What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-05-03 compared with 2022-02-03 · 268 added, 225 removed, 560 unchanged (47% of the section changed)

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

The following table is a comparative summary of operating results for the three and six months ended December 31, 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 nine months ended March 31, 2022 and 2021, and reflects the basis of presentation described in Notes to Consolidated Financial Statements, Note 1 – Summary of Significant Accounting Policies for all periods presented.

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

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

Net loss attributable to redeemable noncontrolling interest — — — —

Net earnings attributable to redeemable noncontrolling interest (0.3) — (0.1) —

Net earnings attributable to The Estée Lauder Companies Inc.

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While we consider the non-GAAP measures useful in analyzing our results, they are not intended to replace, or act as a substitute for, any presentation included in the consolidated financial statements prepared in conformity with U.S.

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.

See Reconciliations of Non-GAAP Financial Measures beginning on page 58 f or reconciliations between non-GAAP financial measures and the most directly comparable U.S.

GAAP measures.

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COVID-19 Business Update

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.

The COVID-19 pandemic continued to disrupt our operating environment globally, primarily impacting retail traffic, travel, supply chain, inventory levels and other logistics during the three months ended March 31, 2022.

The resurgence of COVID-19 cases in many Chinese provinces led to restrictions late in the fiscal 2022 third quarter to prevent further spread of the virus.

Consequently, retail traffic, travel, and distribution capabilities were temporarily curtailed.

Our distribution facilities in Shanghai operated with limited capacity to fulfill brick-and-mortar and online orders beginning in mid-March 2022.

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 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.

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 third quarter of fiscal 2022, there were intermittent closures, primarily in mainland China, which had regional lockdowns.

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.

International passenger traffic remained soft globally.

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

The improvement was due to the partial lifting of COVID-19-related restrictions.

In Asia/Pacific, traffic in Hainan was negatively impacted by fewer visitors due to intermittent domestic travel restrictions.

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-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 continuance of 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 has improved significantly in areas where restrictions have been lifted, 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.

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

Toward the end of the third quarter of fiscal 2022, we began to experience challenges in logistics in China due to restrictions attributable to the COVID-19 pandemic.

THE ESTÉE LAUDER COMPANIES INC.

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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 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.

During the third quarter of fiscal 2022, net sales increased 10%, reflecting early stages of a recovery 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 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.

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

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

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

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.

During the third quarter of fiscal 2022, net sales in makeup grew double digits in part due to this, and was also driven by strong activations, expanded consumer reach and the launch of MACStack mascara from M·A·C, increases in Estée Lauder foundation products, as well as a strong performance from Clinique.

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 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.

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

• Our hair care net sales also grew double digits, reflecting increases from both Aveda and Bumble and bumble as brick-and-mortar channels recover, online growth continues and new products launch.

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 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 increase in net sales during the fiscal 2022 third quarter was led by Europe, the Middle East & Africa, which benefited from ongoing increases in our travel retail business, partly relating to the increase in traffic as a result of the easing of travel restrictions, which varied by location.

In addition, brick-and-mortar retail reopened across the region, driving growth in department stores and freestanding retail stores.

• Net sales rose in The Americas, primarily reflecting the recovery 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 decreased in Asia/Pacific, reflecting tighter COVID-19 restrictions in Greater China, partially offset by a progression towards recovery across other markets in the region.

As a result of the invasion of Ukraine, we suspended all our business investments and initiatives and commercial activity in Russia and Ukraine in early March 2022.

This included the temporary closure of our owned and authorized freestanding stores and our own brand sites, as well as the suspension of shipments to our retailers in Russia and Ukraine.

THE ESTÉE LAUDER COMPANIES INC.

As the safety of our employees remains a top priority, we continue to take significant steps to support our employees in Ukraine, including the continuance of compensation, maintenance of regular communication and offering relocation assistance, and continue to provide compensation and support to our employees in Russia.

We are monitoring the effects of this conflict, including risks that may affect our business, and expect that we will adjust our plans accordingly as the situation progresses.

For the three and nine months ended March 31, 2022, the results of operations related to Russia and Ukraine were not material to our consolidated financial statements.

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

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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.

The invasion of Ukraine has negatively impacted our operations in both Russia and Ukraine.

In fiscal 2021, our operations in Ukraine and Russia accounted for approximately 1% of consolidated net sales.

In March 2022, we announced a suspension of all our business investments and initiatives and commercial activity in Russia.

Future impacts on our business, including sanctions and counter-sanctions, are difficult to predict due to the high level of uncertainty as to how these developments will evolve.

On a broader perspective, there could be additional negative impacts to our net sales, earnings, assets and cash flows should these matters continue or escalate;

such impacts could include economic challenges in other countries because of inflationary pressures or other consequences.

Please refer to Risk Factors in Part I, Item 1A of the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2021, for a more complete discussion of the risks we encounter in our business and industry.

The uncertainty around the timing, speed and duration of the recovery from the adverse impacts of the COVID-19 pandemic, including the impacts on our business of the ongoing restrictions in China, 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.

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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.

THE ESTÉE LAUDER COMPANIES INC.

Goodwill and Other Intangible Asset Impairments

During the fiscal 2022 third quarter, given the lower-than-expected results from international expansion to areas that continue to be impacted by COVID-19, we made revisions to the internal forecasts relating to our GLAMGLOW reporting unit.

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

As of March 31, 2022, the remaining carrying value of the trademark intangible asset was not recoverable and we recorded an impairment charge of $11 million reducing the carrying value to zero.

During the fiscal 2022 third quarter, given the lower-than-expected growth within key geographic regions and channels for Dr.Jart+ that continue to be impacted by the spread of COVID-19 variants and resurgence in cases and the potential future impacts relating to the uncertainty of the duration and severity of COVID-19 impacting the financial performance of the brand, the lower than expected growth in key retail channels for DECIEM, and the lower than expected results from international expansion to areas that continue to be impacted by COVID-19 for Too Faced, we made revisions to the internal forecasts relating to its Dr.

Jart+, DECIEM and Too Faced reporting units.

We concluded that the changes in circumstances in the reporting units triggered the need for interim impairment reviews of their trademarks and goodwill.

These changes in circumstances were also an indicator that the carrying amounts of Dr.Jart+’s, DECIEM’s and Too Faced’s long-lived assets, including customer lists, may not be recoverable.

Accordingly, we performed interim impairment tests for the trademarks and a recoverability test for the long-lived assets as of February 28, 2022.

We concluded that the carrying amounts of the long-lived assets were recoverable.

For the Dr.Jart+ reporting unit, we also concluded that the carrying value of the trademark intangible asset exceeded its estimated fair value, which was determined utilizing the relief-from-royalty method to determine discounted projected future cash flows, and recorded an impairment charge.

For the Too Faced and DECIEM reporting units, as the carrying values of the trademarks did not exceed their estimated fair values, which were determined utilizing the relief-from-royalty method to determine discounted projected future cash flows, we did not record impairment charges.

As of March 31, 2022, the estimated fair values of Too Faced’s and DECIEM's trademarks exceeded their carrying values by 13% and 3%, respectively.

For the Too Faced and DECIEM trademark intangible assets, if all other assumptions are held constant, an increase of 100 basis points and 50 basis points, respectively, in the weighted average cost of capital would result in an impairment charge.

After adjusting the carrying values of the trademarks, we completed interim quantitative impairment tests for goodwill.

As the estimated fair value of the Dr.Jart+, DECIEM and Too Faced reporting units were in excess of their carrying values, we concluded that the carrying amounts of the goodwill were recoverable and did not record a goodwill impairment charge related to these reporting units.

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

The significant assumptions used in these approaches include revenue growth rates and profit margins, terminal values, weighted average cost of capital used to discount future cash flows and royalty rates for trademarks.

The most significant unobservable input used to estimate the fair value of the Dr.

Jart+ trademark intangible asset was the weighted-average cost of capital, which was 10.5%.

A summary of the impairment charges for the three and nine months ended March 31, 2022 and the remaining trademark and goodwill carrying values as of March 31, 2022, for each reporting unit, are as follows:

(In millions) Impairment Charge Carrying Value

Reporting Unit:

Geographic Region Trademarks Goodwill Trademarks Goodwill

GLAMGLOW The Americas $ 11 $ — $ — $ —

Jart+ Asia/Pacific 205 — 486 332

Total $ 216 $ — $ 486 $ 332

THE ESTÉE LAUDER COMPANIES INC.

The impairment charges for the three and nine months ended March 31, 2022 were reflected in the skin care product category.

The fair value of the Dr.

Jart+ trademark was equal to its carrying value subsequent to the impairment charge taken as of March 31, 2022.

The key assumptions used to determine the estimated fair value of the reporting unit are primarily predicated on the estimated future impacts of COVID-19, the success of future new product launches, the achievement of distribution expansion plans, and the realization of cost reduction and other efficiency efforts.

If such plans do not materialize, or if there are further challenges in the business environments in which the reporting unit operates, resulting changes in the key assumptions could have negative impacts on the estimated fair value of the reporting unit and it is possible we could recognize additional impairment charges in the future.

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GAAP measures.

THE ESTÉE LAUDER COMPANIES INC.

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;

Reported net sales increased for the three and nine months ended March 31, 2022, driven by higher net sales from every major product category and in Europe, the Middle East & Africa and The Americas 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;

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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.

Reported net sales in Asia/Pacific decreased and increased for the three and nine months ended March 31, 2022, respectively.

For the three months ended March 31, 2022, net sales decreased due to a resurgence of COVID-19 cases across many Chinese provinces which led to restrictions to further prevent the spread of the virus.

For the nine months ended March 31, 2022, net sales increased, led by mainland China and Korea.

For the three and nine months ended March 31, 2022, reported net sales increased from every major product category.

Skin care net sales increased in both periods, led by La Mer and benefited from incremental net sales attributable to the increase in our ownership of DECIEM in the fiscal 2021 fourth quarter.

Fragrance net sales grew double-digits, led by Jo Malone London, Tom Ford Beauty and Le Labo.

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.

For the three and nine months ended March 31, 2022, reported net sales grew double-digits in Europe, the Middle East & Africa and The Americas 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, reflecting recovery across the region, led by our travel retail business and the United Kingdom.

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.

The total net sales increases were impacted by approximately $53 million of unfavorable and $31 million of favorable foreign currency translation for the three and nine months ended March 31, 2022, respectively.

THE ESTÉE LAUDER COMPANIES INC.

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 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.

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 nine months ended March 31, 2022 of $1 million and $3 million, respectively.

Product Categories

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GAAP measures.

Reported skin care net sales increased for the three months ended March 31, 2022, reflecting higher net sales from La Mer and incremental net sales attributable to the increase in our ownership of DECIEM in the fiscal 2021 fourth quarter of approximately $269 million, combined.

Net sales from La Mer increased, led by our travel retail business and mainland China, primarily reflecting continued success of hero products, such as Crème de la Mer and the Genaissance de la Mer line of products, the current-year launch of The Hydrating Infused Emulsion, the fiscal 2022 third-quarter launch of the new upgraded The Treatment Lotion and targeted expanded consumer reach.

Partially offsetting the increase in skin care net sales for the three months ended March 31, 2022, were lower net sales from Estée Lauder and Origins of approximately $157 million, combined.

The decreases in net sales from Estée Lauder and Origins reflected lower traffic in Asia due to the resurgence of COVID-19 cases in many Chinese provinces, which led to restrictions to prevent further spread of the virus.

Net sales from Estée Lauder also declined due to 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.

Reported skin care net sales increased for the nine months ended March 31, 2022, 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 of approximately $869 million, combined.

Net sales from La Mer increased, as discussed above.

Clinique net sales increased, primarily driven by our travel retail business and North America, reflecting the continued success of existing products, such as the Take The Day Off line of products and Even Better Clinical Radical Dark Spot Corrector + Interrupter.

Partially offsetting the increase in skin care net sales for the nine months ended March 31, 2022, were lower net sales from Estée Lauder and Origins of approximately $197 million, combined, as discussed above.

The skin care net sales increases were impacted by approximately $16 million of unfavorable and $57 million of favorable foreign currency translation for the three and nine months ended March 31, 2022, respectively.

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 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.

Reported makeup net sales increased for the three months ended March 31, 2022, led by higher net sales from M·A·C, Estée Lauder and Clinique, of approximately $109 million, combined.

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

The increase in net sales from M·A·C was primarily driven by the continued success of hero products, such as Studio Fix, the fiscal 2022 third quarter launch of MACStack mascara and successful social media campaigns during key shopping moments.

Net sales from Estée Lauder increased, primarily due to the continued success of existing products, such as the Double Wear and Futurist product franchises and new product launches, such as the current-year launches of Double Wear Sheer Long-Wear Makeup.

Net sales for Clinique increased, primarily reflecting continued success from Even Better Makeup and successful performance in the lip, concealer and eye subcategories.

Reported makeup net sales increased for the nine months ended March 31, 2022, led by higher net sales from Estée Lauder and M·A·C of approximately $303 million, combined, as noted above.

The n et sales increase from M·A·C also benefited from the continued success of existing products, such as Ruby's Crew and Re-Think Pink in the lip subcategory and Magic Extension in the mascara subcategory, as well as the success of the fiscal 2022 third quarter launch of MACStack mascara.

The makeup net sales increases were impacted by approximately $19 million and $14 million of unfavorable foreign currency translation for the three and nine months ended March 31, 2022, respectively.

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GAAP measures.

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.

THE ESTÉE LAUDER COMPANIES INC.

Reported fragrance net sales increased for the three months ended March 31, 2022, primarily driven by Jo Malone London, Tom Ford Beauty, Le Labo and Estée Lauder of approximately $107 million, combined .

F ragrance net sales grew in every geographic region, reflecting continued growth in luxury fragrances, the brick-and-mortar and travel recovery in various parts of the world due to more store openings, increased retail traffic, successful performance during holiday and key shopping moments, and the easing of travel restrictions compared to the prior-year period.

The increase in net sales from Jo Malone London reflected the fiscal 2022 third quarter launches of House of Roses and Mediterranean Blossoms and continued growth of the home and bath & body subcategories.

Net sales increased from Tom Ford Beauty, also benefiting from the continued success of Private Blend and Signature fragrances and the fiscal 2022 third quarter product launches of Costa Azzurra parfum, Rose de Chine and Rose d'Amalfi.

Net sales from Le Labo increased, also reflecting the continued success of hero product franchises, current-year product launches and targeted expanded consumer reach.

The increase in net sales from Estée Lauder was primarily due to the continued success of the Beautiful Magnolia line of products.

Reported fragrance net sales increased for the nine months ended March 31, 2022, primarily driven by Jo Malone London, Tom Ford Beauty and Le Labo of approximately $378 million, combined, and grew double digits in every geographic region, as discussed above.

The increases in net sales from Jo Malone London reflected the continued success of our hero products, current-year launches and continued growth of the home and bath & body subcategories.

Net sales increased from Tom Ford Beauty, reflecting the continued success of Private Blend and Signature fragrances, current-year product launches and the diversification of product offerings by region.

Net sales from Le Labo increased, as discussed above.

The fragrance net sales increases were impacted by approximately $14 million and $8 million of unfavorable foreign currency translation for the three and nine months ended March 31, 2022, respectively.

Three Months Ended

December 31 Six Months Ended

March 31 Nine Months Ended

($ in millions) 2022 2021 2022 2021

6 unchanged sentences

GAAP measures.

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.

Reported hair care net sales increased for the three and nine months ended March 31, 2022, reflecting higher net sales from Aveda and Bumble and bumble, combined, of approximately $18 million and $49 million, respectively, primarily due to the continued progression towards salon and retail store recovery in North America.

Net sales from Aveda increased in both periods, reflecting the continued success of existing product franchises and the fiscal 2022 third quarter relaunch of Full Spectrum Semi-Permanent Treatment Hair Color.

The increases in net sales from Bumble and bumble also reflected the success of hero products, the fiscal 2022 third quarter product launches of Bb.

Thickening Plumping Mask and Bb.

Thickening Go Big Plumping Treatment, and targeted expanded consumer reach.

Geographic Regions

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

THE ESTÉE LAUDER COMPANIES INC.

Three Months Ended

December 31 Six Months Ended

March 31 Nine Months Ended

($ in millions) 2022 2021 2022 2021

6 unchanged sentences

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 for the three and nine months ended March 31, 2022 in every country and product category, reflecting the 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 $125 million and $658 million, respectively, also benefiting from incremental net sales attributable to the increase in our ownership of DECIEM in the fiscal 2021 fourth quarter, higher net sales from many of our brands, led by M·A·C and Clinique, and targeted expanded consumer reach.

Net sales in The Americas were impacted by approximately $6 million and $13 million of favorable foreign currency translation for the three and nine months ended March 31, 2022, respectively.

Europe, the Middle East & Africa

Three Months Ended

December 31 Six Months Ended

March 31 Nine Months Ended

($ in millions) 2022 2021 2022 2021

6 unchanged sentences

GAAP measures.

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.

Reported net sales for the three and nine months ended March 31, 2022 increased in Europe, the Middle East & Africa, reflecting continued recovery across the region, primarily due to store openings, increased retail traffic, and the easing of travel restrictions compared to the prior year, led by our travel retail business and the United Kingdom, combined, of approximately $271 million and $712 million, respectively.

Despite the fiscal 2022 third quarter resurgence in COVID-19 cases in many Chinese provinces, which led to restrictions to prevent further spread of the virus and the curtailment of travel, net sales increased in our travel retail business, reflecting continued strength of our brands with the Chinese consumer, the easing of travel restrictions in Europe, the Middle East & Africa and The Americas, and continued success of hero product franchises from La Mer and Jo Malone London.

These benefits were partially offset by lower net sales from Estée Lauder products, primarily reflecting 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 increased, primarily reflecting brick-and-mortar recovery, as noted above, and benefiting from the growth in makeup and fragrance.

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.

THE ESTÉE LAUDER COMPANIES INC.

Net sales in Europe, the Middle East & Africa were impacted by approximately $47 million and $45 million of unfavorable foreign currency translation for the three and nine months ended March 31, 2022, respectively.

Three Months Ended

December 31 Six Months Ended

March 31 Nine Months Ended

($ in millions) 2022 2021 2022 2021

6 unchanged sentences

GAAP measures.

THE ESTÉE LAUDER COMPANIES INC.

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.

Reported net sales decreased in Asia/Pacific for the three months ended March 31, 2022, primarily driven by lower results in mainland China and Hong Kong of approximately $54 million, combined, due to the resurgence of COVID-19 cases toward the end of the fiscal 2022 third quarter that led to restrictions to prevent further spread of the virus.

These restrictions resulted in limited capacity in our Shanghai distribution facilities and the temporary curtailment of retail traffic, travel and other distribution capabilities.

Reported net sales increased in Asia/Pacific for the nine months ended March 31, 2022, reflecting higher net sales in mainland China, despite the resurgence in COVID-19 cases in many Chinese provinces toward the end of the fiscal 2022 third quarter, and Korea of approximately $257 million, combined.

Net sales in mainland China increased, 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.

Net sales increased in Korea, despite the challenging brick-and-mortar retail environment, primarily reflecting the continued success of hero product franchises from Jo Malone London and strong momentum in fragrance.

Net sales in Asia/Pacific were impacted by approximately $11 million of unfavorable and $64 million of favorable foreign currency translation for the three and nine months ended March 31, 2022, respectively.

Gross margin increased to 76.6% and 76.9% for the three and nine months ended March 31, 2022, respectively, as compared with 75.7% and 76.8% in the prior-year periods.

Favorable (Unfavorable) Basis Points

December 31, 2021

Three Months Ended Six Months Ended

March 31, 2022

Three Months Ended Nine Months Ended

Mix of business (30) (35)

4 unchanged sentences

Charges associated with restructuring and other activities 20 10

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.

The increase in gross margin for the three months ended March 31, 2022 reflected favorable obsolescence charges due to a higher level of destruction in the prior-year period, the favorable impact from transactional foreign exchange due to the strengthening of the U.S.

Dollar and the favorable impact from under-absorption of manufacturing overhead costs in the prior-year period, partially offset by higher inbound transportation costs driven by global supply chain disruptions as discussed above and an unfavorable impact from our mix of business.

The unfavorable impact from our mix of business was primarily driven by the change in category mix, primarily due to the increase in makeup and fragrance net sales, and higher costs from new skin care products, partially offset by strategic price increases.

The increase in gross margin for the nine months ended March 31, 2022 reflected a favorable transactional foreign exchange impact due to the strengthening of the U.S.

Dollar, partially offset by an unfavorable impact from our mix of business.

The unfavorable impact from our mix of business was primarily due to lower gross margins on DECIEM products, change in category mix primarily due to the increase in makeup and fragrance net sales and higher costs from new products and product sets, partially offset by strategic price increases.

OPERATING EXPENSES

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.

Operating expenses as a percentage of net sales was 59.2% and 55.1% for the three and nine months ended March 31, 2022, respectively, as compared with 59.8% and 57.4% in the prior-year periods.

Favorable (Unfavorable) Basis Points

December 31, 2021

Three Months Ended Six Months Ended

March 31, 2022

Three Months Ended Nine Months Ended

General and administrative expenses 90 70

7 unchanged sentences

Charges associated with restructuring and other activities 290 110

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.

Goodwill, other intangible and long-lived asset impairments (420) (60)

Acquisition-related stock compensation income 150 50

The favorable change in operating expense margin for the three months ended March 31, 2022, was driven by income related to the change in fair value of acquisition-related stock options of $60 million relating to the increase in our investment in DECIEM during the fiscal 2021 fourth quarter, disciplined general and administrative expense management and the increase in net sales.

Partially offsetting these favorable changes were the year-over-year impact of other intangible and long-lived asset impairments of $183 million, as well as higher shipping costs due to the increase in net sales volume and increased shipping rates.

The favorable change in operating expense margin for the nine months ended March 31, 2022, was driven by the increase in net sales, disciplined general and administrative expense management, the favorable impact from selling expenses, primarily due to the shift in channel mix to online, travel retail and specialty-multi, and income related to the change in fair value of acquisition-related stock options of $58 million relating to the increase in our investment in DECIEM during the fiscal 2021 fourth quarter.

Partially offsetting these favorable changes in operating expense margin were the year-over-year impact of goodwill, other intangible and long-lived asset impairments of $102 million and higher shipping costs as discussed above.

THE ESTÉE LAUDER COMPANIES INC.

1 unchanged sentence

Three Months Ended

December 31 Six Months Ended

March 31 Nine Months Ended

($ in millions) 2022 2021 2022 2021

4 unchanged sentences

Non-GAAP Financial Measure (1) :

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

% Change in operating income from the prior-year period adjusting for the impact of charges associated with restructuring and other activities, goodwill, other intangible and long-lived asset impairments, the change in fair value of acquisition-related stock options and changes in fair value of contingent consideration 15 % 23 %

(1) See “ Reconciliations of Non-GAAP Financial Measures” beginning on page 58 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 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.

The increase in reported operating margin for the three and nine months ended March 31, 2022 from the prior-year period was primarily driven by the favorable changes in operating expense margin and gross margin, discussed above, partially offset by the year-over-year impact of goodwill, other intangible and long-lived asset impairments of $183 million and $102 million, respectively.

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

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

1 unchanged sentence

Three Months Ended

December 31 Six Months Ended

March 31 Nine Months Ended

($ in millions) 2022 2021 2022 2021

3 unchanged sentences

Non-GAAP Financial Measure (1) :

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

% Change in operating income from the prior-year period adjusting for the impact of goodwill, other intangible and long-lived asset impairments and the change in fair value of acquisition-related stock options 3 % 4 %

(1) See “ Reconciliations of Non-GAAP Financial Measures” beginning on page 58 for reconciliations between non-GAAP financial measures and the most directly comparable U.S.

1 unchanged sentence

THE ESTÉE LAUDER COMPANIES INC.

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.

Reported skin care operating income decreased for the three months ended March 31, 2022, reflecting the current year impact of other intangible asset impairments related to Dr.Jart+ and GLAMGLOW of approximately $216 million, combined, as well as lower results from Estée Lauder.

The decrease in operating income from Estée Lauder was primarily due to the decrease in net sales.

Partially offsetting the decreases in operating income for the three months ended March 31, 2022 were higher results from La Mer primarily due to the increase in net sales, as well as $58 million of income related to the change in fair value of acquisition-related stock options relating to the increase in our investment in DECIEM during the fiscal 2021 fourth quarter.

Reported skin care operating income increased for the nine months ended March 31, 2022, reflecting higher results from La Mer, Bobbi Brown and Clinique of approximately $355 million, combined, and $56 million of income related to the change in fair value of acquisition-related stock options relating to the increase in our investment in DECIEM during the fiscal 2021 fourth quarter.

The higher results for La Mer reflected the increase in net sales, partially offset by the increase in cost of sales primarily due to higher costs for promotional items and 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, 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 nine months ended March 31, 2022 were the unfavorable year-over-year impact of goodwill and other intangible asset impairments related to Dr.Jart+ and GLAMGLOW of approximately $135 million, combined, as well as lower results from Estée Lauder.

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

Three Months Ended

December 31 Six Months Ended

March 31 Nine Months Ended

($ in millions) 2022 2021 2022 2021

2 unchanged sentences

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

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.

Non-GAAP Financial Measure (1) :

% Change in operating income from the prior-year period adjusting for the impact of long-lived asset impairments 100+% 100+

(1) See “ Reconciliations of Non-GAAP Financial Measures” beginning on page 58 for reconciliations between non-GAAP financial measures and the most directly comparable U.S.

GAAP measures.

Reported makeup operating income increased for the three months ended March 31, 2022, reflecting higher results from M·A·C, Clinique, Estée Lauder and La Mer of approximately $69 million, combined, and the favorable year-over-year impact of long-lived asset impairments of $24 million.

Operating income from M·A·C increased due to the increase in net sales, partially offset by higher advertising and promotional activities to support new product launches and higher selling costs due to the brick-and-mortar recovery, including more stores being open and increased retail traffic compared to the prior year.

The higher results from Clinique were primarily due to the increases in net sales, partially offset by higher selling costs due to the brick-and-mortar recovery and higher shipping costs.

Operating income for Estée Lauder increased 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 and digital advertising and social media spending.

Operating income from La Mer increased primarily due to an increase in net sales, partially offset by higher cost of sales, due, in part to an increase in promotional items.

THE ESTÉE LAUDER COMPANIES INC.

Reported makeup operating income increased for the nine months ended March 31, 2022, primarily driven by higher results from Estée Lauder and M·A·C of approximately $179 million, combined, reflecting the increases in net sales, partially offset by higher advertising and promotional activities as discussed above.

Three Months Ended

December 31 Six Months Ended

March 31 Nine Months Ended

($ in millions) 2022 2021 2022 2021

3 unchanged sentences

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 %

% Change in operating income from the prior-year period adjusting for long-lived asset impairments and changes in fair value of contingent consideration 88 % 75 %

(1) See “ Reconciliations of Non-GAAP Financial Measures” beginning on page 58 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.

Reported fragrance operating income increased for the three and nine months ended March 31, 2022, primarily driven by higher results from Jo Malone London, Tom Ford Beauty and Le Labo, combined, of approximately $46 million and $171 million, respectively, as well as the favorable year-over-year impact of long-lived asset impairments of $9 million.

Also partially offsetting the increase in net sales from Jo Malone London for the nine months ended March 31, 2022, were higher advertising and promotional activities primarily to support 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 higher cost of sales due, in part, to the increase in promotional items and 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.

The increases in operating income from Le Labo, in both periods, was primarily driven by the increase in net sales.

Three Months Ended

December 31 Six Months Ended

March 31 Nine Months Ended

($ in millions) 2022 2021 2022 2021

Operating income $ 8 $ 4 $ 10 $ 7

Operating loss $ (18) $ (17) $ (8) $ (10)

$ Change from prior-year period (1) 2

% Change from prior-year period (6) % 20 %

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.

Reported hair care operating income decreased for the three months ended March 31, 2022, primarily driven by increased operating expenses to support the salon and retail story recovery, partially offset by increases in operating results from Bumble and bumble and Aveda, primarily due to the increases in net sales.

Reported hair care operating income increased for the nine months ended March 31, 2022, primarily driven by higher results from Bumble and bumble, primarily due to the increase in net sales.

THE ESTÉE LAUDER COMPANIES INC.

1 unchanged sentence

Three Months Ended

December 31 Six Months Ended

March 31 Nine Months Ended

($ in millions) 2022 2021 2022 2021

3 unchanged sentences

Non-GAAP Financial Measure (1) :

% Change in operating income from the prior-year period adjusting for the impact of goodwill and other intangible asset impairments and 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.

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

(1) See “ Reconciliations of Non-GAAP Financial Measures” beginning o n page 58 f or 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.

Reported operating results increased in The Americas for the three months ended March 31, 2022, primarily reflecting higher operating results from North America of approximately $251 million, primarily due to the increase in net sales, higher intercompany royalty income primarily from growth in our travel retail business and $60 million of income related to the change in fair value of acquisition-related stock options relating to the increase in our investment in DECIEM during the fiscal 2021 fourth quarter, partially offset by an unfavorable year-over-year impact of other intangible asset impairments relating to GLAMGLOW of $11 million.

Reported operating results increased in The Americas for the nine months ended March 31, 2022, primarily reflecting higher operating results from North America of approximately $776 million, primarily due to the increase in net sales, higher intercompany royalty income primarily from growth in our travel retail business, favorable year-over-year impact of goodwill and other intangible asset impairments relating to GLAMGLOW of $70 million and $58 million of acquisition-related stock option income relating to the increase in our investment in DECIEM during the fiscal 2021 fourth quarter.

Partially offsetting these increases in operating income were higher advertising and promotional activities, primarily to support strategic investments in digital advertising and social media spending and in-store promotions given the increase in brick-and-mortar traffic, and increases in selling expense due to the brick-and-mortar and makeup recovery compared to the prior-year.

Europe, the Middle East & Africa

Three Months Ended

December 31 Six Months Ended

March 31 Nine Months Ended

($ in millions) 2022 2021 2022 2021

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Non-GAAP Financial Measure (1) :

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

% Change in operating income from the prior-year period adjusting for long-lived asset impairments and changes in contingent consideration (29) % (6) %

(1) See “ Reconciliations of Non-GAAP Financial Measures” beginning on page 58 for reconciliations between non-GAAP financial measures and the most directly comparable U.S.

1 unchanged sentence

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.

Reported operating income decreased in Europe, the Middle East & Africa for the three and nine months ended March 31, 2022, primarily driven by lower results from our travel retail business and the United Kingdom, combined, of approximately $121 million and $162 million, respectively.

In both periods, operating income decreased in 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 shipping costs due to the increase in net sales volume and shipping rates.

Also contributing to the decrease in operating income from our travel retail business was higher advertising and promotional activity primarily to support strategic investments in key areas of growth (primarily hero products and the skin care product category), as well as to capture the current-year increase in airport traffic.

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

Operating income decreased in the United Kingdom in both periods, led by higher selling and store operations costs as more brick-and-mortar locations were open compared to the prior-year, partially offset by an increase in net sales.

Partially offsetting these decreases in operating income for the three and nine months ended March 31, 2022 were higher results from several affiliates across the region, reflecting the brick-and-mortar recovery, compared to the prior-year periods.

Three Months Ended

December 31 Six Months Ended

March 31 Nine Months Ended

($ in millions) 2022 2021 2022 2021

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% Change from prior-year period (71) % (19) %

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.

Non-GAAP Financial Measure (1) :

% Change in operating income from the prior-year period adjusting for other intangible asset impairments 13 % 4 %

(1) See “ Reconciliations of Non-GAAP Financial Measures” beginning on page 58 for reconciliations between non-GAAP financial measures and the most directly comparable U.S.

GAAP measures.

Reported operating income decreased in Asia/Pacific for the three and nine months ended December 31.

2021, reflecting the current year other intangible asset impairment relating to Dr.

Jart+ of $205 million, partially offset by increases in operating results from other affiliates across the region due to the progression towards recovery.

INTEREST AND INVESTMENT INCOME

Three Months Ended

December 31 Six Months Ended

March 31 Nine Months Ended

(In millions) 2022 2021 2022 2021

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Interest income and investment income, net $ 5 $ 9 $ 19 $ 40

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.

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

THE ESTÉE LAUDER COMPANIES INC.

PROVISION FOR INCOME TAXES

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Three Months Ended

December 31 Six Months Ended

March 31 Nine Months Ended

2022 2021 2022 2021

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Basis-point change from the prior-year period (250) 260

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.

The effective tax rate for the three and nine months ended March 31, 2021 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.

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

For the three months ended March 31, 2022, the decrease in the effective tax rate was primarily attributable to a lower effective tax rate on the Company's foreign operations, partially offset by a decrease in excess tax benefits associated with stock-based compensation arrangements.

For the nine months ended March 31, 2022, the increase in the effective tax rate was primarily attributable to a higher effective tax rate on the Company’s foreign operations, which includes the retroactive impact of the final GILTI tax regulations recognized in the prior period.

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

NET EARNINGS ATTRIBUTABLE TO THE ESTÉE LAUDER COMPANIES INC.

Three Months Ended

December 31 Six Months Ended

March 31 Nine Months Ended

($ in millions, except per share data) 2022 2021 2022 2021

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Non-GAAP Financial Measure (1) :

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

% 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, other intangible and long-lived asset impairments, the change in fair value of acquisition-related stock options and changes in fair value of contingent consideration 17 % 20 %

(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.

THE ESTÉE LAUDER COMPANIES INC.

RECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES

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

goodwill and other intangible asset impairments;

goodwill, other intangible and long-lived asset impairments;

the changes in fair value of contingent consideration;

acquisition-related stock option expense;

the change in fair value of acquisition-related stock options;

and the effects of foreign currency translation.

1 unchanged sentence

GAAP measures.

THE ESTÉE LAUDER COMPANIES INC.

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

December 31 Variance % Change

March 31 Variance % Change

constant currency

4 unchanged sentences

Charges associated with restructuring and other activities 23 145 (122)

Goodwill and other intangible asset impairments — 81 (81)

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

Acquisition-related stock option expense 2 — 2

Other intangible and long-lived asset impairments 216 33 183

Change in fair value of acquisition-related stock options (60) — (60)

Operating income, as adjusted $ 917 $ 794 $ 123 15 % 16 %

1 unchanged sentence

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

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

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

Acquisition-related stock option expense .01 — .01

Other intangible and long-lived asset impairments .45 .07 .38

Change in fair value of acquisition-related stock options (less portion attributable to redeemable noncontrolling interest) (.13) — (.13)

Diluted net earnings per common share, as adjusted $ 1.90 $ 1.62 $ .28 17 % 18 %

THE ESTÉE LAUDER COMPANIES INC.

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

December 31 Variance % Change

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

March 31 Variance % Change

constant currency

4 unchanged sentences

Charges associated with restructuring and other activities 44 191 (147)

Goodwill and other intangible asset impairments — 81 (81)

Goodwill, other intangible and long-lived asset impairments 216 114 102

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

Acquisition-related stock option expense 2 — 2

Change in fair value of acquisition-related stock options (58) — (58)

Operating income, as adjusted $ 3,293 $ 2,687 $ 606 23 % 22 %

1 unchanged sentence

Charges associated with restructuring and other activities .09 .41 (.32)

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

Goodwill, other intangible and long-lived asset impairments .45 .25 .20

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

Acquisition-related stock option expense — — —

Change in fair value of acquisition-related stock options (less portion attributable to redeemable noncontrolling interest) (.13) — (.13)

Diluted net earnings per common share, as adjusted $ 6.80 $ 5.68 $ 1.12 20 % 19 %

30 unchanged sentences

in constant currency

Six Months Ended

Nine Months Ended

($ in millions) 2022 2021 Variance

15 unchanged sentences

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:

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

As Reported Add:

and other intangible asset impairments Add:

Other intangible and long-lived 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

Change in fair value of acquisition-related stock options Variance, as adjusted % Change, as reported % Change, as adjusted

Three Months Ended

17 unchanged sentences

As Reported Add:

other intangible asset impairments Add:

other intangible and long-lived 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

Change in fair value of acquisition-related stock options Variance, as adjusted % Change, as reported % Change, as adjusted

Nine Months Ended

($ in millions) 2022 2021 Variance

17 unchanged sentences

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

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

At March 31, 2022, we had cash and cash equivalents of $3,836 million compared with $4,958 million at June 30, 2021.

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

14 unchanged sentences

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

As of January 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:

As of April 26, 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 March 31, 2022, our outstanding borrowings were as follows:

($ in millions) Long-term

22 unchanged sentences

(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 $4 million gain to reflect the fair value of interest rate swaps.

(7) Consists of $600 million, principal, unamortized debt discount of $4 million, debt issuance costs of $4 million and a $18 million loss 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 $3 million and a $53 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.

3 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 47% and 48% at December 31, 2021 and June 30, 2021, respectively.

Total debt as a percent of total capitalization (excluding noncontrolling interests) was 47% and 48% at March 31, 2022 and June 30, 2021, respectively.

THE ESTÉE LAUDER COMPANIES INC.

Six Months Ended

Nine Months Ended

(In millions) 2022 2021

2 unchanged sentences

Net cash flows used for financing activities $ (2,516) $ (862)

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.

The change in net cash flows from operating activities primarily reflected higher working capital needs to support growth compared to the prior-year period and actions taken to mitigate global supply chain challenges, as well as higher cash paid for taxes.

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 an increase in capital expenditures, primarily driven by increased investments for a new manufacturing facility in Japan, online capabilities and information technology enhancements, as well as investments to support the reopening of our offices located around the world where COVID-19 cases subsided.

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 .

The change in net cash flows used for financing activities primarily reflected an increase relating to higher treasury stock repurchases and proceeds from the issuance of long-term debt, net in the prior-year period, 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 nine months ended March 31, 2022, see Notes to Consolidated Financial Statements, Note 12 – Equity and Redeemable Noncontrolling Interest .

Pension and Post-retirement Plan Funding

8 unchanged sentences

For a discussion of credit risk, see Notes to Consolidated Financial Statements, Note 5 – Derivative Financial Instruments (Credit Risk) .

THE ESTÉE LAUDER COMPANIES INC.

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

1 unchanged sentence

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 $228 million and $218 million as of December 31, 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 $258 million and $218 million as of March 31, 2022 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 $76 million and $83 million as of December 31, 2021 and June 30, 2021, respectively.

THE ESTÉE LAUDER COMPANIES INC.

Based on a hypothetical 100 basis point increase in interest rates, the estimated fair value of our interest rate derivatives would decrease by approximately $41 million and $83 million as of March 31, 2022 and June 30, 2021, respectively.

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

18 unchanged sentences

Factors that could cause actual results to differ from expectations include, without limitation:

THE ESTÉE LAUDER COMPANIES INC.

(1) increased competitive activity from companies in the skin care, makeup, fragrance and hair care businesses;

2 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;

10 unchanged sentences

(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;

THE ESTÉE LAUDER COMPANIES INC.

(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;

2 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