repair.

In both periods, the increase in net sales from Bumble and bumble also reflected the success of hero products, such as Hairdresser's Invisible Oil Primer, the current-year launches of 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

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GAAP measures.

Reported net sales in The Americas increased for the three and six months ended December 31, 2021 in every country and every product category, reflecting the continued progression towards brick-and-mortar and makeup recovery from the prior-year challenges that included store closures, lower retail traffic, fewer makeup usage occasions and quarantines, stemming from the COVID-19 pandemic.

The net sales increases were led by higher net sales in North America of approximately $236 million and $536 million for the three and six months ended December 31, 2021, respectively, also benefiting from successful performance during holiday and key shopping moments, incremental net sales attributable to the increase in our ownership of DECIEM in the fiscal 2021 fourth quarter and higher net sales from many of our brands, including M·A·C, Clinique, Tom Ford Beauty, Aveda, Jo Malone London and Le Labo.

Net sales in The Americas were impacted by approximately $1 million and $7 million of favorable foreign currency translation for the three and six months ended December 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

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($ in millions) 2021 2020 2021 2020

6 unchanged sentences

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.

Reported net sales for the three and six months ended December 31, 2021 increased in Europe, the Middle East & Africa, reflecting early stages of re covery across the region, primarily due to store openings, increased retail traffic, and the easing of travel restrictions compared to the prior year, and successful performance during holiday and key shopping moments, led by our travel retail business, the United Kingdom and Russia, combined, of approximately $238 million and $497 million, respectively.

Net sales increased in our travel retail business in both periods, reflecting continued strength of our brands with the Chinese consumer, the easing of travel restrictions, which drove increased traffic levels compared to the prior-year periods, and continued success of hero product franchises from La Mer, Origins, Clinique, Jo Malone London and Tom Ford Beauty.

In both periods, 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 in both periods, primarily reflecting the continued progression towards brick-and-mortar recovery, as noted above, and led by growth in the fragrance product category.

The increases 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 $13 million of unfavorable and $2 million of favorable foreign currency translation for the three and six months ended December 31, 2021, respectively.

Three Months Ended

December 31 Six Months Ended

($ in millions) 2021 2020 2021 2020

7 unchanged sentences

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

Reported net sales increased in Asia/Pacific for the three months ended December 31, 2021, primarily due to higher net sales in mainland China and Australia of approximately $148 million, combined.

The increase in net sales in mainland China was primarily due to the continued success of hero products franchises from Estée Lauder, La Mer and Jo Malone London, reflecting continued growth in skin care and strong momentum in fragrance, successful performance during holiday and key shopping moments, new product launches, and the current-year launch on a new third-party online platform.

The increase in net sales in Australia was primarily driven by recovery compared to the prior-year challenges, including the easing of restrictions and increased retail traffic, as well as incremental net sales attributable to the increase in our ownership of DECIEM in the fiscal 2021 fourth quarter.

Partially offsetting these increases in net sales for the three months ended December 31, 2021, were lower net sales in Korea, reflecting the challenging brick-and-mortar retail environment stemming from the COVID-19 pandemic and the timing of holiday shipments compared to the prior-year period.

Reported net sales increased in Asia/Pacific for the six months ended December 31, 2021, reflecting higher net sales in mainland China and Korea of approximately $296 million, combined.

Net sales in mainland China increased, as noted above.

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+ and Jo Malone London, continued growth in skin care and strong momentum in fragrance and double-digit growth from online net sales.

Net sales in Asia/Pacific were impacted by approximately $19 million and $75 million of favorable foreign currency translation for the three and six months ended December 31, 2021, respectively.

Gross margin increased to 77.9% and decreased to 77.0% for the three and six months ended December 31, 2021, respectively, as compared with 77.7% and 77.3% in the prior-year periods.

Favorable (Unfavorable) Basis Points

Three Months Ended September 30, 2021

December 31, 2021

Three Months Ended Six Months Ended

Mix of business (10) (40)

4 unchanged sentences

Charges associated with restructuring and other activities — 10

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.

Total 20 (30)

The increase in gross margin for the three months ended December 31, 2021 reflected a favorable transactional foreign exchange impact due to the strengthening of the United States Dollar, partially offset by an unfavorable impact from our mix of business.

The unfavorable impact from our mix of business was primarily driven by lower gross margins on DECIEM products (included in the current-year period due to the acquisition of the controlling interest in the fourth quarter of fiscal 2021) combined with the change in category mix, primarily due to the increase in makeup net sales, partially offset by strategic price increases and lower costs from product sets.

The decrease in gross margin for the six months ended December 31, 2021 reflected an unfavorable impact from our mix of business, primarily due to lower gross margins on DECIEM products and higher costs from product sets, partially offset by strategic price increases.

Partially offsetting the unfavorable impact from our mix of business was a favorable transactional foreign exchange impact, as noted above.

THE ESTÉE LAUDER COMPANIES INC.

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.

Operating expenses as a percentage of net sales was 52.3% and 53.3% for the three and six months ended December 31, 2021, respectively, as compared with 55.8% and 56.3% in the prior-year periods.

Favorable (Unfavorable) Basis Points

Three Months Ended September 30, 2021

December 31, 2021

Three Months Ended Six Months Ended

General and administrative expenses 110 90

Advertising, merchandising, sampling and product development (30) 30

Selling 110 90

Stock-based compensation 20 20

Store operating costs — 10

1 unchanged sentence

Foreign exchange transactions (10) (10)

Subtotal 140 180

Charges associated with restructuring and other activities 40 30

Goodwill and other intangible asset impairments 170 90

Total 350 300

The favorable changes in operating expense margin for the three and six months ended December 31, 2021, were driven by the increase in net sales, primarily due to the continued progression towards brick-and-mortar and travel recovery in various parts of the world and successful performance during holiday and key shopping moments, as discussed above.

For both periods, the decrease in operating expense margin also reflected the favorable impact from selling expenses, primarily due to the shift in channel mix to online, travel retail and specialty-multi, disciplined general and administrative expense management, and the year-over-year favorable impact of goodwill and other intangible asset impairments of $81 million.

Partially offsetting the benefits to operating expense margin for the three and six months ended December 31, 2021 were higher shipping costs due to the increase in net sales volume and increased shipping rates.

Further offsetting the benefits to operating expense margin for the three months ended December 31, 2021 were higher advertising and promotional activities, primarily to support strategic investments in key areas of growth (e.g., Hainan, the skin care and fragrance product categories), the continued progression towards makeup recovery, holiday and key shopping moments, and in-store and airport promotions given the increase in brick-and-mortar and airport traffic.

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

December 31 Six Months Ended

($ in millions) 2021 2020 2021 2020

4 unchanged sentences

Non-GAAP Financial Measure (1) :

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

% Change in operating income from the prior-year period adjusting for the impact of charges associated with restructuring and other activities, goodwill and other intangible asset impairments, changes in fair value of contingent consideration and acquisition-related stock option expense 22 % 26 %

(1) See “ Reconciliations of Non-GAAP Financial Measures” beginning on page 54 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.

The increase in reported operating margin for the three and six months ended December 31, 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.

2 unchanged sentences

Three Months Ended

December 31 Six Months Ended

($ in millions) 2021 2020 2021 2020

2 unchanged sentences

% Change from prior-year period 17 % 9 %

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.

Non-GAAP Financial Measure (1) :

% Change in operating income from the prior-year period adjusting for the impact of goodwill and other intangible asset impairments and acquisition-related stock option expense 7 % 4 %

(1) See “ Reconciliations of Non-GAAP Financial Measures” beginning on page 54 for reconciliations between non-GAAP financial measures and the most directly comparable U.S.

GAAP measures.

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.

Reported skin care operating income increased for the three and six months ended December 31, 2021, led by higher results from La Mer and Clinique, combined, of approximately $89 million and $177 million, respectively, as well as a favorable year-over-year impact of goodwill and other intangible asset impairments related to GLAMGLOW of $81 million.

In both periods, the increase in operating income from La Mer reflected higher net sales, partially offset by higher advertising and promotional activities primarily to support holiday and key shopping moments and new product launches.

Operating income from Clinique increased, primarily due to higher net sales in both periods and, for the six months ended December 31, 2021, partially offset by higher advertising and promotional activities primarily to support holiday and key shopping moments and new product launches.

Partially offsetting the increases in operating income for the three and six months ended December 31, 2021 were lower results from Estée Lauder and Origins, combined, of approximately $106 million and $193 million, respectively.

In both periods, the decrease in operating income from Estée Lauder was primarily due to the decrease in net sales, primarily related to our travel retail business, higher advertising and promotional activities to support hero products, holiday and key shopping moments and new product launches, and the increase in cost of sales primarily due to higher costs for promotional items.

Operating income decreased from Origins in both periods, reflecting lower net sales and the increase in advertising and promotional activities related to social media spending (including costs associated with influencers) and new product launches.

Reported skin care operating income for the six months ended December 31, 2021 also benefited from high results from Bobbi Brown, primarily due to the increase in net sales as a result of the continued success of existing products, such as Vitamin Enriched Face Base, and successful holiday and key shopping moments, which led to double-digit net sales growth in every geographic region.

Three Months Ended

December 31 Six Months Ended

($ in millions) 2021 2020 2021 2020

2 unchanged sentences

% Change from prior-year period 100+% 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.

Reported makeup operating income increased for the three months ended December 31, 2021, primarily driven by higher results from M·A·C, Tom Ford Beauty, Too Faced, and Estée Lauder of approximately $59 million, combined.

Operating income from M·A·C and Tom Ford Beauty increased, primarily due to the increase in net sales.

The higher results from Too Faced primarily reflected the increase in net sales and lower advertising and promotional expense as a result of more disciplined expense management.

The higher results from Estée Lauder was primarily due to the increase in net sales, partially offset by higher advertising and promotional activities relating to strategic investments to support the makeup recovery, digital advertising and social media spending, and holiday and key shopping moments.

Partially offsetting these increases in makeup operating income for the three months ended December 31, 2021, were lower results from Clinique due to higher advertising and promotional activities relating to strategic investments to support the makeup recovery and holiday and key shopping moments.

Reported makeup operating results increased for the six months ended December 31, 2021, primarily driven by higher results from Estée Lauder, M·A·C, and Tom Ford Beauty of approximately $174 million, combined.

The higher results from Estée Lauder and M·A·C were primarily due to the increases in net sales, partially offset by higher advertising and promotional activities relating to strategic investments to support the makeup recovery, digital advertising and social media spending, and holiday and promotional events.

Operating income from Tom Ford Beauty increased, primarily due to the increase in net sales.

THE ESTÉE LAUDER COMPANIES INC.

Three Months Ended

December 31 Six Months Ended

($ in millions) 2021 2020 2021 2020

2 unchanged sentences

% Change from prior-year period 49 % 70 %

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.

Non-GAAP Financial Measure (1) :

% Change in operating income from the prior-year period adjusting for changes in fair value of contingent consideration 51 % 71 %

(1) See “ Reconciliations of Non-GAAP Financial Measures” beginning on page 54 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 six months ended December 31, 2021, primarily driven by higher results from Jo Malone London, Tom Ford Beauty, Le Labo and certain of our designer fragrances, combined, of approximately $68 million and $148 million, respectively.

In both periods, 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 promotional items, as well as the increase in advertising and promotional activities primarily to support holiday and key shopping moments, in-store promotions given the increase in brick-and-mortar traffic, and new product launches.

Operating results from Tom Ford Beauty increased in both periods, primarily due to higher net sales, partially offset by the increase in advertising and promotional activities to support strategic investments in digital advertising and social media spending (including costs associated with influencers), hero product franchises, and new product launches;

higher cost of sales due, in part, to the increase in promotional items;

and higher selling expenses due to the continued progression towards brick-and-mortar recovery, including more store openings and increased retail traffic compared to the prior year.

The increases in operating income from Le Labo and certain of our designer fragrances, in both periods, were primarily driven by the increases in net sales.

Three Months Ended

December 31 Six Months Ended

($ in millions) 2021 2020 2021 2020

2 unchanged sentences

% Change from prior-year period 100 % 43 %

Reported hair care operating income increased for the three months ended December 31, 2021, primarily due to the increase in net sales, partially offset by strategic investments to support the continued progression towards salon and retail store recovery and new product launches.

Reported hair care operating income increased for the six months ended December 31, 2021, reflecting higher operating results from Bumble and bumble, primarily driven by the increase in net sales, as previously discussed.

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

December 31 Six Months Ended

($ in millions) 2021 2020 2021 2020

2 unchanged sentences

% Change from prior-year period 100+% 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.

Non-GAAP Financial Measure (1) :

% Change in operating income from the prior-year period adjusting for the impact of goodwill and other intangible asset impairments and acquisition-related stock option expense 100+% 100+%

(1) See “ Reconciliations of Non-GAAP Financial Measures” beginning on page 54 for reconciliations between non-GAAP financial measures and the most directly comparable U.S.

GAAP measures.

Reported operating results increased in The Americas for the three and six months ended December 31, 2021, primarily reflecting higher operating results in the North America of approximately $344 million and $526 million, respectively, primarily due to the increases in net sales, higher intercompany royalty income primarily from growth in our travel retail business and favorable year-over-year impact of goodwill and other intangible asset impairments related to GLAMGLOW of $81 million.

Partially offsetting these increases in operating income in both periods were higher advertising and promotional activities, primarily to support strategic investments in digital advertising and social media spending, holiday and key shopping moments, and in-store promotions given the increase in brick-and-mortar traffic, and increases in selling expense due to the continued progression towards 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.

Europe, the Middle East & Africa

Three Months Ended

December 31 Six Months Ended

($ in millions) 2021 2020 2021 2020

2 unchanged sentences

% Change from prior-year period (6) % 2 %

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.

Non-GAAP Financial Measure (1) :

% Change in operating income from the prior-year period adjusting for changes in contingent consideration (5) % 2 %

(1) See “ Reconciliations of Non-GAAP Financial Measures” beginning on page 54 for reconciliations between non-GAAP financial measures and the most directly comparable U.S.

GAAP measures.

THE ESTÉE LAUDER COMPANIES INC.

Reported operating income decreased in Europe, the Middle East & Africa for the three months ended December 31, 2021, primarily driven by lower results from our travel retail business and the United Kingdom of approximately $67 million, combined.

Operating income decreased from our travel retail business, reflecting the (i) increase in intercompany royalty expense to The Americas primarily due to the growth of our travel retail business and (ii) higher advertising and promotional activity primarily to support strategic investments in key areas of growth (primarily Hainan, hero products and the skin care product category), as well as to capture the current-year increase in airport traffic.

Also contributing to the decrease in operating income from our travel retail business was higher shipping costs due to the increase in net sales volume and shipping rates.

These higher expenses were partially offset by the increase in net sales.

Operating income in the United Kingdom decreased, primarily driven by higher advertising and promotional activity to support strategic investments across the brands and incremental expenses attributable to the increase in our ownership of DECIEM in the fiscal 2021 fourth quarter, partially offset by the increase in net sales.

Partially offsetting these decreases in operating income were higher results from several affiliates reflecting the continued progression towards brick-and-mortar recovery, including store openings, increased retail traffic, and the easing of travel restrictions, compared to the prior year.

Reported operating income increased in Europe, the Middle East & Africa for the six months ended December 31, 2021, reflecting the continued progression towards brick-and-mortar recovery, including store openings, increased retail traffic, and the easing of travel restrictions, compared to the prior year, led by Russia.

The increase in operating income in Russia was primarily due to the increase in net sales, partially offset by higher advertising and promotional activity to support strategic investments across the brands.

Partially offsetting these increases in operating income was lower results from our travel retail business, reflecting the increase in intercompany royalty expense to The Americas primarily due to the growth of our travel retail business and higher advertising and promotional activity to support strategic investments in key areas of growth (primarily Hainan, hero products and the skin care product category), as well as to capture the current-year increase in airport traffic.

Also contributing to the decrease in operating income from our travel retail business was higher shipping costs due to the increase in net sales volume and shipping rates.

These higher expenses were partially offset by the increase in net sales.

Three Months Ended

December 31 Six Months Ended

($ in millions) 2021 2020 2021 2020

2 unchanged sentences

% Change from prior-year period 6 % 1 %

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.

Reported operating income increased in Asia/Pacific for the three months ended December 31.

2021, primarily driven by higher operating results in mainland China and Korea of approximately $27 million, combined.

The increase in operating income in mainland China was primarily due to the increase in net sales, partially offset by higher cost of sales due, in part, to the increase in promotional items, and higher advertising and promotional activity to support strategic investments in digital advertising and social media spending, holiday and key shopping moments, hero product franchises and new product launches.

Operating results increased in Korea driven by disciplined expense management, offset by the decrease in net sales.

Reported operating income increased in Asia/Pacific for the six months ended December 31.

2021, primarily due to mainland China and Korea of approximately $32 million, combined.

Operating income in mainland China increased, as noted above.

Operating income increased in Korea primarily driven by the increase in net sales.

Partially offsetting these increases in operating income in Asia/Pacific were lower results from Japan and Thailand of approximately $25 million, combined, primarily driven by the decrease in net sales due the challenging retail environment that continues to be negatively impacted by the spread of COVID-19 variants and resurgence in cases.

THE ESTÉE LAUDER COMPANIES INC.

INTEREST AND INVESTMENT INCOME

Three Months Ended

December 31 Six Months Ended

(In millions) 2021 2020 2021 2020

9 unchanged sentences

Three Months Ended

December 31 Six Months Ended

2021 2020 2021 2020

Effective rate for income taxes 21.5 % 14.9 % 21.9 % 17.6 %

Basis-point change from the prior-year period 660 430

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.

For the three and six months ended December 31, 2021 and 2020, the increase in the effective tax rate was primarily attributable to a higher effective tax rate on our foreign operations.

Also contributing to the increase in the effective tax rate for both periods was a decrease in excess tax benefits associated with stock-based compensation arrangements.

The effective tax rate for the three and six months ended December 31, 2020 included the retroactive impact relating to fiscal 2020 and 2019 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 that provide for a high-tax exception to the GILTI tax.

The impact of the final issuance of GILTI tax regulations, with respect to such prior periods, was recognized as a discrete item in the provision for income taxes in the second quarter of fiscal 2021 and resulted in 470 and 280 basis point reductions to the effective tax rates for the three and six months ended December 31, 2020, respectively.

THE ESTÉE LAUDER COMPANIES INC.

1 unchanged sentence

Three Months Ended

December 31 Six Months Ended

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

Net earnings attributable to The Estée Lauder Companies Inc.

$ 1,088 $ 873 $ 1,780 $ 1,396

$ Change from prior-year period 215 384

3 unchanged sentences

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 %

% Change in diluted net earnings per common share from the prior-year period adjusting for the impact of charges associated with restructuring and other activities, goodwill and other intangible asset impairments and changes in fair value of contingent consideration 15 % 21 %

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

8 unchanged sentences

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.

goodwill and other intangible asset impairments;

the changes in fair value of contingent consideration;

acquisition-related stock option expense;

and the effects of foreign currency translation.

The following tables provide reconciliations between these non-GAAP financial measures and the most directly comparable U.S.

GAAP measures.

THE ESTÉE LAUDER COMPANIES INC.

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

September 30 Variance % Change

December 31 Variance % Change

constant currency

4 unchanged sentences

Charges associated with restructuring and other activities 15 37 (22)

Goodwill and other intangible asset impairments — 81 (81)

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

Acquisition-related stock option expense 2 — 2

Operating income, as adjusted $ 1,435 $ 1,179 $ 256 22 % 21 %

1 unchanged sentence

Charges associated with restructuring and other activities .03 .08 (.05)

Goodwill and other intangible asset impairments — .17 (.17)

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

Acquisition-related stock option expense .01 — .01

Diluted net earnings per common share, as adjusted $ 3.01 $ 2.61 $ .40 15 % 15 %

THE ESTÉE LAUDER COMPANIES INC.

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

December 31 Variance % Change

constant currency

Net sales, as reported $ 9,931 $ 8,415 $ 1,516 18 % 17 %

Returns associated with restructuring and other activities 2 — 2

Net sales, as adjusted $ 9,933 $ 8,415 $ 1,518 18 % 17 %

Operating income, as reported $ 2,353 $ 1,768 $ 585 33 % 32 %

Charges associated with restructuring and other activities 21 46 (25)

Goodwill and other intangible asset impairments — 81 (81)

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

Acquisition-related stock option expense 2 — 2

Operating income, as adjusted $ 2,376 $ 1,893 $ 483 26 % 24 %

Diluted net earnings per common share, as reported $ 4.85 $ 3.79 $ 1.06 28 % 27 %

Charges associated with restructuring and other activities .05 .09 (.04)

Goodwill and other intangible asset impairments — .17 (.17)

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

Acquisition-related stock option expense — — —

Diluted net earnings per common share, as adjusted $ 4.90 $ 4.04 $ .86 21 % 20 %

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.

23 unchanged sentences

Total $ 5,539 $ 4,853 $ 686 $ (7) $ 679 14 % 14 %

THE ESTÉE LAUDER COMPANIES INC.

As Reported Impact of foreign

currency translation Variance,

in constant currency % Change,

as reported % Change,

in constant currency

Six Months Ended

($ in millions) 2021 2020 Variance

By Product Category:

Skin Care $ 5,608 $ 4,854 $ 754 $ (73) $ 681 16 % 14 %

Makeup 2,560 2,225 335 (5) 330 15 15

Fragrance 1,408 1,024 384 (6) 378 38 37

Hair Care 328 290 38 — 38 13 13

Other 29 22 7 — 7 32 32

9,933 8,415 1,518 (84) 1,434 18 17

Returns associated with restructuring and other activities (2) — (2) — (2)

Total $ 9,931 $ 8,415 $ 1,516 $ (84) $ 1,432 18 % 17 %

The Americas $ 2,494 $ 1,921 $ 573 $ (7) $ 566 30 % 29 %

Europe, the Middle East & Africa 4,211 3,570 641 (2) 639 18 18

Asia/Pacific 3,228 2,924 304 (75) 229 10 8

9,933 8,415 1,518 (84) 1,434 18 17

Returns associated with restructuring and other activities (2) — (2) — (2)

Total $ 9,931 $ 8,415 $ 1,516 $ (84) $ 1,432 18 % 17 %

THE ESTÉE LAUDER COMPANIES INC.

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

As Reported Add:

and other intangible asset impairments Add:

Changes in fair value of contingent consideration Add:

Acquisition-related stock option expense Variance, as adjusted % Change, as reported % Change, as adjusted

Three Months Ended

($ in millions) 2021 2020 Variance

By Product Category:

Skin Care $ 1,082 $ 928 $ 154 $ (81) $ — $ 2 $ 75 17 % 7 %

Makeup 130 28 102 — — — 102 100+ 100+

Fragrance 210 141 69 — 2 — 71 49 51

Hair Care 8 4 4 — — — 4 100 100

Other 3 (1) 4 — — — 4 100+ 100+

1,433 1,100 333 $ (81) $ 2 $ 2 $ 256 30 % 22 %

Charges associated with restructuring and other activities (15) (37) 22

Total $ 1,418 $ 1,063 $ 355

The Americas $ 382 $ 36 $ 346 $ (81) $ — $ 2 $ 267 100+% 100+%

Europe, the Middle East & Africa 620 657 (37) — 2 — (35) (6) (5)

Asia/Pacific 431 407 24 — — — 24 6 6

1,433 1,100 333 $ (81) $ 2 $ 2 $ 256 30 % 22 %

Charges associated with restructuring and other activities (15) (37) 22

Total $ 1,418 $ 1,063 $ 355

THE ESTÉE LAUDER COMPANIES INC.

As Reported Add:

other intangible asset impairments Add:

Changes in fair value of contingent consideration Add:

Acquisition-related stock option expense Variance, as adjusted % Change, as reported % Change, as adjusted

Six Months Ended

($ in millions) 2021 2020 Variance

By Product Category:

Skin Care $ 1,799 $ 1,649 $ 150 $ (81) $ — $ 2 $ 71 9 % 4 %

Makeup 221 (43) 264 — — — 264 100+ 100+

Fragrance 341 201 140 — 2 — 142 70 71

Hair Care 10 7 3 — — — 3 43 43

Other 3 — 3 — — — 3 — —

2,374 1,814 560 $ (81) $ 2 $ 2 $ 483 31 % 26 %

Charges associated with restructuring and other activities (21) (46) 25

Total $ 2,353 $ 1,768 $ 585

The Americas $ 636 $ 101 $ 535 $ (81) $ — $ 2 $ 456 100+% 100+%

Europe, the Middle East & Africa 1,085 1,068 17 — 2 — 19 2 2

Asia/Pacific 653 645 8 — — — 8 1 1

2,374 1,814 560 $ (81) $ 2 $ 2 $ 483 31 % 26 %

Charges associated with restructuring and other activities (21) (46) 25

Total $ 2,353 $ 1,768 $ 585

FINANCIAL CONDITION

1 unchanged sentence

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.

At December 31, 2021, we had cash and cash equivalents of $4,603 million compared with $4,958 million at June 30, 2021.

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

6 unchanged sentences

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.

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

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

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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 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:

As of January 27, 2022, 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 December 31, 2021, our outstanding borrowings were as follows:

($ in millions) Long-term

29 unchanged sentences

(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.

Total debt as a percent of total capitalization (excluding noncontrolling interests) was 47% and 48% at December 31, 2021 and June 30, 2021, respectively.

THE ESTÉE LAUDER COMPANIES INC.

Three Months Ended

Six Months Ended

(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.

Net cash flows provided by operating activities $ 1,846 $ 1,978

Net cash flows used for investing activities $ (414) $ (397)

Net cash flows used for financing activities $ (1,775) $ (1,119)

The change in net cash flows from operating activities 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, primarily in the first quarter of fiscal 2022, and we took actions to mitigate supply chain challenges.

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 .

The change in net cash flows used for investing activities primarily reflected an increase in capital expenditures, primarily driven by increased investments for a new manufacturing facility in Japan, online capabilities and information technology enhancements.

Partially offsetting this increase is a favorable impact from the settlement of net investment hedges, which has a corresponding unfavorable impact that is reflected in the change in working capital noted above.

The change in net cash flows used for financing activities primarily reflected an increase relating to higher treasury stock repurchases, partially offset by the repayment of short-term debt made in the prior-year period.

For a summary of quarterly cash dividends declared per share on our Class A and Class B Common Stock during the six months ended December 31, 2021, see Notes to Consolidated Financial Statements, Note 12 – Equity and Redeemable Noncontrolling Interest .

Pension and Post-retirement Plan Funding

11 unchanged sentences

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.

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 $228 million and $218 million as of December 31, 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.

Based on a hypothetical 100 basis point increase in interest rates, the estimated fair value of our interest rate derivatives would decrease by approximately $76 million and $83 million as of December 31, 2021 and June 30, 2021, respectively.

THE ESTÉE LAUDER COMPANIES INC.

13 unchanged sentences

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 .

THE ESTÉE LAUDER COMPANIES INC.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING INFORMATION

8 unchanged sentences

(4) destocking and tighter working capital management by retailers;

THE ESTÉE LAUDER COMPANIES INC.

(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;

3 unchanged sentences

(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;

(10) changes in global or local conditions, including those due to volatility in the global credit and equity markets, natural or man-made disasters, real or perceived epidemics, supply chain challenges, inflation, or increased 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;

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;

6 unchanged sentences

We assume no responsibility to update forward-looking statements made herein or otherwise.

THE ESTÉE LAUDER COMPANIES INC.

Quantitative and Qualitative Disclosures About Market Risk.

1 unchanged sentence

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