What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-05-01 compared with 2024-02-05 · 242 added, 212 removed, 596 unchanged (43% 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, 2023 and 2022, 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, 2024 and 2023, 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.

During the fiscal 2024 second quarter, we identified and corrected misclassifications of net sales and operating income between certain of our product categories in our Management’s Discussion and Analysis of Financial Condition and Results of Operations for the three and six months ended December 31, 2023 and 2022.

See Note 14 – Segment Data and Related Information for additional details.

Three Months Ended

December 31 Six Months Ended

March 31 Nine Months Ended

(In millions) 2024 2023 2024 2023

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Three Months Ended

December 31 Six Months Ended

March 31 Nine Months Ended

2024 2023 2024 2023

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Net earnings 8.5 4.1 5.9 8.5

Net earnings attributable to redeemable noncontrolling interest

Net loss (earnings) attributable to redeemable noncontrolling interest

(0.1) — (0.2) —

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Elements of our strategy are described in the Overview on pages 30-32 of our Annual Report on Form 10-K for the year ended June 30, 2023, as well as below.

• Our skin care net sales declined 10% for the three months ended December 31, 2023, primarily driven by lower net sales from Estée Lauder and Clinique.

The decrease in net sales from Estée Lauder primarily reflected the impacts from the ongoing softness in overall prestige beauty in mainland China.

Also contributing to the decrease in net sales from Estée Lauder and primarily driving the decrease in net sales from Clinique, was a decline in our Asia travel retail business, primarily due to the ongoing actions that we and our retailers have taken to reset retailer inventory levels, including the response to changes in government and retailer policies in the second half of fiscal 2023 related to unstructured market activity, and lower conversion of travelers to consumers.

Partially offsetting the decrease in skin care net sales were higher net sales from The Ordinary, reflecting growth in every geographic region.

• Our makeup net sales decreased 8% for the three months ended December 31, 2023, primarily driven by lower net sales from M·A·C and Estée Lauder.

Net sales from M·A·C decreased, primarily driven by the phasing out of select products in preparation for new product launches and the unfavorable year-over-year impact resulting from the recognition of previously deferred revenue due to changes to the BACK 2 M·A·C take back program during the fiscal 2023 second quarter.

Net sales from Estée Lauder decreased, primarily due to the ongoing actions that we and our retailers have taken to reset retailer inventory levels and lower conversion of travelers to consumers.

Partially offsetting the makeup net sales decrease were higher net sales from Clinique, primarily driven by new product launches and continued success of hero products.

• Our fragrance net sales were flat for the three months ended December 31, 2023, primarily driven by higher net sales from Le Labo and Jo Malone London.

Net sales from Le Labo increased, reflecting growth of hero products, new product launches and targeted expanded consumer reach due to the brand's launch in mainland China during the fiscal 2023 fourth quarter.

The increase in net sales from Jo Malone London was primarily driven by new product launches.

Partially offsetting the increase in fragrance net sales was lower net sales from Estée Lauder and the unfavorable year-over-year impact of residual net sales in fiscal 2023 related to the transition of licenses due to the license terminations related to certain of our designer fragrances effective June 30, 2022.

The decrease in net sales from Estée Lauder for the three months ended December 31, 2023 was driven by an unfavorable impact due to timing of holiday shipments compared to the prior-year period.

• Our skin care net sales increased 8% for the three months ended March 31, 2024, primarily driven by higher net sales from La Mer and Estée Lauder, reflecting higher net sales from our Asia travel retail business.

The growth in Asia travel retail was driven by higher shipments reflecting significant sequential improvement in retail sales trends and continued progress in achieving targeted retailer inventory levels as well as lower shipments in the prior-year period due, in part, to transitory headwinds.

• Our makeup net sales increased 3% for the three months ended March 31, 2024, primarily reflecting higher net sales from Estée Lauder, within our Asia travel retail business, driven by higher shipments reflecting significant sequential improvement in retail sales trends and continued progress in achieving targeted retailer inventory levels as well as lower shipments in the prior-year period due, in part, to transitory headwinds, and higher net sales from Clinique, partially offset by lower net sales from Bobbi Brown.

• Our fragrance net sales were virtually flat for the three months ended March 31, 2024, including the unfavorable impact of foreign currency translation of 1%.

Reported fragrance net sales reflected lower net sales from Estée Lauder, the unfavorable year-over-year impact of residual net sales in fiscal 2023 related to the transition of licenses due to the license terminations related to certain of our designer fragrances effective June 30, 2022, and lower net sales from TOM FORD, partially offset by higher net sales from Jo Malone London and Le Labo.

• Our hair care net sales declined 3% for the three months ended March 31, 2024, primarily attributable to lower net sales from Aveda, driven by declines in North America, primarily reflecting softness in the salon and direct-to-consumer channels.

THE ESTÉE LAUDER COMPANIES INC.

• Our hair care net sales declined 5% for the three months ended December 31, 2023, primarily attributable to lower net sales from Aveda, reflecting a decline in North America, in the salon channel and in our online business.

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

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

• Net sales in The Americas remained virtually flat for the three months ended December 31, 2023, primarily driven by higher net sales in Latin America, led by Brazil and Mexico, primarily driven by growth in makeup and benefiting from the success of holiday and key shopping moments.

These increases were partially offset by lower net sales in the United States, primarily driven by the unfavorable year-over-year impact resulting from the recognition of previously deferred revenue due to changes to the BACK 2 M·A·C take back program during the fiscal 2023 second quarter, partially offset by incremental royalty revenue associated with the fiscal 2023 fourth quarter acquisition of the TOM FORD brand of $15 million.

• Net sales in Europe, the Middle East & Africa decreased 13% for the three months ended December 31, 2023, primarily driven by our Asia travel retail business.

The decline in our Asia travel retail business was primarily due to the ongoing actions that we and our retailers have taken to reset retailer inventory levels, including the response to changes in government and retailer policies in the second half of fiscal 2023 related to unstructured market activity, and lower conversion of travelers to consumers.

• Net sales in Asia/Pacific decreased 8% for the three months ended December 31, 2023, primarily reflecting the impacts from the ongoing softness in overall prestige beauty in mainland China, partially offset by higher net sales in Hong Kong SAR, primarily driven by the resumption of travel from mainland China to Hong Kong SAR due to the lifting of travel restrictions.

We have experienced, and are expecting to continue to experience, challenges within our Asia travel retail business, as well as the ongoing softness in overall prestige beauty in mainland China, as well as further business disruption in Israel and other parts of the Middle East.

• Net sales in The Americas increased 3% for the three months ended March 31, 2024, primarily driven by an increase in net sales in Mexico, the United States, and Brazil.

Net sales in Mexico and Brazil increased, primarily reflecting growth in makeup, led by M·A·C.

The increase in net sales in the United States primarily reflected incremental royalty revenue associated with the fiscal 2023 fourth quarter acquisition of the TOM FORD brand and growth in fragrance, driven by our luxury fragrances, partially offset by a decline in makeup, driven by the unfavorable year-over-year impact resulting from the recognition of previously deferred revenue due to changes to the BACK 2 M·A·C take back program during the fiscal 2023 second quarter.

• Net sales in Europe, the Middle East & Africa increased 12% for the three months ended March 31, 2024, primarily driven by higher net sales from our Asia travel retail business.

• Net sales in Asia/Pacific decreased 1% for the three months ended March 31, 2024, primarily driven by the unfavorable impact of foreign currency translation of 5%, resulting in a decrease in net sales in mainland China, and lower net sales in Korea, attributable to the Dr.Jart+ travel retail business in Korea, and Australia, partially offsetting the net sales decrease in Asia/Pacific for the three months ended March 31, 2024 was an increase in net sales in Hong Kong SAR.

We have experienced challenges within our business, including in our Asia travel retail business, and we expect volatility to continue.

We have experienced, and are expecting to continue to experience, ongoing softness in overall prestige beauty in mainland China, as well as further business disruption in Israel and other parts of the Middle East.

Net sales from Israel and the Middle East accounted for approximately 2% of consolidated net sales in each of fiscal 2023 and the first quarter of fiscal 2024.

These challenges are collectively expected to negatively impact net sales and profitability, including an unfavorable impact to our effective tax rate from changes to our geographical mix of earnings.

We have also experienced, and are expecting to continue to experience, under absorption of manufacturing variances due to lower production volumes.

As a result of continuing to operate at a reduced capacity, we expect to recognize the impact of reduced manufacturing volumes on our standard cost within cost of sales in the fiscal 2024 third quarter.

These challenges are collectively expected to impact net sales and profitability, including impacts to our effective tax rate from changes to our geographical mix of earnings.

We have also experienced, and are expecting to continue to experience, under absorption of manufacturing variances due to lower production volumes, and will be recognizing the impact of reduced manufacturing volumes on our standard cost within cost of sales for the remainder of fiscal 2024.

Additionally, we are continually evaluating our inventory position and actions we may take to reduce the balance, which could result in increased charges in future periods.

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

THE ESTÉE LAUDER COMPANIES INC.

We continue to monitor the effects of the global macro environment, including the risk of recession;

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A decline in net sales and profitability may adversely impact the goodwill and other intangible assets associated with our brands, as well as long-lived assets, potentially resulting in impairments.

THE ESTÉE LAUDER COMPANIES INC.

Cybersecurity Incident Disclosed in July 2023

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We continue to take steps to enhance the security of our systems and coordinate with law enforcement authorities.

We provided notification to governmental authorities in certain jurisdictions and also notified, and will continue to notify, affected individuals where required by law.

The incident did not have a material impact on net sales and was $.01 and $.07 dilutive to earnings per common share for the three and six months ended December 31, 2023, respectively, and based on this information is not expected to have a material impact on net sales and is expected to be dilutive approximately $.07 to earnings per common share for the fiscal 2024 full year.

We provided notification to governmental authorities in certain jurisdictions and also notified affected individuals where required by law.

The incident did not have a material impact on net sales and had less than a $0.01 dilutive impact to the three months ended March 31, 2024 and was $.08 dilutive to earnings per common share for the nine months ended March 31, 2024, and based on this information is not expected to have a material impact on net sales and is expected to be dilutive approximately $.07 to earnings per common share for the fiscal 2024 full year, after reflecting the benefit of insurance recoveries in April 2024.

Restructuring Program Component of the Profit Recovery Plan

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We committed to this course of action on February 1, 2024.

In connection with the restructuring program, at this time we estimate a net reduction in the range of approximately 1,800 to 3,000 positions globally, which is about 3-5% of our positions including temporary and part-time employees as of June 30, 2023.

In connection with the restructuring program, as of March 31, 2024, we estimate a net reduction in the range of approximately 1,800 to 3,000 positions globally, which is about 3-5% of our positions including temporary and part-time employees as of June 30, 2023.

This reduction takes into account the elimination of some positions as well as retraining and redeployment of certain employees in select areas.

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The net benefits are in addition to the between $800 million and $1,000 million previously communicated as part of the Profit Recovery Plan.

Further information about the Restructuring Program Component of the Profit Recovery Plan, is described in Notes to Consolidated Financial Statements, Note 3 – Charges Associated with Restructuring and Other Activities herein.

THE ESTÉE LAUDER COMPANIES INC.

Three Months Ended

December 31 Six Months Ended

March 31 Nine Months Ended

($ in millions) 2024 2023 2024 2023

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GAAP measures.

Reported net sales decreased during the three and six months ended December 31, 2023, primarily driven by declines in our Asia travel retail business, primarily due to the ongoing actions that we and our retailers have taken to reset retailer inventory levels, including the response to changes in government and retailer policies in the second half of fiscal 2023 related to unstructured market activity, and lower conversion of travelers to consumers, as well as the impacts from the ongoing softness in overall prestige beauty in mainland China.

The total net sales decrease was impacted by approximately $8 million of favorable and $3 million of unfavorable foreign currency translation for the three and six months ended December 31, 2023, respectively.

Reported net sales increased during the three months ended March 31, 2024, primarily driven by higher net sales in our Asia travel retail business.

Reported net sales decreased during the nine months ended March 31, 2024, primarily reflecting lower net sales from our Asia travel retail business and in mainland China.

For the nine months ended March 31, 2024, Asia travel retail net sales declined, primarily driven by the actions that we and our retailers took to reset retailer inventory levels, including the response to changes in government regulatory and retailer policies in the second half of fiscal 2023 related to unstructured market activity, and lower conversion of travelers to consumers.

In mainland China, net sales declined, primarily driven by the impacts from the ongoing softness in overall prestige beauty reflecting subdued consumer confidence.

Reported net sales was impacted by approximately $51 million and $54 million of unfavorable foreign currency translation for the three and nine months ended March 31, 2024, respectively.

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

Accordingly, the following discussions of Net sales by Product Categories and Geographic Regions exclude the impact of returns associated with restructuring and other activities for the three and six months ended December 31, 2023 of $1 million, and for the three and six months ended December 31, 2022 of $1 million and $6 million, respectively.

Reported net sales decreased 7% for the three months ended December 31, 2023, driven by the decrease from volume of 12%, partially offset by an increase from pricing of 4% due to the favorable impact from strategic pricing actions, partially offset by changes in mix.

Reported net sales decreased 9% for the six months ended December 31, 2023, driven by the decrease from volume of 13%, partially offset by an increase from pricing of 3% due to the favorable impact from strategic pricing actions, partially offset by changes in mix.

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 nine months ended March 31, 2024 of $1 million, and for the three and nine months ended March 31, 2023 of $4 million and $10 million, respectively.

Reported net sales increased 5% for the three months ended March 31, 2024, driven by an increase from pricing of 10%, due to the favorable impact from strategic pricing actions and changes in mix, partially offset by the decrease from volume of 4% and the unfavorable impact from foreign currency translation of 1% .

Reported net sales decreased 5% for the nine months ended March 31, 2024, driven by the decrease from volume of 10%, partially offset by an increase from pricing of 5% due to the favorable impact from strategic pricing actions, partially offset by changes in mix.

THE ESTÉE LAUDER COMPANIES INC.

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Three Months Ended

December 31 Six Months Ended

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($ in millions) 2024 2023 2024 2023

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GAAP measures.

Reported skin care net sales decreased for the three months ended December 31, 2023, reflecting lower net sales from Estée Lauder and Clinique, combined, of approximately $261 million.

The decrease in net sales from Estée Lauder primarily reflected the impacts from the ongoing softness in overall prestige beauty in mainland China.

Also contributing to the decrease in net sales from Estée Lauder and primarily driving the decrease in net sales from Clinique, was a decline in our Asia travel retail business.

This decline was primarily due to the ongoing actions that we and our retailers have taken to reset retailer inventory levels, including the response to changes in government and retailer policies in the second half of fiscal 2023 related to unstructured market activity, and lower conversion of travelers to consumers.

Also contributing to the decline in net sales from Clinique was the impacts from the ongoing softness in overall prestige beauty in mainland China.

Reported skin care net sales decreased for the six months ended December 31, 2023, reflecting lower net sales from Estée Lauder, La Mer, and Clinique, combined, of approximately $726 million, primarily driven by the declines in our Asia travel retail business, primarily due to the ongoing actions that we and our retailers have taken to reset retailer inventory levels, including the response to changes in government and retailer policies in the second half of fiscal 2023 related to unstructured market activity, and lower conversion of travelers to consumers, as well as declines in mainland China, reflecting the impacts from the ongoing softness in overall prestige beauty.

Partially offsetting these decreases in skin care net sales for the three and six months ended December 31, 2023 were higher net sales from The Ordinary, driven by growth in every geographic region, reflecting continued success of hero products, new product launches and successful performance during holiday and key shopping moments.

The skin care net sales decrease was impacted by approximately $1 million and $18 million of unfavorable foreign currency translation for the three and six months ended December 31, 2023, respectively.

Reported skin care net sales decreased 10% for the three months ended December 31, 2023, driven by the decrease from volume of 16%, partially offset by an increase from pricing of 6%, due to the favorable impact from strategic pricing actions and changes in mix.

Reported skin care net sales decreased 16% for the six months ended December 31, 2023, driven by the decrease from volume of 19%, partially offset by an increase from pricing of 4%, due to the favorable impact from strategic pricing actions, partially offset by changes in mix.

Reported skin care net sales increased for the three months ended March 31, 2024, primarily driven by higher net sales from La Mer and Estée Lauder, combined, of approximately $164 million, reflecting higher net sales in our Asia travel retail business.

The increase in net sales from La Mer and Estée Lauder for the three months ended March 31, 2024 also reflected the success of hero products and new product launches.

Partially offsetting the increase in net sales from Estée Lauder was a decrease in net sales in mainland China, primarily driven by the impacts from the ongoing softness in overall prestige beauty reflecting subdued consumer confidence.

Partially offsetting the increase in skin care net sales for the three months ended March 31, 2024 was lower net sales from Clinique, primarily driven by declines in serums and moisturizers.

Reported skin care net sales decreased for the nine months ended March 31, 2024, reflecting lower net sales from Estée Lauder and Clinique, combined, of approximately $572 million, primarily driven by declines in our Asia travel retail business and in mainland China.

In mainland China, net sales declined, primarily driven by the impacts from the ongoing softness in overall prestige beauty reflecting subdued consumer confidence.

Partially offsetting these decreases in skin care net sales for the nine months ended March 31, 2024 were higher net sales from The Ordinary, driven by growth in every geographic region, reflecting continued success of hero products, new product launches and targeted expanded consumer reach.

Skin care net sales were impacted by approximately $34 million and $52 million of unfavorable foreign currency translation for the three and nine months ended March 31, 2024, respectively.

Reported skin care net sales increased 8% for the three months ended March 31, 2024, driven by an increase from pricing of 14%, due to the favorable impact from strategic pricing actions and changes in mix, partially offset by the decrease from volume of 4% and the unfavorable impact from foreign currency translation of 2%.

Reported skin care net sales decreased 9% for the nine months ended March 31, 2024, driven by the decrease from volume of 15% and the unfavorable impact of foreign currency translation of 1%.

Partially offsetting these decreases was an increase from pricing of 6%, due to the favorable impact from strategic pricing actions and changes in mix.

THE ESTÉE LAUDER COMPANIES INC.

Three Months Ended

December 31 Six Months Ended

March 31 Nine Months Ended

($ in millions) 2024 2023 2024 2023

6 unchanged sentences

GAAP measures.

Reported makeup net sales decreased for the three and six months ended December 31, 2023, reflecting lower net sales from M·A·C and Estée Lauder, combined, of approximately $101 million and $123 million, respectively.

In both periods, net sales from M·A·C decreased, primarily due to the phasing out of select products in preparation for new product launches and the unfavorable year-over-year impact resulting from the recognition of previously deferred revenue due to changes to the BACK 2 M·A·C take back program during the fiscal 2023 second quarter.

Also contributing to the decrease in net sales from M·A·C and primarily driving the decrease in net sales from Estée Lauder for the three and six months ended December 31, 2023 was a decline in our Asia travel retail business.

This decline was primarily due to the ongoing actions that we and our retailers have taken to reset retailer inventory levels and lower conversion of travelers to consumers.

The decrease in net sales from M·A·C and Estée Lauder were partially offset in both periods by the success of new product launches.

Partially offsetting the makeup net sales decrease for the three and six months ended December 31, 2023 were higher net sales from Clinique, primarily driven by continued success of hero products and new product launches.

The makeup net sales decrease was impacted by approximately $6 million and $10 million of favorable foreign currency translation for the three and six months ended December 31, 2023, respectively.

Reported makeup net sales decreased 8% for the three months ended December 31, 2023, driven by a decrease from volume of 11%, partially offset by the increase from pricing of 2% due to the favorable impact from strategic pricing actions, partially offset by changes in mix.

Reported makeup net sales decreased 4% for the six months ended December 31, 2023, driven by a decrease from volume of 7%, partially offset by the increase from pricing of 3% due to the favorable impact from strategic pricing actions, partially offset by changes in mix.

Reported makeup net sales increased for the three months ended March 31, 2024, reflecting higher net sales from Estée Lauder and Clinique, combined, of approximately $55 million.

The increase in net sales from Estée Lauder was primarily driven by our Asia travel retail business.

Net sales from Clinique increased, primarily driven by the success of hero products.

Partially offsetting the increase in makeup net sales for the three months ended March 31, 2024 was lower net sales from Bobbi Brown, primarily driven by declines across the foundation, eye and lip subcategories.

Reported makeup net sales decreased for the nine months ended March 31, 2024, reflecting lower net sales from M·A·C and Estée Lauder, combined, of approximately $88 million.

Net sales from M·A·C decreased, primarily due to the unfavorable year-over-year impact resulting from the recognition of previously deferred revenue due to changes to the BACK 2 M·A·C take-back program during the fiscal 2023 second quarter, the phasing out of select products in preparation for new product launches, partially offset by the success of new product launches.

The decrease in net sales from Estée Lauder was primarily driven by a decline in our Asia travel retail business.

For the nine months ended March 31, 2024, Asia travel retail net sales declined, primarily driven by the actions that we and our retailers took to reset retailer inventory levels, including the response to changes in government regulatory and retailer policies during the second half of fiscal 2023 related to unstructured market activity, and lower conversion of travelers to consumers.

Also partially offsetting the decrease in net sales from Estée Lauder was the success of recent product launches.

Partially offsetting the makeup net sales decrease for the nine months ended March 31, 2024 were higher net sales from Clinique, primarily driven by the success of hero products.

Makeup net sales were impacted by approximately $10 million of unfavorable foreign currency translation for the three months ended March 31, 2024.

Reported makeup net sales increased 3% for the three months ended March 31, 2024, driven by an increase from pricing of 6%, due to the favorable impact from strategic pricing actions, partially offset by changes in mix.

Partially offsetting this increase was the decrease from volume of 2% and the unfavorable impact of foreign currency translation of 1%.

Reported makeup net sales decreased 2% for the nine months ended March 31, 2024, driven by the decrease from volume of 5%, partially offset by an increase from pricing of 4%, due to the favorable impact from strategic pricing actions, partially offset by changes in mix.

THE ESTÉE LAUDER COMPANIES INC.

Three Months Ended

December 31 Six Months Ended

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($ in millions) 2024 2023 2024 2023

6 unchanged sentences

GAAP measures.

THE ESTÉE LAUDER COMPANIES INC.

Reported fragrance net sales were flat for the three months ended December 31, 2023, primarily reflecting higher net sales from Le Labo and Jo Malone London, combined, of approximately $29 million, and increased for the six months ended December 31, 2023, primarily reflecting higher net sales from Le Labo, Jo Malone London and TOM FORD, combined, of approximately $70 million.

Net sales from Le Labo increased in both periods, reflecting growth of hero products, including the successful City Exclusives collection, new product launches, successful performance during holiday and key shopping moments and targeted expanded consumer reach due to the brand's launch in mainland China during the fiscal 2023 fourth quarter.

The increase in net sales from Jo Malone London for the three and six months ended December 31, 2023, was driven by new product launches and successful performance during holiday and key shopping moments.

The increase in net sales from TOM FORD for the six months ended December 31, 2023, reflected the continued success of Signature and Private Blend fragrances and expanded distribution.

Partially offsetting the increases in fragrance net sales for the three and six months ended December 31, 2023 were lower net sales from Estée Lauder and the unfavorable year-over-year impact of residual net sales in fiscal 2023 related to the transition of licenses due to the license terminations related to certain of our designer fragrances effective June 30, 2022, combined, of approximately $36 million and $44 million, respectively.

The decrease in net sales from Estée Lauder for the three months ended December 31, 2023 was driven by an unfavorable impact due to timing of holiday shipments compared to the prior-year period.

The decrease in net sales from Estée Lauder for the six months ended December 31, 2023 was primarily driven by business disruptions in Israel and other parts of the Middle East.

Fragrance net sales were impacted by approximately $2 million and $3 million of favorable foreign currency translation for the three and six months ended December 31, 2023, respectively.

Reported fragrance net sales were flat for the three months ended December 31, 2023, driven by the increase from pricing of 4%, due to the favorable impact from strategic pricing actions, partially offset by changes in mix.

This increase was partially offset by the decrease from volume of 4%.

Reported fragrance net sales increase 3% for the six months ended December 31, 2023, driven by the increase from pricing of 4%, due to the favorable impact from strategic pricing actions, partially offset by changes in mix.

Reported fragrance net sales were virtually flat for the three months ended March 31, 2024, including the unfavorable impact of foreign currency translation of 1%.

Net sales from Estée Lauder decreased, primarily driven by lower net sales from the Beautiful, Estée Lauder Pleasures and Modern Muse product franchises.

Net sales from TOM FORD decreased, primarily reflecting strong performance in the prior-year period within our Asia travel retail business.

Partially offsetting these decreases were higher net sales from Jo Malone London and Le Labo, combined, of approximately $24 million.

The increase in net sales from Jo Malone London for the three months ended March 31, 2024, was driven by the success of hero products and recent product launches.

Net sales from Le Labo increased, primarily reflecting targeted expanded consumer reach, including the brand's launch in mainland China during the fiscal 2023 fourth quarter and success of hero products.

Reported fragrance net sales increased for the nine months ended March 31, 2024, primarily driven by higher net sales from Le Labo and Jo Malone London, combined, of approximately $82 million.

Net sales from Le Labo increased, primarily reflecting growth of hero products, including the successful City Exclusive collection, targeted expanded consumer reach, including the brand's launch in mainland China during the fiscal 2023 fourth quarter, and new product launches.

Net sales from Jo Malone London increased, primarily driven by the success of hero products.

Partially offsetting the increase in fragrance net sales for the nine months ended March 31, 2024, was the unfavorable year-over-year impact of residual net sales in fiscal 2023 related to the transition of licenses due to the license terminations related to certain of our designer fragrances effective June 30, 2022, and lower net sales from Estée Lauder, combined, of approximately $72 million.

The decrease in net sales from Estée Lauder for the nine months ended March 31, 2024 was driven by lower net sales from the Beautiful product franchise.

Fragrance net sales were impacted by approximately $7 million and $4 million of unfavorable foreign currency translation for the three and nine months ended March 31, 2024, respectively.

Reported fragrance net sales were virtually flat for the three months ended March 31, 2024, driven by the decrease from volume of 7% and the unfavorable impact from foreign currency translation of 1%.

These decreases were partially offset by an increase from pricing of 7%, due to the favorable impact from strategic pricing actions and changes in mix.

Reported fragrance net sales increased 2% for the nine months ended March 31, 2024, driven by an increase from pricing of 5%, due to the favorable impact from strategic pricing actions, partially offset by changes in mix.

This increase was partially offset by the decrease from volume of 3%.

THE ESTÉE LAUDER COMPANIES INC.

Three Months Ended

December 31 Six Months Ended

March 31 Nine Months Ended

($ in millions) 2024 2023 2024 2023

6 unchanged sentences

GAAP measures.

Reported hair care net sales decreased for the three and six months ended December 31, 2023, driven by lower net sales from Aveda, primarily reflecting a decline in North America, in the salon channel and in our online business.

The hair care net sales decrease was impacted by approximately $1 million and $2 million of favorable foreign currency translation for the three and six months ended December 31, 2023, respectively.

Reported hair care net sales decreased 5% for the three months ended December 31, 2023, driven by the decrease from volume of 12%.

This decrease was partially offset by the increase from pricing of 6%, due to the favorable impact from strategic pricing actions, partially offset by changes in mix, and the favorable impact of foreign currency translation of 1%.

Reported hair care net sales decreased 6% for the six months ended December 31, 2023, driven by the decrease from volume of 11%.

This decrease was partially offset by the increase from pricing of 5%, due to the favorable impact from strategic pricing actions, partially offset by changes in mix, and the favorable impact of foreign currency translation of 1%.

THE ESTÉE LAUDER COMPANIES INC.

Reported hair care net sales decreased for the three and nine months ended March 31, 2024, driven by lower net sales from Aveda, driven by declines in North America, primarily reflecting softness in the salon and direct-to-consumer channels.

Hair care net sales were impacted by approximately $1 million and $3 million of favorable foreign currency translation for the three and nine months ended March 31, 2024, respectively.

Reported hair care net sales decreased 3% for the three months ended March 31, 2024, driven by the decrease from volume of 18%.

This decrease was partially offset by the increase from pricing of 14%, due to the favorable impact from strategic pricing actions and changes in mix, and the favorable impact from foreign currency translation of 1%.

Reported hair care net sales decreased 5% for the nine months ended March 31, 2024, driven by the decrease from volume of 13%.

This decrease was partially offset by the increase from pricing of 8%, due to the favorable impact from strategic pricing actions and changes in mix, and the favorable impact of foreign currency translation of 1%.

Geographic Regions

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Three Months Ended

December 31 Six Months Ended

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($ in millions) 2024 2023 2024 2023

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GAAP measures.

The increase in reported net sales in The Americas for the three months ended December 31, 2023 was primarily driven by an increase in net sales in Latin America, led by Brazil and Mexico, of approximately $19 million.

The increase in net sales in Brazil and Mexico was led by growth in makeup and benefited from the success of holiday and key shopping moments.

Partially offsetting the increase in net sales in The Americas for the three months ended December 31, 2023 was a decrease in net sales in the United States, primarily driven by the unfavorable year-over-year impact resulting from the recognition of previously deferred revenue due to changes to the BACK 2 M·A·C take back program during the fiscal 2023 second quarter, partially offset by incremental royalty revenue associated with the fiscal 2023 fourth quarter acquisition of the TOM FORD brand of $15 million.

The increase in reported net sales in The Americas for the six months ended December 31, 2023 was driven primarily by increased net sales in the United States, Brazil and Mexico, combined, of approximately $80 million.

The increase in net sales in the United States primarily reflected strong performance by The Ordinary, as well as growth in fragrance, led by Jo Malone London, TOM FORD, and Le Labo, and incremental royalty revenue associated with the fiscal 2023 fourth quarter acquisition of the TOM FORD brand of $32 million.

Partially offsetting the increase in net sales in the United States was the unfavorable year-over-year impact resulting from the recognition of previously deferred revenue due to changes to the BACK 2 M·A·C take back program during the fiscal 2023 second quarter.

The increase in net sales in Brazil and Mexico was led by growth in makeup and benefited from the success of holiday and key shopping moments.

Net sales in The Americas were impacted by approximately $2 million of unfavorable foreign currency translation for the six months ended December 31, 2023.

Reported net sales in The Americas increased 1% for the three months ended December 31, 2023, driven by the impact from the royalty revenue from the fiscal 2023 fourth quarter acquisition of the TOM FORD brand of 1% and the increase from volume of 1%.

These increases were partially offset by a decrease from pricing of 1%, due to the unfavorable impact from changes in mix, partially offset by strategic pricing actions.

Reported net sales in The Americas increased 4% for the six months ended December 31, 2023, driven by the increase from volume of 3% and the impact from the royalty revenue from the fiscal 2023 fourth quarter acquisition of the TOM FORD brand of 1%.

The impact from pricing was virtually flat, due to the unfavorable impact from changes in mix, offset by strategic pricing actions.

THE ESTÉE LAUDER COMPANIES INC.

The increase in reported net sales in The Americas for the three months ended March 31, 2024 was primarily driven by an increase in net sales in Mexico, the United States, and Brazil, combined, of approximately $28 million.

Net sales in Mexico and Brazil increased, primarily reflecting growth in makeup, led by M·A·C.

The increase in reported net sales in The Americas for the nine months ended March 31, 2024 was primarily driven by an increase in the United States, Mexico, and Brazil, combined, of approximately $108 million.

The increase in net sales in the United States primarily reflected growth in fragrance, driven by our luxury fragrances, incremental royalty revenue associated with the fiscal 2023 fourth quarter acquisition of the TOM FORD brand, and higher net sales in skin care, led by The Ordinary, partially offset by the unfavorable year-over-year impact resulting from the recognition of previously deferred revenue due to changes to the BACK 2 M·A·C take back program during the fiscal 2023 second quarter and lower net sales in hair care, led by Aveda.

Net sales in Mexico and Brazil increased, driven by growth in makeup, led by M·A·C.

Net sales in The Americas were impacted by approximately $3 million and $1 million of favorable foreign currency translation for the three and nine months ended March 31, 2024, respectively.

Reported net sales in The Americas increased 3% for the three months ended March 31, 2024, driven by an increase from pricing of 7%, due to the favorable impact from strategic pricing actions and changes in mix, and the impact from the royalty revenue from the fiscal 2023 fourth quarter acquisition of the TOM FORD brand of 1%.

These increases were partially offset by a decrease from volume of 6%.

Reported net sales in The Americas increased 3% for the nine months ended March 31, 2024, driven by an increase from pricing of 2%, due to the favorable impact of strategic pricing actions, partially offset by changes in mix, and the impact from the royalty revenue from the fiscal 2023 fourth quarter acquisition of the TOM FORD brand of 1%.

The impact from volume was virtually flat.

Europe, the Middle East & Africa

Three Months Ended

December 31 Six Months Ended

March 31 Nine Months Ended

($ in millions) 2024 2023 2024 2023

6 unchanged sentences

GAAP measures.

Reported net sales decreased in Europe, the Middle East & Africa for the three and six months ended December 31, 2023, primarily driven by lower net sales from our Asia travel retail business.

The decrease in net sales from our Asia travel retail business was primarily due to the ongoing actions that we and our retailers have taken to reset retailer inventory levels, including the changes in government and retailer policies in the second half of fiscal 2023 related to unstructured market activity, and lower conversion of travelers to consumers.

While these efforts continue, as a result of actions taken to date our retailer inventory levels have decreased.

Partially offsetting the decrease in Europe, the Middle East & Africa for the six months ended December 31, 2023 were higher net sales in the United Kingdom, primarily driven by strong performance by The Ordinary.

Net sales in Europe, the Middle East & Africa were impacted by approximately $23 million and $52 million of favorable foreign currency translation for the three and six months ended December 31, 2023, respectively.

Reported net sales in Europe, the Middle East & Africa decreased 13% for the three months ended December 31, 2023, driven by the decrease from volume of 21%.

This decrease was partially offset by the increase from pricing of 7%, due to the favorable impact from strategic pricing actions, partially offset by changes in mix, and the favorable impact from foreign currency translation of 1%.

Reported net sales in Europe, the Middle East & Africa decreased 19% for the six months ended December 31, 2023, driven by the decrease from volume of 23%.

Reported net sales increased in Europe, the Middle East & Africa for the three months ended March 31, 2024, primarily driven by higher net sales from our Asia travel retail business.

Reported net sales decreased in Europe, the Middle East & Africa for the nine months ended March 31, 2024, primarily driven by lower net sales from our Asia travel retail business.

For the nine months ended March 31, 2024, Asia travel retail net sales declined, primarily driven by the actions that we and our retailers took to reset retailer inventory levels, including the response to changes in government regulatory and retailer policies during the second half of fiscal 2023 related to unstructured market activity, and lower conversion of travelers to consumers.

THE ESTÉE LAUDER COMPANIES INC.

Partially offsetting the decrease in Europe, the Middle East & Africa for the nine months ended March 31, 2024 were higher net sales in the United Kingdom, primarily driven by strong performance by The Ordinary.

Net sales in Europe, the Middle East & Africa were impacted by approximately $1 million and $53 million of favorable foreign currency translation for the three and nine months ended March 31, 2024, respectively.

Reported net sales in Europe, the Middle East & Africa increased 12% for the three months ended March 31, 2024, driven by an increase from pricing of 13%, due to the favorable impact from strategic pricing actions and changes in mix, partially offset by the decrease from volume of 1%.

Reported net sales in Europe, the Middle East & Africa decreased 10% for the nine months ended March 31, 2024, driven by the decrease from volume of 17%.

Three Months Ended

December 31 Six Months Ended

March 31 Nine Months Ended

($ in millions) 2024 2023 2024 2023

6 unchanged sentences

GAAP measures.

Reported net sales decreased in Asia/Pacific for the three months ended March 31, 2024, primarily driven by the unfavorable impact of foreign currency translation of 5%, resulting in a decrease in net sales in mainland China, and lower net sales in Korea, led by the Dr.Jart+ travel retail business in Korea, and Australia, combined, of approximately $41 million.

Partially offsetting the unfavorable impact of foreign currency translation in mainland China was higher net sales as a result of lower retail traffic in the beginning of the prior-year period due to the rise in COVID-19 cases.

Net sales in Korea, led by the Dr.Jart+ travel retail business in Korea, decreased, reflecting the timing impact on Dr.Jart+ from new government regulations during the fiscal 2024 third quarter to further control unstructured market activity, as well as lower conversion.

The decrease in net sales in Australia was primarily driven by an unfavorable impact due to timing of shipments compared to the prior-year period.

Reported net sales decreased in Asia/Pacific for the nine months ended March 31, 2024, reflecting lower net sales from mainland China, primarily driven by the impacts from the ongoing softness in overall prestige beauty reflecting subdued consumer confidence.

Partially offsetting the net sales decrease in Asia/Pacific for the three and nine months ended March 31, 2024 was an increase in net sales in Hong Kong SAR, primarily driven by the resumption of travel from mainland China to Hong Kong SAR due to the lifting of travel restrictions which began during the fiscal 2023 third quarter.

Net sales in Asia/Pacific were impacted by approximately $55 million and $108 million of unfavorable foreign currency translation for the three and nine months ended March 31, 2024, respectively.

Reported net sales in Asia/Pacific decreased 1% for the three months ended March 31, 2024, driven by the decrease from volume of 7% and the unfavorable impact from foreign currency translation of 5%.

Partially offsetting these decreases was an increase from pricing of 10%, due to the favorable impact from strategic pricing actions and changes in mix.

THE ESTÉE LAUDER COMPANIES INC.

Reported net sales decreased in Asia/Pacific for the three and six months ended December 31, 2023, primarily reflecting the impacts from the ongoing softness in overall prestige beauty in mainland China.

Partially offsetting the net sales decrease in Asia/Pacific for the three and six months ended December 31, 2023 was an increase in net sales in Hong Kong SAR, primarily driven by the resumption of travel from mainland China to Hong Kong SAR due to the lifting of travel restrictions.

Net sales in Asia/Pacific were impacted by approximately $15 million and $53 million of unfavorable foreign currency translation for the three and six months ended December 31, 2023, respectively.

Reported net sales in Asia/Pacific decreased 8% for the three months ended December 31, 2023, driven by the decrease from volume of 13% and the unfavorable impact from foreign currency translation of 1%.

Partially offsetting these decreases was the increase from pricing of 6%, due to the favorable impact from strategic pricing actions and changes in mix.

Reported net sales in Asia/Pacific decreased 7% for the six months ended December 31, 2023, driven by the decrease from volume of 12% and the unfavorable impact from foreign currency translation of 2%.

Partially offsetting these decreases was the increase from pricing of 7%, due to the favorable impact from strategic pricing actions and changes in mix.

Gross margin decreased to 73.0% and 71.5% for the three and six months ended December 31, 2023, respectively, as compared with 73.6% and 73.8% in the prior-year periods.

Reported net sales in Asia/Pacific decreased 5% for the nine months ended March 31, 2024, driven by the decrease from volume of 10% and the unfavorable impact from foreign currency translation of 3%.

Partially offsetting these decreases was an increase from pricing of 8%, due to the favorable impact from strategic pricing actions and changes in mix.

Gross margin increased to 71.9% and decreased to 71.6% for the three and nine months ended March 31, 2024, respectively, as compared with 69.1% and 72.4% in the prior-year periods.

Favorable (Unfavorable) Basis Points

December 31, 2023

Three Months Ended Six Months Ended

March 31, 2024

Three Months Ended Nine Months Ended

Mix of business 460 125

3 unchanged sentences

Total 280 (80)

The decrease in gross margin for the three months ended December 31, 2023 reflected higher obsolescence charges, primarily due to excess inventory on hand, both driven by the lower than expected demand primarily within our travel retail business and mainland China, and the unfavorable impacts from higher manufacturing costs and other, driven primarily by the under absorption of manufacturing variances due to lower production volumes in the second half of fiscal 2023, partially offset by the favorable impact from a change in our manufacturing variance deferral period as well as favorability in freight and transportation costs.

Partially offsetting the decrease in gross margin for the three months ended December 31, 2023 was a favorable impact from our mix of business, primarily driven by brand mix, reflecting the favorable impact from the shift of manufacturing production volume from third-party manufacturers to our own facilities for The Ordinary, and decreased sales of our lower margin skin care product sets compared to the prior-year period.

These favorable impacts within our mix of business were partially offset by higher costs associated with promotional items.

The decrease in gross margin for the six months ended December 31, 2023 reflected unfavorable impacts from higher manufacturing costs and other, driven primarily by the under absorption of manufacturing variances due to lower production volumes in the second half of fiscal 2023, partially offset by the favorable impact from a change in deferral period as well as favorability in freight and transportation costs, and higher obsolescence charges, primarily due to excess inventory on hand driven by lower than expected demand primarily within our travel retail business and mainland China.

The increase in gross margin for the three months ended March 31, 2024 reflected the favorable impact from our mix of business, primarily driven by the increase in skin care net sales, strategic pricing actions, and the favorable impact from the shift of manufacturing production volume from third-party manufacturers to our own facilities and increased automation for The Ordinary.

Obsolescence charges decreased for the three months ended March 31, 2024, primarily reflecting increased charges in the prior-year period due to lower demand, as well as our progress to reduce excess inventory.

The unfavorable impacts from manufacturing costs and other was driven primarily by the recognition of the impact of reduced manufacturing volumes on our standard cost within cost of sales, partially offset by favorability in freight and transportation costs.

The decrease in gross margin for the nine months ended March 31, 2024 reflected unfavorable impacts from higher manufacturing costs and other, driven primarily by the under absorption of manufacturing variances due to lower production volumes in the second half of fiscal 2023 as well as the impact from the recognition of reduced manufacturing volumes on our standard cost within cost of sales in the fiscal 2024 third quarter, partially offset by favorability in freight and transportation costs.

The favorable impact from our mix of business was primarily driven by strategic pricing actions, and the favorable impact from the shift of manufacturing production volume from third-party manufacturers to our own facilities and increased automation for The Ordinary.

THE ESTÉE LAUDER COMPANIES INC.

OPERATING EXPENSES

Operating expenses as a percentage of net sales was 59.6% and 62.9% for the three and six months ended December 31, 2023, respectively, as compared with 61.6% and 59.5% in the prior-year periods.

Operating expenses as a percentage of net sales was 58.4% and 61.4% for the three and nine months ended March 31, 2024, respectively, as compared with 61.2% and 60.0% in the prior-year periods.

Favorable (Unfavorable) Basis Points

December 31, 2023

Three Months Ended Six Months Ended

March 31, 2024

Three Months Ended Nine Months Ended

General and administrative expenses 50 (30)

6 unchanged sentences

Subtotal 300 (290)

Charges associated with restructuring and other activities (10) —

Other intangible asset impairments — 170

1 unchanged sentence

Total 280 (140)

The favorable change in operating expense margin for the three months ended December 31, 2023 was partially offset by the impact of the decrease in net sales, as well as higher selling costs and store operating costs as we continue to invest in our business including through increased demonstration expenses and targeted expanded consumer reach, while also decreasing certain expenses through disciplined expense management.

The unfavorable change in operating expense margin for the six months ended December 31, 2023 was driven by the impact of the decrease in net sales and higher general and administrative expenses, as well as higher selling expenses and store operating costs as we continue to invest in our business including through increased demonstration expenses and targeted expanded consumer reach, while also decreasing certain expenses through disciplined expense management.

The increase in general and administrative expense, including stock-based compensation, reflected higher employee-related costs, primarily driven by the unfavorable year-over-year comparisons in the recognition of expenses and adjustments related to our performance share units, restricted stock units, as well as annual increases to salaries and wages, partially offset by lower incentive compensation.

The favorable change in operating expense margin for the three months ended March 31, 2024 was primarily driven by lower overall advertising and promotional expenses, due to disciplined expense management, while we continued to strategically invest in higher growth opportunities.

Partially offsetting the favorable operating expense margin were higher store operating costs, driven by targeted expanded consumer reach.

The unfavorable change in operating expense margin for the nine months ended March 31, 2024 was driven by higher store operating costs and selling expenses as we continue to invest in our business including through targeted expanded consumer reach and increased demonstration expenses, as well as an increase in stock-based compensation, primarily driven by the unfavorable year-over-year comparisons in the recognition of expenses, and adjustments related to our performance share units.

The unfavorable impact of advertising, merchandising, sampling and product development expenses was driven by the decrease 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) 2024 2023 2024 2023

7 unchanged sentences

GAAP measures.

The increase in reported operating margin for the three months ended December 31, 2023 was primarily driven by a decrease in operating expense margin, partially offset by a decrease in net sales and a decrease in gross margin, discussed above.

The decrease in reported operating margin for the six months ended December 31, 2023 was primarily driven by a decrease in net sales, decrease in gross margin and the increase in operating expense margin, discussed above.

The increase in reported operating margin for the three months ended March 31, 2024 was primarily driven by an increase in net sales, an increase in gross margin, and a decrease in operating expense margin, discussed above.

The decrease in reported operating margin for the nine months ended March 31, 2024 was primarily driven by a decrease in net sales, decrease in gross margin and the increase in operating expense margin, discussed above.

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 for the three and six months ended December 31, 2023 of $8 million and $10 million, and for the three and six months ended December 31, 2022 of $9 million and $15 million, respectively.

Accordingly, the following discussions of Operating income by Product Categories and Geographic Regions exclude the impact of charges associated with restructuring and other activities for the three and nine months ended March 31, 2024 of $18 million and $28 million, and for the three and nine months ended March 31, 2023 of $18 million and $33 million, respectively.

THE ESTÉE LAUDER COMPANIES INC.

1 unchanged sentence

Three Months Ended

December 31 Six Months Ended

March 31 Nine Months Ended

($ in millions) 2024 2023 2024 2023

6 unchanged sentences

GAAP measures.

Reported skin care operating income decreased for the three months ended December 31, 2023, reflecting lower operating results from Estée Lauder and, to a lesser extent, Clinique, combined, of approximately $146 million, primarily driven by decreases in net sales, partially offset by disciplined advertising and promotional expense management.

Reported skin care operating income decreased for the six months ended December 31, 2023, reflecting lower operating results from Estée Lauder and La Mer, combined, of approximately $523 million.

The decrease in operating results from Estée Lauder was primarily driven by a decrease in net sales, partially offset by disciplined advertising and promotional expense management.

Operating results from La Mer decreased, primarily driven by the decrease in net sales and investments in advertising and promotional activities.

The decrease in skin care operating income for the three and six months ended December 31, 2023 also included higher obsolescence charges primarily due to excess inventory on hand driven by lower than expected demand primarily within our travel retail business and mainland China, and for the six months ended December 31, 2023, higher employee-related costs, including an increase in stock-based compensation expense, partially offset by lower incentive compensation, as discussed above.

Partially offsetting the decrease in skin care operating income for the three and six months ended December 31, 2023 was the favorable year-over-year impact of the fiscal 2023 second quarter other intangible asset impairment related to Dr.Jart+ of $100 million, as well as higher results from The Ordinary, primarily driven by an increase in net sales.

Also contributing to the increase in operating results from The Ordinary for the three months ended December 31, 2023 was a decrease in cost of sales primarily driven by the favorable impact from the shift of manufacturing production volume from third-party manufacturers to our own facilities for The Ordinary, partially offset by higher shipping costs to support key shopping moments.

The increase in operating results from The Ordinary for the six months ended December 31, 2023 also reflected an increase in advertising and promotional activities and general and administrative expenses as the brand continues to invest and support the growth of the business.

Reported skin care operating income increased for the three months ended March 31, 2024, reflecting higher operating results from La Mer and Estée Lauder, combined, of approximately $222 million.

The increase in operating income from La Mer was primarily driven by an increase in net sales.

Operating income from Estée Lauder increased, primarily reflecting a decrease in cost of sales, due in part to lower freight and transportation costs and obsolescence charges as well as a decrease in promotional items, disciplined advertising and promotional expense management, and an increase in net sales.

The increase in skin care operating income for the three months ended March 31, 2024 was partially offset by the recognition of the impact of reduced manufacturing volumes on our standard cost within cost of sales.

Reported skin care operating income decreased for the nine months ended March 31, 2024, reflecting lower operating results from Estée Lauder and Clinique, combined, of approximately $322 million, primarily driven by a decrease in net sales, partially offset by disciplined advertising and promotional expense management.

Also contributing to the decrease in operating results from Estée Lauder was lower shipping costs due to the decrease in net sales.

Also contributing to the decrease in skin care operating income for the nine months ended March 31, 2024 was the recognition of the impact of reduced manufacturing volumes on our standard cost within cost of sales.

Partially offsetting the decrease in skin care operating income for the nine months ended March 31, 2024 was the favorable year-over-year impact of the fiscal 2023 second quarter other intangible asset impairment related to Dr.Jart+ of $100 million, as well as higher operating results from The Ordinary, primarily driven by an increase in net sales and a decrease in cost of sales due in part to the favorable impact from the shift of manufacturing production volume from third-party manufacturers to our own facilities, increased automation within such facilities, and lower obsolescence charges.

Partially offsetting the increase in operating income from The Ordinary was an increase in advertising and promotional activities as the brand continues to invest and support the growth of the business.

THE ESTÉE LAUDER COMPANIES INC.

Three Months Ended

December 31 Six Months Ended

March 31 Nine Months Ended

($ in millions) 2024 2023 2024 2023

4 unchanged sentences

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

(64) % (100+)%

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

GAAP measures.

Reported makeup operating income increased for the three months ended December 31, 2023 primarily reflecting the favorable year-over-year impact of other intangible asset impairments related to Too Faced and Smashbox of $107 million, and higher results from Clinique, primarily driven by an increase in net sales.

Partially offsetting the increase in makeup operating income for the three months ended December 31, 2023 and primarily driving the decrease in makeup operating income for the six months ended December 31, 2023 were lower results from M·A·C and Estée Lauder, combined, of approximately $54 million and $86 million, respectively.

In both periods, the decrease in operating income from M·A·C was primarily driven by a decrease in net sales, partially offset by lower advertising and promotional expenses, due to timing of advertising activities and disciplined expense management.

Operating income from Estée Lauder decreased for the three and six months ended December 31, 2023, primarily driven by a decrease in net sales, partially offset by lower advertising and promotional expenses due to disciplined expense management.

The increase in makeup operating income for the three months ended December 31, 2023 was also partially offset by higher obsolescence charges primarily due to excess inventory on hand driven by lower than expected demand primarily within our travel retail business and mainland China.

The decrease in makeup operating income for the six months ended December 31, 2023 also reflected higher obsolescence charges primarily due to excess inventory on hand driven by lower than expected demand primarily within our travel retail business and mainland China, as well as higher employee-related costs, including an increase in stock-based compensation expense, partially offset by lower incentive compensation, as discussed above.

Partially offsetting the decrease in operating income in makeup for the six months ended December 31, 2023 was the favorable year-over-year impact of other intangible asset impairments related to Too Faced and Smashbox of $107 million and higher operating results from TOM FORD and Clinique, combined, of approximately $31 million.

The increase in operating results from Clinique for the six months ended December 31, 2023 was primarily driven by the increase in net sales.

The increase in operating results from TOM FORD for the six months ended December 31, 2023 reflected a decrease in royalty expense as a result of the fiscal 2023 fourth quarter acquisition of TOM FORD brand and an increase in net sales.

Reported makeup operating income increased for the three months ended March 31, 2024, primarily reflecting higher operating results from Estée Lauder, Clinique, M·A·C, and TOM FORD, combined, of approximately $101 million.

The increase in operating results from Estée Lauder was primarily driven by an increase in net sales and disciplined advertising and promotional expense management.

Operating income from Clinique increased, primarily driven by an increase in net sales and a decrease in cost of sales, due in part to a decrease in promotional items.

The increase in operating results from M·A·C was primarily driven by lower cost of sales reflecting lower freight and transportation costs compared to the prior-year period and disciplined advertising and promotional expense management.

Operating results from TOM FORD increased, primarily driven by disciplined advertising and promotional expense management, lower cost of sales, due in part to lower obsolescence charges, and a decrease in royalty expense as a result of the fiscal 2023 fourth quarter acquisition of TOM FORD brand, partially offset by a decrease in net sales.

The increase in makeup operating income for the three months ended March 31, 2024 was partially offset by the recognition of the impact of reduced manufacturing volumes on our standard cost within cost of sales.

Reported makeup operating income increased for the nine months ended March 31, 2024, primarily reflecting the favorable year-over-year impact of other intangible asset impairments related to Too Faced and Smashbox of $107 million, and higher results from Clinique and TOM FORD, combined, of approximately $70 million.

The increase in operating income from Clinique was primarily driven by an increase in net sales.

Operating income from TOM FORD increased, primarily driven by lower cost of sales due in part to lower freight and transportation costs compared to the prior-year period and a decrease in royalty expense as a result of the fiscal 2023 fourth quarter acquisition of TOM FORD brand.

Partially offsetting the increase in makeup operating income for the nine months ended March 31, 2024, was lower operating results from M·A·C, primarily driven by a decrease in net sales, partially offset by disciplined advertising and promotional expense management.

Also partially offsetting the increase in makeup operating income for the nine months ended March 31, 2024 was the recognition of the impact of reduced manufacturing volumes on our standard cost within cost of sales, and an increase in general and administrative expenses, reflecting higher employee-related costs, primarily driven by the increase to stock-based compensation related to the unfavorable year-over-year comparisons in the recognition of expenses, as well as adjustments related to our performance share units, and annual increases to salaries and wages, partially offset by lower incentive compensation.

THE ESTÉE LAUDER COMPANIES INC.

Three Months Ended

December 31 Six Months Ended

March 31 Nine Months Ended

($ in millions) 2024 2023 2024 2023

2 unchanged sentences

% Change from prior-year period (56) % (22) %

Reported fragrance operating income decreased for the three months ended December 31, 2023, reflecting the unfavorable year-over-year impact of residual net sales in the prior-year period associated with the license terminations related to certain of our designer fragrances effective June 30, 2022 and lower results from Estée Lauder, combined, of approximately $19 million.

The decrease in operating income from Estée Lauder was primarily driven by decreases in net sales, partially offset by lower advertising and promotional expenses due to disciplined expense management.

Partially offsetting the fragrance operating income decrease for the three months ended December 31, 2023 were higher results from Jo Malone London, primarily driven by an increase in net sales and lower advertising and promotional expenses due to the timing of advertising activities compared to the prior-year period and disciplined expense management.

Reported fragrance operating income decreased for the six months ended December 31, 2023, reflecting lower results from Clinique and TOM FORD, combined, of approximately $19 million.

The decrease in operating income from Clinique was primarily due to a decrease in net sales.

The decrease in operating income from TOM FORD was primarily driven by an increase in cost of sales, due in part to an increase in promotional items, higher advertising and promotional activities to support key shopping moments and an increase in selling expenses due to increased demonstration expenses compared to the prior-year period, partially offset by a decrease in royalty expense as a result of the fiscal 2023 fourth quarter acquisition of TOM FORD brand and an increase in net sales.

The decrease in fragrance operating income for the six months ended December 31, 2023 also reflected higher employee-related costs, including an increase in stock-based compensation expense, partially offset by lower incentive compensation, as discussed above.

Partially offsetting the fragrance operating decrease for the six months ended December 31, 2023 was higher operating results from Le Labo, primarily driven by an increase in net sales, partially offset by higher advertising and promotional activities to support new product launches, an increase in selling expenses due to increased demonstration expenses compared to the prior-year period and increased store operating costs, due to targeted expanded consumer reach.

Reported fragrance operating income decreased for the three months ended March 31, 2024, reflecting lower operating results from TOM FORD and Le Labo, combined, of approximately $12 million.

The decrease in operating income from TOM FORD was primarily driven by a decrease in net sales, higher cost of sales, due in part to an increase in promotional items, higher advertising and promotional expenses and an increase in general and administrative expenses, as the brand continues to invest in and support the growth of the business, partially offset by a decrease in royalty expense as a result of the fiscal 2023 fourth quarter acquisition of TOM FORD brand.

Operating income from Le Labo decreased, primarily driven by higher advertising and promotional activities to support the growth of the business, higher store operating costs and higher selling expenses, due to targeted expanded consumer reach, partially offset by an increase in net sales.

Also contributing to the decrease in fragrance operating income for the three months ended March 31, 2024 was the recognition of the impact of reduced manufacturing volumes on our standard cost within cost of sales.

Partially offsetting the fragrance operating income decrease for the three months ended March 31, 2024, was higher operating results from Jo Malone London, primarily driven by an increase in net sales and lower cost of sales due to a shift in product mix to colognes, which typically have higher margins, partially offset by an increase in selling expenses due to an increase in demonstration expenses compared to the prior-year period and higher store operating costs due to targeted expanded consumer reach.

Reported fragrance operating income decreased for the nine months ended March 31, 2024, primarily driven by lower operating results from TOM FORD and Clinique, combined, of approximately $31 million.

The decrease in operating income from TOM FORD was primarily driven by higher cost of sales, due in part to an increase in promotional items, higher advertising and promotional expenses to support new product launches, higher selling expenses due to an increase in demonstration expenses compared to the prior-year period, and an increase in general and administrative expenses as the brand continues to invest and support the growth of the business, partially offset by a decrease in royalty expense as a result of the fiscal 2023 fourth quarter acquisition of TOM FORD brand and an increase in net sales.

Operating income from Clinique decreased, primarily driven by a decrease in net sales.

Also contributing to the decrease in fragrance operating income for the nine months ended March 31, 2024 was an increase in general and administrative expenses, reflecting higher employee-related costs, primarily driven by the increase in stock-based compensation related to the unfavorable year-over-year comparisons in the recognition of expenses, as well as adjustments related to our performance share units, and annual increases to salaries and wages, partially offset by lower incentive compensation, and the recognition of the impact of reduced manufacturing volumes on our standard cost within cost of sales.

Three Months Ended

December 31 Six Months Ended

March 31 Nine Months Ended

($ in millions) 2024 2023 2024 2023

Operating income (loss) $ (3) $ 4 $ (25) $ (8)

Operating loss

$ (25) $ (24) $ (50) $ (32)

$ Change from prior-year period (1) (18)

% Change from prior-year period (4) % (56) %

Reported hair care operating results decreased for the three and six months ended December 31, 2023, primarily driven by lower results from Aveda and Bumble and bumble, combined, of approximately $5 million and $12 million, respectively, reflecting decreases in net sales.

Partially offsetting the lower results from Aveda in both periods was disciplined advertising and promotional expense management.

Also contributing to the decrease in hair care operating income for the six months ended December 31, 2023 were higher employee-related costs, including an increase in stock-based compensation expense, partially offset by lower incentive compensation, as discussed above.

THE ESTÉE LAUDER COMPANIES INC.

Reported hair care operating loss remained virtually flat for the three months ended March 31, 2024.

reflecting the recognition of the impact of reduced manufacturing volumes on our standard cost within cost of sales, offset by an increase in the operating results from Aveda and Bumble and bumble, combined, of approximately $11 million.

Operating results from Aveda increased, primarily driven by disciplined advertising and promotional expense management, lower general and administrative expenses, partially offset by a decrease in net sales.

The increase in operating results from Bumble and bumble was driven by a decrease in cost of sales, primarily reflecting the favorable impact of product mix and a decrease in promotional activities due to disciplined expense management, and an increase in net sales.

Reported hair care operating results decreased for the nine months ended March 31, 2024, primarily reflecting the decrease in net sales and the recognition of the impact of reduced manufacturing volumes on our standard cost within cost of sales, partially offset by the benefit from disciplined advertising and promotional expense management.

Geographic Regions

Three Months Ended

December 31 Six Months Ended

March 31 Nine Months Ended

($ in millions) 2024 2023 2024 2023

Operating income (loss) $ (55) $ (85) $ (237) $ 40

Operating loss

$ (6) $ (93) $ (243) $ (53)

$ Change from prior-year period 87 (190)

4 unchanged sentences

GAAP measures.

Reported operating results increased in The Americas for the three months ended December 31, 2023, primarily reflecting the favorable year-over-year impact of other intangible asset impairments relating to Too Faced and Smashbox of $107 million during the fiscal 2023 second quarter, partially offset by lower intercompany royalty income of $85 million compared to the prior-year period, driven by a decrease in net sales in our travel retail business.

Reported operating results decreased in The Americas for the six months ended December 31, 2023, primarily reflecting lower results from the United States, reflecting lower intercompany royalty income of $270 million compared to the prior-year period, driven by a decrease in net sales in our travel retail business, higher cost of sales due to higher obsolescence charges primarily due to excess inventory on hand driven by lower demand, partially offset by the favorable year-over-year impact of other intangible asset impairments relating to Too Faced and Smashbox of $107 million during the fiscal 2023 second quarter, and an increase in net sales.

Partially offsetting the decrease in operating results in The Americas for the six months ended December 31, 2023, was higher results from Canada, driven by lower cost of sales reflecting the favorable impact from the shift of manufacturing production volume from third-party manufacturers to our own facilities for The Ordinary and an increase in net sales.

The reported operating loss decreased in The Americas for the three months ended March 31, 2024, primarily reflecting higher intercompany royalty income of $86 million compared to the prior-year period, driven by an increase in net sales in our travel retail business, and an increase in net sales, partially offset by an increase in stock-based compensation, due to the unfavorable year-over-year comparisons as a result of adjustments related to our performance share units.

Reported operating results decreased in The Americas for the nine months ended March 31, 2024, primarily reflecting lower operating results from the United States, primarily driven by lower intercompany royalty income of $184 million compared to the prior-year period, driven by a decrease in net sales in our travel retail business, and an increase in stock-based compensation, due to the unfavorable year-over-year comparisons in the recognition of expenses, as well as adjustments related to our performance share units.

Partially offsetting the lower operating results in the United States was the favorable year-over-year impact of other intangible asset impairments relating to Too Faced and Smashbox of $107 million during the fiscal 2023 second quarter, and an increase in net sales.

Europe, the Middle East & Africa

Three Months Ended

December 31 Six Months Ended

March 31 Nine Months Ended

($ in millions) 2024 2023 2024 2023

2 unchanged sentences

% Change from prior-year period 72 % (10) %

Reported operating income decreased in Europe, the Middle East & Africa for the three and six months ended December 31, 2023, primarily driven by lower results from our travel retail business, primarily due to the decrease in net sales, partially offset by the associated decrease in intercompany royalty expense to The Americas of $85 million and $270 million, respectively.

THE ESTÉE LAUDER COMPANIES INC.

Partially offsetting the decrease in operating income in Europe, the Middle East & Africa for the three months ended December 31, 2023 were higher results from Russia, primarily due to an increase in net sales as we continue selling a limited selection of products to retailers in Russia, as well as a decrease in expenses as a result of our scaled down operations, including the closure of all of our freestanding stores.

Reported operating income increased in Europe, the Middle East & Africa for the three months ended March 31, 2024, primarily driven by higher operating results from our travel retail business and the United Kingdom, combined, of approximately $117 million.

The higher operating results from our travel retail business were primarily due to an increase in net sales, partially offset by the associated increase in intercompany royalty expense to The Americas of $86 million.

Operating income in the United Kingdom increased, led by The Ordinary, primarily reflecting lower cost of sales due to a favorable impact from the shift of manufacturing production volume from third-party manufacturers to our own facilities, increased automation within such facilities, and lower obsolescence charges.

Reported operating income decreased in Europe, the Middle East & Africa for the nine months ended March 31, 2024, primarily driven by lower results from our travel retail business, primarily due to a decrease in net sales, partially offset by the associated decrease in intercompany royalty expense to The Americas of $184 million.

Partially offsetting the decrease in operating income in Europe, the Middle East & Africa for the nine months ended March 31, 2024, were higher results from the United Kingdom, primarily led by The Ordinary, reflecting an increase in net sales and a decrease in cost of sales, due to a favorable impact from the shift of manufacturing production volume from third-party manufacturers to our own facilities, increased automation within such facilities, and lower obsolescence charges, partially offset by an increase in selling expenses and advertising and promotional expenses to support the growth of the business.

Three Months Ended

December 31 Six Months Ended

March 31 Nine Months Ended

($ in millions) 2024 2023 2024 2023

6 unchanged sentences

GAAP measures.

Reported operating income increased in Asia/Pacific for the three months ended December 31, 2023, primarily driven by higher results in Korea, led by the Dr.Jart+ travel retail business in Korea, primarily reflecting the favorable year-over-year impact of the fiscal 2023 second quarter other intangible asset impairment relating to Dr.

Jart+ of $100 million.

Partially offsetting the increase in operating income for the three months ended December 31, 2023 was lower operating results from mainland China, primarily driven by a decrease in net sales, partially offset by disciplined advertising and promotional expense management.

Reported operating income decreased in Asia/Pacific for the six months ended December 31, 2023, primarily driven by lower operating results from mainland China and Taiwan, combined, of approximately $145 million.

The decrease in operating income in mainland China primarily reflects a decrease in net sales, partially offset by disciplined advertising and promotional expense management.

Operating income in Taiwan decreased, primarily driven by a decrease in net sales.

Partially offsetting the decrease in operating income in Asia/Pacific for the six months ended December 31, 2023 was higher operating results from Korea and Hong Kong SAR, combined, of approximately $112 million.

The increase in operating income from Korea was driven by the favorable year-over-year impact of the fiscal 2023 second quarter other intangible asset impairment relating to Dr.

Jart+ of $100 million, partially offset by a decrease in net sales from our Asia travel retail business due to the ongoing actions that we and our retailers have taken to reset retailer inventory levels, including the changes in government and retailer policies in the second half of fiscal 2023 related to unstructured market activity, and lower conversion of travelers to consumers.

The higher operating results from Hong Kong SAR was primarily driven by the increase in net sales, partially offset by an increase in cost of sales, due in part to an increase in promotional items.

Reported operating income increased in Asia/Pacific for the three months ended March 31, 2024, primarily driven by higher results in mainland China and Hong Kong SAR, combined, of approximately $37 million.

The increase in operating results from mainland China was primarily driven by disciplined advertising and promotional expense management, partially offset by higher store operating costs, driven by an unfavorable comparison from a commission rebate benefit received in the prior-year period.

Operating results in Hong Kong SAR increased, primarily driven by an increase in net sales.

Partially offsetting the increase in operating income in Asia/Pacific for the three months ended March 31, 2024, was lower results from Japan, primarily reflecting higher cost of sales, driven by our new manufacturing facility near Tokyo which began limited production in fiscal 2023.

Reported operating income decreased in Asia/Pacific for the nine months ended March 31, 2024, primarily driven by lower results in mainland China, Japan, Taiwan and Thailand, combined, of approximately $145 million.

The decrease in operating income in mainland China was primarily driven by a decrease in net sales, partially offset by disciplined advertising and promotional expense management.

Operating income in Japan decreased, primarily reflecting higher cost of sales driven by our new manufacturing facility near Tokyo which began limited production in fiscal 2023.

The decrease in operating results in Taiwan and Thailand were primarily driven by decreases in net sales.

THE ESTÉE LAUDER COMPANIES INC.

Partially offsetting the decrease in operating income in Asia/Pacific for the nine months ended March 31, 2024 was higher operating results from Korea, led by the Dr.Jart+ travel retail business in Korea, and Hong Kong SAR, combined, of approximately $121 million.

The increase in operating income from Korea, led by the Dr.Jart+ travel retail business in Korea, was primarily driven by the favorable year-over-year impact of the fiscal 2023 second quarter other intangible asset impairment relating to Dr.

Jart+ of $100 million, partially offset by a decrease in net sales.

Operating results from Hong Kong SAR increased, primarily driven by an increase in net sales, partially offset by an increase in advertising and promotional expenses to support the resumption of travel from mainland China to Hong Kong SAR due to the lifting of travel restrictions which began during the fiscal 2023 third quarter, as well as an increase in store operating costs driven by increased sales.

INTEREST AND INVESTMENT INCOME

Three Months Ended

December 31 Six Months Ended

March 31 Nine Months Ended

(In millions) 2024 2023 2024 2023

1 unchanged sentence

Interest income and investment income, net $ 45 $ 37 $ 126 $ 78

THE ESTÉE LAUDER COMPANIES INC.

Interest expense increased for the three and six months ended December 31, 2023, primarily reflecting a higher debt balance, due in part to the financing of our acquisition of the TOM FORD brand, including the issuance of commercial paper primarily in the second half of fiscal 2023, and the issuance of Senior Notes in May 2023.

Interest expense increased for the three and nine months ended March 31, 2024, primarily reflecting a higher debt balance, due in part to the financing of our acquisition of the TOM FORD brand and the issuance of Senior Notes in May 2023.

Also contributing to the increase in interest expense was higher interest rates compared to the prior-year period.

7 unchanged sentences

Three Months Ended

December 31 Six Months Ended

March 31 Nine Months Ended

2024 2023 2024 2023

1 unchanged sentence

Basis-point change from the prior-year period (1,350) 600

For the three months ended December 31, 2023, the increase in the effective tax rate was primarily attributable to a higher effective tax rate on the Company's foreign operations, due to the Company's geographical mix of earnings for fiscal 2024, and the unfavorable impact associated with previously issued stock-based compensation, partially offset by a decrease in state and local income taxes.

For the six months ended December 31, 2023, the increase in the effective tax rate was primarily attributable to a higher effective tax rate on the Company's foreign operations, due to the Company's geographical mix of earnings for fiscal 2024, and the unfavorable impact associated with previously issued stock-based compensation.

For the three months ended March 31, 2024, the decrease in the effective tax rate was primarily attributable to a lower effective tax rate on our foreign operations due to the timing of the estimated change in our full year geographical mix of earnings in the current and prior-year periods, partially offset by the unfavorable impact associated with previously issued stock-based compensation.

For the nine months ended March 31, 2024, the increase in the effective tax rate was primarily attributable to a higher effective tax rate on our foreign operations due to our geographical mix of earnings for fiscal 2024, and the unfavorable impact associated with previously issued stock-based compensation.

THE ESTÉE LAUDER COMPANIES INC.

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) 2024 2023 2024 2023

9 unchanged sentences

GAAP measures.

THE ESTÉE LAUDER COMPANIES INC.

RECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES

11 unchanged sentences

GAAP measures.

THE ESTÉE LAUDER COMPANIES INC.

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

6 unchanged sentences

Charges associated with restructuring and other activities 18 18 —

Other intangible asset impairments — 207 (207)

Change in fair value of acquisition-related stock options 5 1 4

2 unchanged sentences

Charges associated with restructuring and other activities .04 .04 —

Other intangible asset impairments — .44 (.44)

Change in fair value of acquisition-related stock options (less portion attributable to redeemable noncontrolling interest) .02 — .02

1 unchanged sentence

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

43 unchanged sentences

in constant currency

Six Months Ended

Nine Months Ended

($ in millions) 2024 2023 Variance

17 unchanged sentences

As Reported Add:

Other intangible asset impairments Add:

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

20 unchanged sentences

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

Six Months Ended

Nine Months Ended

($ in millions) 2024 2023 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, 2023, we had cash and cash equivalents of $3,939 million compared with $4,029 million at June 30, 2023.

At March 31, 2024, we had cash and cash equivalents of $3,701 million compared with $4,029 million at June 30, 2023.

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

1 unchanged sentence

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

In the fiscal 2024 fourth quarter, we anticipate purchasing the remaining interest in DECIEM, pursuant to the terms of the net Put (Call) Option for a purchase price based on the performance of DECIEM.

This will result in the settlement of the DECIEM stock options and the redeemable noncontrolling interest balances.

In April 2024, we notified the minority interest holders that we are exercising our option to purchase the remaining interests in DECIEM, pursuant to the terms of the net Put (Call) Option for a purchase price based on the performance of DECIEM.

This will result in the settlement of the DECIEM stock options and the redeemable noncontrolling interest balances during the fiscal 2024 fourth quarter.

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

5 unchanged sentences

THE ESTÉE LAUDER COMPANIES INC.

Inflation impacted our overall operating results in the fiscal 2024 second quarter and we expect it to continue.

Inflation impacted our overall operating results in the fiscal 2024 third quarter and we expect it to continue.

Generally, we have plans to introduce new products at higher prices, increase prices and implement other operating efficiencies which we expect to offset some of these cost increases.

4 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 29, 2024, our long-term debt is rated A with a negative outlook by Standard & Poor’s and A1 with a negative outlook by Moody’s.

As of April 24, 2024, our long-term debt is rated A with a negative outlook by Standard & Poor’s and A1 with a negative outlook by Moody’s.

THE ESTÉE LAUDER COMPANIES INC.

At December 31, 2023, our outstanding borrowings were as follows:

At March 31, 2024, our outstanding borrowings were as follows:

($ in millions) Long-term

7 unchanged sentences

6.000% Senior Notes, due May 15, 2037 (“2037 Senior Notes”) (6), (16)

5.000% Senior Notes, due February 14, 2034 ("2034 Senior Notes) (7), (16)

5.75% Senior Notes, due October 15, 2033 (“October 2033 Senior Notes”) (8), (16)

6 unchanged sentences

2.000% Senior Notes, due December 1, 2024 (“2024 Senior Notes”) (15), (16)

Commercial paper (16)

Other long-term borrowings 29 — 29

9 unchanged sentences

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

(9) Consists of $700 million principal, unamortized debt discount of $1 million and debt issuance costs of $4 million.

(10) Consists of $600 million principal, unamortized debt discount of $3 million, debt issuance costs of $3 million and a $44 million loss to reflect the fair value of interest rate swaps.

5 unchanged sentences

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

(16) Consists of $1,000 million principal and unamortized debt discount of $5 million.

Total debt as a percent of total capitalization was 59% at December 31, 2023 and June 30, 2023.

Total debt as a percent of total capitalization was 57% and 59% at March 31, 2024 and June 30, 2023, respectively.

THE ESTÉE LAUDER COMPANIES INC.

Six Months Ended

Nine Months Ended

(In millions) 2024 2023

1 unchanged sentence

Net cash flows used for investing activities $ (735) $ (527)

Net cash flows used for financing activities

Net cash flows provided by (used for) financing activities

$ (1,059) $ 1,090

The change in net cash flows provided by operating activities was primarily driven by a favorable change in working capital, reflecting a favorable change in inventory and promotional merchandise and other accrued and noncurrent liabilities which includes the favorable impact from the settlement of foreign currency forward contracts not designated as hedging instruments compared to the prior-year period, partially offset by lower earnings before tax, excluding non-cash items.

The change in net cash flows used for investing activities reflected an increase in capital expenditures, primarily driven by the investments related to our new manufacturing facility in Japan, and an unfavorable impact from the settlement of net investment hedges compared to the prior-year period, for which there is a partially offsetting favorable impact related to foreign currency forward contracts not designated as hedging instruments that is reflected in working capital noted above.

The change in net cash flows used for financing activities primarily reflected an increase in proceeds from the issuance of short-term commercial paper compared to the prior-year period, a favorable impact in repayments of debt due to the repayment of the outstanding principal balance of our $250 million, 2.35% senior notes that matured during the fiscal 2023 first quarter and lower treasury stock repurchases compared to the prior-year period, partially offset by repayments of commercial paper during the fiscal 2024 second quarter.

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, 2023, see Notes to Consolidated Financial Statements, Note 11 – Equity and Redeemable Noncontrolling Interest .

The change in net cash flows used for investing activities was primarily driven by an unfavorable impact from the settlement of net investment hedges compared to the prior-year period, for which there is a partially offsetting favorable impact related to foreign currency forward contracts not designated as hedging instruments that is reflected in working capital noted above, and an increase in capital expenditures, primarily driven by the timing of payments relating to the manufacturing facility near Tokyo as it nears completion.

The change in net cash flows provided by (used for) financing activities primarily reflected an unfavorable impact in repayments of commercial paper during fiscal 2024 as compared to an increase in proceeds from the issuance of short-term commercial paper in the prior-year period, partially offset by an increase in debt due to the issuance of our $650 million, 5.000% Senior Notes in February 2024, a favorable impact in repayments of debt due to the repayment of the outstanding principal balance of our $250 million, 2.35% Senior Notes that matured during the fiscal 2023 first quarter and lower treasury stock repurchases compared to 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, 2024, see Notes to Consolidated Financial Statements, Note 12 – Equity and Redeemable Noncontrolling Interest .

Pension and Post-retirement Plan Funding

12 unchanged sentences

A hypothetical 10% weakening of the U.S.

dollar against the foreign exchange rates for the currencies in our portfolio would have resulted in a net decrease in the fair value of our portfolio of approximately $254 million and $265 million as of December 31, 2023 and June 30, 2023, 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 $356 million and $265 million as of March 31, 2024 and June 30, 2023, respectively.

The increase from June 30, 2023 to March 31, 2024 was driven by an increase in the net short foreign currency position of the portfolio.

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

1 unchanged sentence

A hypothetical 10% weakening of the U.S.

dollar against the foreign exchange rates for the currencies in our cross-currency swap contracts would have resulted in a net decrease in the fair value of our cross-currency swap contracts of approximately $49 million as of December 31, 2023 and June 30, 2023, respectively.

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 $53 million and $55 million as of December 31, 2023 and June 30, 2023, respectively.

Based on a hypothetical 100 basis point increase in interest rates, the estimated fair value of our interest rate derivatives would decrease by approximately $50 million and $55 million as of March 31, 2024 and June 30, 2023, 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.

45 unchanged sentences

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