ESTEE LAUDER COMPANIES INC 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. RESULTS OF OPERATIONS We manufacture, market and sell beauty products including those in the skin care, makeup, fragrance and hair care categories, which are distributed in approximately 150 countries and territories. The following table is a comparative summary of operating results for the three 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 nine months ended March 31, 2023. See Note 14 – Segment Data and Related Information for additional details. Three Months Ended March 31 Nine Months Ended March 31 (In millions) 2024 2023 2024 2023 NET SALES By Product Category: Skin Care $ 2,060 $ 1,915 $ 5,873 $ 6,454 Makeup 1,136 1,104 3,365 3,424 Fragrance 575 577 1,948 1,907 Hair Care 143 148 464 488 Other 26 11 88 38 3,940 3,755 11,738 12,311 Returns associated with restructuring and other activities — (4) (1) (10) Net sales $ 3,940 $ 3,751 $ 11,737 $ 12,301 By Region (1) : The Americas $ 1,117 $ 1,089 $ 3,567 $ 3,447 Europe, the Middle East & Africa 1,647 1,474 4,488 4,972 Asia/Pacific 1,176 1,192 3,683 3,892 3,940 3,755 11,738 12,311 Returns associated with restructuring and other activities — (4) (1) (10) Net sales $ 3,940 $ 3,751 $ 11,737 $ 12,301 OPERATING INCOME (LOSS) By Product Category: Skin Care $ 468 $ 269 $ 920 $ 1,238 Makeup 66 (5) 56 (9) Fragrance 29 66 267 343 Hair Care (25) (24) (50) (32) Other 11 9 38 7 549 315 1,231 1,547 Charges associated with restructuring and other activities (18) (18) (28) (33) Operating income $ 531 $ 297 $ 1,203 $ 1,514 By Region (1) : The Americas $ (6) $ (93) $ (243) $ (53) Europe, the Middle East & Africa 302 176 825 919 Asia/Pacific 253 232 649 681 549 315 1,231 1,547 Charges associated with restructuring and other activities (18) (18) (28) (33) Operating income $ 531 $ 297 $ 1,203 $ 1,514 (1) The net sales from the Company's travel retail business are included in the Europe, the Middle East & Africa region, and operating income attributable to these net sales are included in that region and in The Americas. The exception is for net sales and operating income of Dr.Jart+ in the travel retail channel in Korea that are reflected in Korea in the Asia/Pacific region. 40 Table of Contents THE ESTÉE LAUDER COMPANIES INC. The following table presents certain consolidated earnings data as a percentage of net sales: Three Months Ended March 31 Nine Months Ended March 31 2024 2023 2024 2023 Net sales 100.0 % 100.0 % 100.0 % 100.0 % Cost of sales 28.1 30.9 28.4 27.6 Gross profit 71.9 69.1 71.6 72.4 Operating expenses: Selling, general and administrative 58.0 60.8 61.1 58.2 Restructuring and other charges 0.5 0.4 0.2 0.2 Impairment of other intangible assets — — — 1.7 Total operating expenses 58.4 61.2 61.4 60.0 Operating income 13.5 7.9 10.2 12.3 Interest expense 2.4 1.5 2.4 1.3 Interest income and investment income, net 1.1 1.0 1.1 0.6 Other components of net periodic benefit cost (0.1) (0.1) (0.1) (0.1) Earnings before income taxes 12.3 7.5 9.0 11.7 Provision for income taxes 3.8 3.3 3.0 3.3 Net earnings 8.5 4.1 5.9 8.5 Net loss (earnings) attributable to redeemable noncontrolling interest (0.1) — (0.2) — Net earnings attributable to The Estée Lauder Companies Inc. 8.4 % 4.2 % 5.7 % 8.4 % Not adjusted for differences caused by rounding Period-over-period changes in our net sales are generally attributable to the impacts from (i) pricing on our base portfolio, including changes in mix and those due to strategic pricing actions, (ii) volume, including changes driven by the impact of new product innovation, (iii) acquisitions and/or divestitures, and/or (iv) foreign currency translation. The percentages disclosed for these impacts are calculated on an individual basis. The net sales impact from pricing consists of changes in list prices, due to strategic pricing actions, and mix shifts within and among product categories, geographic regions, brands and distribution channels. The prices at which we sell our products vary by brand, distribution channel (e.g., wholesale or direct-to-consumer) and may also vary by country. Our brands and products cover a broad array of pricing tiers. Prices of skin care and fragrance products are typically higher than makeup and hair care products. New product innovation includes the introduction of new products, as well as changes related to existing products or where they are sold, including reformulations, regional expansion, repackaging and sets. A product is considered "new innovation" for the twelve-month period following the initial shipment date. Our innovation is launched at different price points than existing products and value derived from innovation may vary from year to year. We continually introduce new products, support new and established products through advertising, merchandising and sampling and phase out existing products that no longer meet the needs of our consumers or our objectives. The economics of developing, producing, launching, supporting and discontinuing products impact our sales and operating performance each period. The introduction of new products often has some cannibalizing effect on sales of existing products, which we take into account in our business planning. The impact of new product introductions, including timing compared to introductions in prior periods, also affects our results. 41 Table of Contents THE ESTÉE LAUDER COMPANIES INC. Non-GAAP Financial Measures We use certain non-GAAP financial measures, among other financial measures, to evaluate our operating performance, which represent the manner in which we conduct and view our business. Management believes that excluding certain items that are not comparable from period to period helps investors and others compare operating performance between periods. While we consider the non-GAAP measures useful in analyzing our results, they are not intended to replace, or act as a substitute for, any presentation included in the consolidated financial statements prepared in conformity with U.S. GAAP. See Reconciliations of Non-GAAP Financial Measures beginning on page 61 for reconciliations between non-GAAP financial measures and the most directly comparable U.S. GAAP measures. We operate on a global basis, with the majority of our net sales generated outside the United States. Accordingly, fluctuations in foreign currency exchange rates affect our results of operations. Therefore, we present certain net sales, operating results and diluted net earnings per common share information excluding the effect of foreign currency rate fluctuations to provide a framework for assessing the performance of our underlying business outside the United States. Constant currency information compares results between periods as if exchange rates had remained constant period-over-period. We calculate constant currency information by translating current-period results using monthly average foreign currency exchange rates and adjusting for the period-over-period impact of foreign currency cash flow hedging activities. Overview We are a leader in prestige beauty, which combines the repeat purchase and relative affordability of consumer goods with high quality products and services. Within prestige beauty, we are diversified by product category, geography, brand, product sub-category, channel, consumer segment and price point. We also leverage consumer analytics and insights with agility by deploying our brands to fast growing and profitable opportunities. These analytics and insights, combined with our creativity, inform our innovation to provide a broad, locally-relevant and inclusive range of prestige products allowing us to compete effectively for a greater share of a consumer's beauty routine. Elements of our strategy are described in the Overview on pages 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 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. 42 Table of Contents THE ESTÉE LAUDER COMPANIES INC. Our global distribution capability and operations allow us to focus on targeted expanded consumer reach wherever consumer demographics and trends are attractive. Our regional organizations, and the expertise of our people there, enable our brands to be more locally and culturally relevant in both product assortment and communications. We are evolving the way we connect with our consumers in stores, online and where they travel, including by expanding our digital and social media presence and the engagement of global and local influencers to amplify brand or product stories. We tailor implementation of our strategy by market to drive consumer engagement and embrace inclusion and cultural diversity. We continuously strengthen our presence in large, image-building core markets, while broadening our presence in emerging markets. • 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. 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. • 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. Outlook 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 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. We believe that the best way to increase long-term stockholder value is to continue providing superior products and services in the most efficient and effective manner while recognizing shifts in consumers’ behaviors and shopping practices. Accordingly, our long-term strategy has numerous initiatives across geographic regions, product categories, brands, channels of distribution and functions designed to grow our sales, provide cost efficiencies, leverage our strengths and make us more productive and profitable. We plan to build upon and leverage our history of outstanding creativity and innovation, high quality products and services, and engaging communications while investing for long-term sustainable growth. We continue to monitor the effects of the global macro environment, including the risk of recession; currency volatility; inflationary pressures; supply chain challenges; social and political issues; regulatory matters, including the imposition of tariffs and sanctions; geopolitical tensions; and global security issues. For example, the strengthening of the U.S. dollar could negatively impact results within Europe, the Middle East & Africa due to pricing pressures on our retail customers and consumers in key international travel retail locations. Additionally, we continue to monitor the geopolitical tensions between the United States and China, which could have a material adverse effect on our business. We are also mindful of inflationary pressures on our cost base and are monitoring the impact on consumer preferences. 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. 43 Table of Contents THE ESTÉE LAUDER COMPANIES INC. Cybersecurity Incident Disclosed in July 2023 As initially disclosed on July 18, 2023, we identified a cybersecurity incident in which an unauthorized third party gained access to some of our systems. Our investigation into the cybersecurity incident is complete. We determined that the unauthorized third party obtained some data from our systems, including consumer and employee data. 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 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 As previously communicated on November 1, 2023, we launched a Profit Recovery Plan to help progressively rebuild our profit margins in fiscal years 2025 and 2026. The Profit Recovery Plan is focused on rebuilding stronger, more sustainable profitability, supporting sales growth acceleration and increasing speed and agility. The plan is designed to improve gross margin, lower the cost base and reduce overhead expenses, while increasing investments in key consumer-facing activities. Upon completion of this plan, we expect to have improved our gross margin and expense base to drive greater operating leverage for the future. As a component of the Profit Recovery Plan, on February 5, 2024, we announced a two-year restructuring program. The restructuring program’s main focus includes the reorganization and rightsizing of certain areas of our business as well as simplification and acceleration of processes. We committed to this course of action on February 1, 2024. 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. We plan to substantially complete specific initiatives under the restructuring program through fiscal 2026. We expect that the restructuring program will result in restructuring and other charges totaling between $500 million and $700 million, before taxes, consisting of employee-related costs, contract terminations, asset write-offs and other costs associated with implementing these initiatives. Once fully implemented, we expect the restructuring program to yield annual target gross benefits of between $350 million and $500 million, before taxes, a portion of which is expected to be reinvested in consumer-facing activities. The net benefits are in addition to the between $800 million and $1,000 million previously communicated as part of the Profit Recovery Plan. Further information about the Restructuring Program Component of the Profit Recovery Plan, is described in Notes to Consolidated Financial Statements, Note 3 – Charges Associated with Restructuring and Other Activities herein. 44 Table of Contents THE ESTÉE LAUDER COMPANIES INC. NET SALES Three Months Ended March 31 Nine Months Ended March 31 ($ in millions) 2024 2023 2024 2023 As Reported: Net sales $ 3,940 $ 3,751 $ 11,737 $ 12,301 $ Change from prior-year period 189 (564) % Change from prior-year period 5 % (5) % Non-GAAP Financial Measure (1) : % Change from prior-year period in constant currency adjusting for returns associated with restructuring and other activities 6 % (4) % (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 net sales increased during the three months ended March 31, 2024, primarily driven by higher net sales in 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. 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 nine months ended March 31, 2024 of $1 million, and for the three and nine months ended March 31, 2023 of $4 million and $10 million, respectively. Reported net sales increased 5% for the three months ended March 31, 2024, driven by an increase from pricing of 10%, due to the favorable impact from strategic pricing actions and changes in mix, partially offset by the decrease from volume of 4% and the unfavorable impact from foreign currency translation of 1% . Reported net sales decreased 5% for the nine months ended March 31, 2024, driven by the decrease from volume of 10%, partially offset by an increase from pricing of 5% due to the favorable impact from strategic pricing actions, partially offset by changes in mix. 45 Table of Contents THE ESTÉE LAUDER COMPANIES INC. Product Categories Skin Care Three Months Ended March 31 Nine Months Ended March 31 ($ in millions) 2024 2023 2024 2023 As Reported: Net sales $ 2,060 $ 1,915 $ 5,873 $ 6,454 $ Change from prior-year period 145 (581) % Change from prior-year period 8 % (9) % Non-GAAP Financial Measure (1) : % Change from prior-year period in constant currency 9 % (8) % (1) See “ Reconciliations of Non-GAAP Financial Measures” beginning on page 61 for reconciliations between non-GAAP financial measures and the most directly comparable U.S. GAAP measures. Reported skin care 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 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. 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. 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. 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 $52 million of unfavorable foreign currency translation for the three and nine months ended March 31, 2024, respectively. Reported skin care net sales increased 8% for the three months ended March 31, 2024, driven by an increase from pricing of 14%, due to the favorable impact from strategic pricing actions and changes in mix, partially offset by the decrease from volume of 4% and the unfavorable impact from foreign currency translation of 2%. Reported skin care net sales decreased 9% for the nine months ended March 31, 2024, driven by the decrease from volume of 15% and the unfavorable impact of foreign currency translation of 1%. Partially offsetting these decreases was an increase from pricing of 6%, due to the favorable impact from strategic pricing actions and changes in mix. 46 Table of Contents THE ESTÉE LAUDER COMPANIES INC. Makeup Three Months Ended March 31 Nine Months Ended March 31 ($ in millions) 2024 2023 2024 2023 As Reported: Net sales $ 1,136 $ 1,104 $ 3,365 $ 3,424 $ Change from prior-year period 32 (59) % Change from prior-year period 3 % (2) % Non-GAAP Financial Measure (1) : % Change from prior-year period in constant currency 4 % (2) % (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 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. 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. 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 $10 million of unfavorable foreign currency translation for the three months ended March 31, 2024. Reported makeup net sales increased 3% for the three months ended March 31, 2024, driven by an increase from pricing of 6%, due to the favorable impact from strategic pricing actions, partially offset by changes in mix. Partially offsetting this increase was the decrease from volume of 2% and the unfavorable impact of foreign currency translation of 1%. Reported makeup net sales decreased 2% for the nine months ended March 31, 2024, driven by the decrease from volume of 5%, partially offset by an increase from pricing of 4%, due to the favorable impact from strategic pricing actions, partially offset by changes in mix. 47 Table of Contents THE ESTÉE LAUDER COMPANIES INC. Fragrance Three Months Ended March 31 Nine Months Ended March 31 ($ in millions) 2024 2023 2024 2023 As Reported: Net sales $ 575 $ 577 $ 1,948 $ 1,907 $ Change from prior-year period (2) 41 % Change from prior-year period — % 2 % Non-GAAP Financial Measure (1) : % Change from prior-year period in constant currency 1 % 2 % (1) See “ Reconciliations of Non-GAAP Financial Measures” beginning on page 61 for reconciliations between non-GAAP financial measures and the most directly comparable U.S. GAAP measures. Reported fragrance 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, combined, of approximately $33 million. 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 $4 million of unfavorable foreign currency translation for the three and nine months ended March 31, 2024, respectively. Reported fragrance net sales were virtually flat for the three months ended March 31, 2024, driven by the decrease from volume of 7% and the unfavorable impact from foreign currency translation of 1%. These decreases were partially offset by an increase from pricing of 7%, due to the favorable impact from strategic pricing actions and changes in mix. Reported fragrance net sales increased 2% for the nine months ended March 31, 2024, driven by an increase from pricing of 5%, due to the favorable impact from strategic pricing actions, partially offset by changes in mix. This increase was partially offset by the decrease from volume of 3%. 48 Table of Contents THE ESTÉE LAUDER COMPANIES INC. Hair Care Three Months Ended March 31 Nine Months Ended March 31 ($ in millions) 2024 2023 2024 2023 As Reported: Net sales $ 143 $ 148 $ 464 $ 488 $ Change from prior-year period (5) (24) % Change from prior-year period (3) % (5) % Non-GAAP Financial Measure (1) : % Change from prior-year period in constant currency (4) % (6) % (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 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 $3 million of favorable foreign currency translation for the three and nine months ended March 31, 2024, respectively. Reported hair care net sales decreased 3% for the three months ended March 31, 2024, driven by the decrease from volume of 18%. This decrease was partially offset by the increase from pricing of 14%, due to the favorable impact from strategic pricing actions and changes in mix, and the favorable impact from foreign currency translation of 1%. Reported hair care net sales decreased 5% for the nine months ended March 31, 2024, driven by the decrease from volume of 13%. This decrease was partially offset by the increase from pricing of 8%, due to the favorable impact from strategic pricing actions and changes in mix, and the favorable impact of foreign currency translation of 1%. Geographic Regions We strategically time our new product launches by geographic market, which may account for differences in regional sales growth. The Americas Three Months Ended March 31 Nine Months Ended March 31 ($ in millions) 2024 2023 2024 2023 As Reported: Net sales $ 1,117 $ 1,089 $ 3,567 $ 3,447 $ Change from prior-year period 28 120 % Change from prior-year period 3 % 3 % Non-GAAP Financial Measure (1) : % Change from prior-year period in constant currency 2 % 3 % (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. 49 Table of Contents 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 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. 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 $1 million of favorable foreign currency translation for the three and nine months ended March 31, 2024, respectively. Reported net sales in The Americas increased 3% for the three months ended March 31, 2024, driven by an increase from pricing of 7%, due to the favorable impact from strategic pricing actions and changes in mix, and the impact from the royalty revenue from the fiscal 2023 fourth quarter acquisition of the TOM FORD brand of 1%. These increases were partially offset by a decrease from volume of 6%. Reported net sales in The Americas increased 3% for the nine months ended March 31, 2024, driven by an increase from pricing of 2%, due to the favorable impact of strategic pricing actions, partially offset by changes in mix, and the impact from the royalty revenue from the fiscal 2023 fourth quarter acquisition of the TOM FORD brand of 1%. The impact from volume was virtually flat. Europe, the Middle East & Africa Three Months Ended March 31 Nine Months Ended March 31 ($ in millions) 2024 2023 2024 2023 As Reported: Net sales $ 1,647 $ 1,474 $ 4,488 $ 4,972 $ Change from prior-year period 173 (484) % Change from prior-year period 12 % (10) % Non-GAAP Financial Measure (1) : % Change from prior-year period in constant currency 12 % (11) % (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 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. 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. 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. 50 Table of Contents 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 $53 million of favorable foreign currency translation for the three and nine months ended March 31, 2024, respectively. Reported net sales in Europe, the Middle East & Africa increased 12% for the three months ended March 31, 2024, driven by an increase from pricing of 13%, due to the favorable impact from strategic pricing actions and changes in mix, partially offset by the decrease from volume of 1%. Reported net sales in Europe, the Middle East & Africa decreased 10% for the nine months ended March 31, 2024, driven by the decrease from volume of 17%. This decrease was partially offset by the increase from pricing of 6%, due to the favorable impact from strategic pricing actions, partially offset by changes in mix, and the favorable impact from foreign currency translation of 1%. Asia/Pacific Three Months Ended March 31 Nine Months Ended March 31 ($ in millions) 2024 2023 2024 2023 As Reported: Net sales $ 1,176 $ 1,192 $ 3,683 $ 3,892 $ Change from prior-year period (16) (209) % Change from prior-year period (1) % (5) % Non-GAAP Financial Measure (1) : % Change from prior-year period in constant currency 3 % (3) % (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 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. 51 Table of Contents THE ESTÉE LAUDER COMPANIES INC. 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 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 March 31, 2024 Three Months Ended Nine Months Ended Mix of business 460 125 Obsolescence charges 125 — Manufacturing costs and other (230) (120) Foreign exchange transactions (75) (85) Total 280 (80) 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. 52 Table of Contents THE ESTÉE LAUDER COMPANIES INC. OPERATING EXPENSES 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 March 31, 2024 Three Months Ended Nine Months Ended General and administrative expenses 50 (30) Advertising, merchandising, sampling and product development 240 (50) Selling 40 (80) Stock-based compensation (30) (60) Store operating costs (70) (90) Shipping 50 10 Foreign exchange transactions 20 10 Subtotal 300 (290) Charges associated with restructuring and other activities (10) — Other intangible asset impairments — 170 Changes in fair value of acquisition-related stock options (10) (20) Total 280 (140) 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. 53 Table of Contents THE ESTÉE LAUDER COMPANIES INC. OPERATING RESULTS Three Months Ended March 31 Nine Months Ended March 31 ($ in millions) 2024 2023 2024 2023 As Reported: Operating income $ 531 $ 297 $ 1,203 $ 1,514 $ Change from prior-year period 234 (311) % Change from prior-year period 79 % (21) % Operating margin 13.5 % 7.9 % 10.2 % 12.3 % Non-GAAP Financial Measure (1) : % Change in operating income from the prior-year period adjusting for the impact of charges associated with restructuring and other activities, other intangible asset impairments and the change in fair value of acquisition-related stock options 75 % (29) % (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. 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 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 $33 million, respectively. 54 Table of Contents THE ESTÉE LAUDER COMPANIES INC. Product Categories Skin Care Three Months Ended March 31 Nine Months Ended March 31 ($ in millions) 2024 2023 2024 2023 As Reported: Operating income $ 468 $ 269 $ 920 $ 1,238 $ Change from prior-year period 199 (318) % Change from prior-year period 74 % (26) % Non-GAAP Financial Measure (1) : % Change in operating income from the prior-year period adjusting for the impact of other intangible asset impairments and the change in fair value of acquisition-related stock options 75 % (31) % (1) See “ Reconciliations of Non-GAAP Financial Measures” beginning on page 61 for reconciliations between non-GAAP financial measures and the most directly comparable U.S. GAAP measures. Reported skin care operating income increased for the three months ended March 31, 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 $100 million, as well as higher operating results from The Ordinary, primarily driven by an increase in net sales and a decrease in cost of sales due in part to the favorable impact from the shift of manufacturing production volume from third-party manufacturers to our own facilities, increased automation within such facilities, and lower obsolescence charges. Partially offsetting the increase in operating income from The Ordinary was an increase in advertising and promotional activities as the brand continues to invest and support the growth of the business. 55 Table of Contents THE ESTÉE LAUDER COMPANIES INC. Makeup Three Months Ended March 31 Nine Months Ended March 31 ($ in millions) 2024 2023 2024 2023 As Reported: Operating income (loss) $ 66 $ (5) $ 56 $ (9) $ Change from prior-year period 71 65 % Change from prior-year period 100+% 100+% Non-GAAP Financial Measure (1) : % Change in operating income from the prior-year period adjusting for the impact of other intangible asset impairments 100+% (43) % (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 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 $70 million. The increase in operating income from Clinique was primarily driven by an increase in net sales. Operating income from TOM FORD increased, primarily driven by lower cost of sales due in part to lower freight and transportation costs compared to the prior-year period and a decrease in royalty expense as a result of the fiscal 2023 fourth quarter acquisition of TOM FORD brand. Partially offsetting the increase in makeup operating income for the nine months ended March 31, 2024, was lower operating results from M·A·C, primarily driven by a decrease in net sales, partially offset by disciplined advertising and promotional expense management. Also partially offsetting the increase in makeup operating income for the nine months ended March 31, 2024 was the recognition of the impact of reduced manufacturing volumes on our standard cost within cost of sales, and an increase in general and administrative expenses, reflecting higher employee-related costs, primarily driven by the increase to stock-based compensation related to the unfavorable year-over-year comparisons in the recognition of expenses, as well as adjustments related to our performance share units, and annual increases to salaries and wages, partially offset by lower incentive compensation. 56 Table of Contents THE ESTÉE LAUDER COMPANIES INC. Fragrance Three Months Ended March 31 Nine Months Ended March 31 ($ in millions) 2024 2023 2024 2023 As Reported: Operating income $ 29 $ 66 $ 267 $ 343 $ Change from prior-year period (37) (76) % Change from prior-year period (56) % (22) % 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 $31 million. The decrease in operating income from TOM FORD was primarily driven by higher cost of sales, due in part to an increase in promotional items, higher advertising and promotional expenses to support new product launches, higher selling expenses due to an increase in demonstration expenses compared to the prior-year period, and an increase in general and administrative expenses as the brand continues to invest and support the growth of the business, partially offset by a decrease in royalty expense as a result of the fiscal 2023 fourth quarter acquisition of TOM FORD brand and an increase in net sales. Operating income from Clinique decreased, primarily driven by a decrease in net sales. Also contributing to the decrease in fragrance operating income for the nine months ended March 31, 2024 was an increase in general and administrative expenses, reflecting higher employee-related costs, primarily driven by the increase in stock-based compensation related to the unfavorable year-over-year comparisons in the recognition of expenses, as well as adjustments related to our performance share units, and annual increases to salaries and wages, partially offset by lower incentive compensation, and the recognition of the impact of reduced manufacturing volumes on our standard cost within cost of sales. Hair Care Three Months Ended March 31 Nine Months Ended March 31 ($ in millions) 2024 2023 2024 2023 As Reported: Operating loss $ (25) $ (24) $ (50) $ (32) $ Change from prior-year period (1) (18) % Change from prior-year period (4) % (56) % 57 Table of Contents 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 $11 million. Operating results from Aveda increased, primarily driven by disciplined advertising and promotional expense management, lower general and administrative expenses, partially offset by a decrease in net sales. The increase in operating results from Bumble and bumble was driven by a decrease in cost of sales, primarily reflecting the favorable impact of product mix and a decrease in promotional activities due to disciplined expense management, and an increase in net sales. Reported hair care operating results decreased for the nine months ended March 31, 2024, primarily reflecting the decrease in net sales and the recognition of the impact of reduced manufacturing volumes on our standard cost within cost of sales, partially offset by the benefit from disciplined advertising and promotional expense management. Geographic Regions The Americas Three Months Ended March 31 Nine Months Ended March 31 ($ in millions) 2024 2023 2024 2023 As Reported: Operating loss $ (6) $ (93) $ (243) $ (53) $ Change from prior-year period 87 (190) % Change from prior-year period 94 % (100+)% Non-GAAP Financial Measure (1) : % Change in operating income from the prior-year period adjusting for the impact of other intangible asset impairments and change in fair value of acquisition-related stock options 99 % (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. 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 $107 million during the fiscal 2023 second quarter, and an increase in net sales. Europe, the Middle East & Africa Three Months Ended March 31 Nine Months Ended March 31 ($ in millions) 2024 2023 2024 2023 As Reported: Operating income $ 302 $ 176 $ 825 $ 919 $ Change from prior-year period 126 (94) % Change from prior-year period 72 % (10) % 58 Table of Contents THE ESTÉE LAUDER COMPANIES INC. 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 $184 million. Partially offsetting the decrease in operating income in Europe, the Middle East & Africa for the nine months ended March 31, 2024, were higher results from the United Kingdom, primarily led by The Ordinary, reflecting an increase in net sales and a decrease in cost of sales, due to a favorable impact from the shift of manufacturing production volume from third-party manufacturers to our own facilities, increased automation within such facilities, and lower obsolescence charges, partially offset by an increase in selling expenses and advertising and promotional expenses to support the growth of the business. Asia/Pacific Three Months Ended March 31 Nine Months Ended March 31 ($ in millions) 2024 2023 2024 2023 As Reported: Operating income $ 253 $ 232 $ 649 $ 681 $ Change from prior-year period 21 (32) % Change from prior-year period 9 % (5) % Non-GAAP Financial Measure (1) : % Change in operating income from the prior-year period adjusting for the impact of other intangible asset impairments 9 % (17) % (1) See “ Reconciliations of Non-GAAP Financial Measures” beginning on page 61 for reconciliations between non-GAAP financial measures and the most directly comparable U.S. GAAP measures. Reported operating income increased in 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. 59 Table of Contents 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 March 31 Nine Months Ended March 31 (In millions) 2024 2023 2024 2023 Interest expense $ 94 $ 58 $ 287 $ 156 Interest income and investment income, net $ 45 $ 37 $ 126 $ 78 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. Interest income and investment income, net increased in both periods, primarily reflecting higher interest rates compared to the prior-year period. PROVISION FOR INCOME TAXES The provision for income taxes represents U.S. federal, foreign, state and local income taxes. The effective rate differs from the federal statutory rate primarily due to the effect of state and local income taxes, the tax impact of share-based compensation, the taxation of foreign income and income tax reserve adjustments, which represent changes in our net liability for unrecognized tax benefits including tax settlements and lapses of the applicable statutes of limitations. Our effective tax rate will change from quarter-to-quarter based on recurring and non-recurring factors including the geographical mix of earnings, enacted tax legislation, state and local income taxes, tax reserve adjustments, the tax impact of share-based compensation, the interaction of various global tax strategies and the impact from certain acquisitions. In addition, changes in judgment from the evaluation of new information resulting in the recognition, derecognition or remeasurement of a tax position taken in a prior annual period are recognized separately in the quarter of change. Three Months Ended March 31 Nine Months Ended March 31 2024 2023 2024 2023 Effective rate for income taxes 31.1 % 44.6 % 33.9 % 27.9 % Basis-point change from the prior-year period (1,350) 600 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. 60 Table of Contents THE ESTÉE LAUDER COMPANIES INC. NET EARNINGS ATTRIBUTABLE TO THE ESTÉE LAUDER COMPANIES INC. Three Months Ended March 31 Nine Months Ended March 31 ($ in millions, except per share data) 2024 2023 2024 2023 As Reported: Net earnings attributable to The Estée Lauder Companies Inc. $ 330 $ 156 $ 674 $ 1,039 $ Change from prior-year period 174 (365) % Change from prior-year period 100+% (35) % Diluted net earnings per common share $ .91 $ .43 $ 1.87 $ 2.88 % Change from prior-year period 100+% (35) % Non-GAAP Financial Measure (1) : % Change in diluted net earnings per common share from the prior-year period adjusting for the impact of charges associated with restructuring and other activities, other intangible asset impairments and the change in fair value of acquisition-related stock options 100+% (42) % (1) See “ Reconciliations of Non-GAAP Financial Measures” below for reconciliations between non-GAAP financial measures and the most directly comparable U.S. GAAP measures. RECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES We use certain non-GAAP financial measures, among other financial measures, to evaluate our operating performance, which represent the manner in which we conduct and view our business. Management believes that excluding certain items that are not comparable from period to period, or do not reflect the Company’s underlying ongoing business, provides transparency for such items and helps investors and others compare and analyze our operating performance from period to period. In the future, we expect to incur charges or adjustments similar in nature to those presented below; however, the impact to the Company’s results in a given period may be highly variable and difficult to predict. Our non-GAAP financial measures may not be comparable to similarly titled measures used by, or determined in a manner consistent with, other companies. While we consider the non-GAAP measures useful in analyzing our results, they are not intended to replace, or act as a substitute for, any presentation included in the consolidated financial statements prepared in conformity with U.S. GAAP. The following tables present Net sales, Operating income and Diluted net earnings per common share adjusted to exclude the impact of charges associated with restructuring and other activities; the change in fair value of acquisition-related stock options; other intangible asset impairments; and the effects of foreign currency translation. The following tables provide reconciliations between these non-GAAP financial measures and the most directly comparable U.S. GAAP measures. 61 Table of Contents THE ESTÉE LAUDER COMPANIES INC. ($ in millions, except per share data) Three Months Ended March 31 Variance % Change % Change in constant currency 2024 2023 Net sales, as reported $ 3,940 $ 3,751 $ 189 5 % 6 % Returns associated with restructuring and other activities — 4 (4) Net sales, as adjusted $ 3,940 $ 3,755 $ 185 5 % 6 % Operating income, as reported $ 531 $ 297 $ 234 79 % 87 % Charges associated with restructuring and other activities 18 18 — Change in fair value of acquisition-related stock options 5 1 4 Operating income, as adjusted $ 554 $ 316 $ 238 75 % 83 % Diluted net earnings per common share, as reported $ .91 $ .43 $ .48 100+% 100+% Charges associated with restructuring and other activities .04 .04 — Change in fair value of acquisition-related stock options (less portion attributable to redeemable noncontrolling interest) .02 — .02 Diluted net earnings per common share, as adjusted $ .97 $ .47 $ .50 100+% 100+% 62 Table of Contents THE ESTÉE LAUDER COMPANIES INC. ($ in millions, except per share data) Nine Months Ended March 31 Variance % Change % Change in constant currency 2024 2023 Net sales, as reported $ 11,737 $ 12,301 $ (564) (5) % (4) % Returns associated with restructuring and other activities 1 10 (9) Net sales, as adjusted $ 11,738 $ 12,311 $ (573) (5) % (4) % Operating income, as reported $ 1,203 $ 1,514 $ (311) (21) % (18) % Charges associated with restructuring and other activities 28 33 (5) Other intangible asset impairments — 207 (207) Change in fair value of acquisition-related stock options 8 (2) 10 Operating income, as adjusted $ 1,239 $ 1,752 $ (513) (29) % (27) % Diluted net earnings per common share, as reported $ 1.87 $ 2.88 $ (1.01) (35) % (32) % Charges associated with restructuring and other activities .06 .07 (.01) Other intangible asset impairments — .44 (.44) Change in fair value of acquisition-related stock options (less portion attributable to redeemable noncontrolling interest) .02 (.01) .03 Diluted net earnings per common share, as adjusted $ 1.95 $ 3.38 $ (1.43) (42) % (40) % As diluted net earnings per common share, as adjusted, is used as a measure of the Company’s performance, we consider the impact of current and deferred income taxes when calculating the per-share impact of each of the reconciling items. 63 Table of Contents THE ESTÉE LAUDER COMPANIES INC. The following tables reconcile the change in net sales by product category and geographic region, as reported, to the change in net sales excluding the effects of foreign currency translation: As Reported Impact of foreign currency translation Variance, in constant currency % Change, as reported % Change, in constant currency Three Months Ended March 31 ($ in millions) 2024 2023 Variance By Product Category: Skin Care $ 2,060 $ 1,915 $ 145 $ 34 $ 179 8 % 9 % Makeup 1,136 1,104 32 10 42 3 4 Fragrance 575 577 (2) 7 5 — 1 Hair Care 143 148 (5) (1) (6) (3) (4) Other 26 11 15 1 16 100+ 100+ 3,940 3,755 185 51 236 5 6 Returns associated with restructuring and other activities — (4) 4 — 4 Total $ 3,940 $ 3,751 $ 189 $ 51 $ 240 5 % 6 % By Region: The Americas $ 1,117 $ 1,089 $ 28 $ (3) $ 25 3 % 2 % Europe, the Middle East & Africa 1,647 1,474 173 (1) 172 12 12 Asia/Pacific 1,176 1,192 (16) 55 39 (1) 3 3,940 3,755 185 51 236 5 6 Returns associated with restructuring and other activities — (4) 4 — 4 Total $ 3,940 $ 3,751 $ 189 $ 51 $ 240 5 % 6 % 64 Table of Contents THE ESTÉE LAUDER COMPANIES INC. As Reported Impact of foreign currency translation Variance, in constant currency % Change, as reported % Change, in constant currency Nine Months Ended March 31 ($ in millions) 2024 2023 Variance By Product Category: Skin Care $ 5,873 $ 6,454 $ (581) $ 52 $ (529) (9) % (8) % Makeup 3,365 3,424 (59) — (59) (2) (2) Fragrance 1,948 1,907 41 4 45 2 2 Hair Care 464 488 (24) (3) (27) (5) (6) Other 88 38 50 1 51 100+ 100+ 11,738 12,311 (573) 54 (519) (5) (4) Returns associated with restructuring and other activities (1) (10) 9 — 9 Total $ 11,737 $ 12,301 $ (564) $ 54 $ (510) (5) % (4) % By Region: The Americas $ 3,567 $ 3,447 $ 120 $ (1) $ 119 3 % 3 % Europe, the Middle East & Africa 4,488 4,972 (484) (53) (537) (10) (11) Asia/Pacific 3,683 3,892 (209) 108 (101) (5) (3) 11,738 12,311 (573) 54 (519) (5) (4) Returns associated with restructuring and other activities (1) (10) 9 — 9 Total $ 11,737 $ 12,301 $ (564) $ 54 $ (510) (5) % (4) % 65 Table of Contents THE ESTÉE LAUDER COMPANIES INC. The following tables reconcile the change in operating results by product category and geographic region, as reported, to the change in operating income excluding the impact of other intangible asset impairments and the change in fair value of acquisition-related stock options: As Reported Add: Change in fair value of acquisition-related stock options Variance, as adjusted % Change, as reported % Change, as adjusted Three Months Ended March 31 ($ in millions) 2024 2023 Variance By Product Category: Skin Care $ 468 $ 269 $ 199 $ 4 $ 203 74 % 75 % Makeup 66 (5) 71 — 71 100+ 100+ Fragrance 29 66 (37) — (37) (56) (56) Hair Care (25) (24) (1) — (1) (4) (4) Other 11 9 2 — 2 22 22 549 315 234 $ 4 $ 238 74 % 75 % Charges associated with restructuring and other activities (18) (18) 0 Total $ 531 $ 297 $ 234 By Region: The Americas $ (6) $ (93) $ 87 $ 4 $ 91 94 % 99 % Europe, the Middle East & Africa 302 176 126 — 126 72 72 Asia/Pacific 253 232 21 — 21 9 9 549 315 234 $ 4 $ 238 74 % 75 % Charges associated with restructuring and other activities (18) (18) 0 Total $ 531 $ 297 $ 234 66 Table of Contents THE ESTÉE LAUDER COMPANIES INC. As Reported Add: Changes in Other intangible asset impairments Add: Change in fair value of acquisition-related stock options Variance, as adjusted % Change, as reported % Change, as adjusted Nine Months Ended March 31 ($ in millions) 2024 2023 Variance By Product Category: Skin Care $ 920 $ 1,238 $ (318) $ (100) $ 10 $ (408) (26) % (31) % Makeup 56 (9) 65 (107) — (42) 100+ (43) Fragrance 267 343 (76) — — (76) (22) (22) Hair Care (50) (32) (18) — — (18) (56) (56) Other 38 7 31 — — 31 100+ 100+ 1,231 1,547 (316) $ (207) $ 10 $ (513) (20) % (29) % Charges associated with restructuring and other activities (28) (33) 5 Total $ 1,203 $ 1,514 $ (311) By Region: The Americas $ (243) $ (53) $ (190) $ (107) $ 10 $ (287) (100+)% (100+)% Europe, the Middle East & Africa 825 919 (94) — — (94) (10) (10) Asia/Pacific 649 681 (32) (100) — (132) (5) (17) 1,231 1,547 (316) $ (207) $ 10 $ (513) (20) % (29) % Charges associated with restructuring and other activities (28) (33) 5 Total $ 1,203 $ 1,514 $ (311) FINANCIAL CONDITION LIQUIDITY AND CAPITAL RESOURCES Overview Our principal sources of funds historically have been cash flows from operations, borrowings pursuant to our commercial paper program, borrowings from the issuance of long-term debt and committed and uncommitted credit lines provided by banks and other lenders in the United States and abroad. At 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. To mitigate the risk of uninsured balances, we select financial institutions based on their credit ratings and financial strength, and we perform ongoing evaluations of these institutions to limit our concentration risk exposure. Based on past performance and current expectations, we believe that cash on hand, cash generated from operations, available credit lines and access to credit markets will be adequate to support seasonal working capital needs, currently planned business operations, information technology enhancements, capital expenditures, acquisitions, dividends, stock repurchases, restructuring initiatives, commitments and other contractual obligations on both a near-term and long-term basis. 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. federal income tax. During the fiscal 2023 fourth quarter, we changed our assertion regarding our ability and intent to indefinitely reinvest undistributed earnings from certain foreign subsidiaries. We continue to analyze the indefinite reinvestment assertion on our remaining applicable foreign earnings. We do not believe that continuing to reinvest these remaining applicable foreign earnings impairs our ability to meet our domestic debt or working capital obligations. If these reinvested earnings were repatriated into the United States as dividends, we would be subject to state income taxes and applicable foreign taxes in certain jurisdictions. 67 Table of Contents THE ESTÉE LAUDER COMPANIES INC. 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. Credit Ratings Changes in our credit ratings will likely result in changes in our borrowing costs. Our credit ratings also impact the cost of our revolving credit facility. Downgrades in our credit ratings may reduce our ability to issue commercial paper and/or long-term debt and would likely increase the relative costs of borrowing. A credit rating is not a recommendation to buy, sell, or hold securities, is subject to revision or withdrawal at any time by the assigning rating organization, and should be evaluated independently of any other rating. As of 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. 68 Table of Contents THE ESTÉE LAUDER COMPANIES INC. Debt At March 31, 2024, our outstanding borrowings were as follows: ($ in millions) Long-term Debt Current Debt Total Debt 5.150% Senior Notes, due May 15, 2053 ("2053 Senior Notes") (1), (16) $ 591 $ — $ 591 3.125% Senior Notes, due December 1, 2049 (“2049 Senior Notes”) (2), (16) 637 — 637 4.150% Senior Notes, due March 15, 2047 (“2047 Senior Notes”) (3), (16) 494 — 494 4.375% Senior Notes, due June 15, 2045 (“2045 Senior Notes”) (4), (16) 455 — 455 3.700% Senior Notes, due August 15, 2042 (“2042 Senior Notes”) (5), (16) 247 — 247 6.000% Senior Notes, due May 15, 2037 (“2037 Senior Notes”) (6), (16) 295 — 295 5.000% Senior Notes, due February 14, 2034 ("2034 Senior Notes) (7), (16) 643 — 643 5.75% Senior Notes, due October 15, 2033 (“October 2033 Senior Notes”) (8), (16) 198 — 198 4.650% Senior Notes, due May 15, 2033 ("May 2033 Senior Notes") (9), (16) 695 — 695 1.950% Senior Notes, due March 15, 2031 ("2031 Senior Notes") (10), (16) 550 — 550 2.600% Senior Notes, due April 15, 2030 ("2030 Senior Notes") (11), (16) 592 — 592 2.375% Senior Notes, due December 1, 2029 (“2029 Senior Notes”) (12), (16) 644 — 644 4.375% Senior Notes, due May 15, 2028 ("2028 Senior Notes") (13), (16) 696 — 696 3.150% Senior Notes, due March 15, 2027 (“2027 Senior Notes”) (14), (16) 499 — 499 2.000% Senior Notes, due December 1, 2024 (“2024 Senior Notes”) (15), (16) — 499 499 Other long-term borrowings 29 — 29 Other current borrowings — 6 6 $ 7,265 $ 505 $ 7,770 (1) Consists of $600 million principal, unamortized debt discount of $3 million and debt issuance costs of $6 million. (2) Consists of $650 million principal, unamortized debt discount of $7 million and debt issuance costs of $6 million. (3) Consists of $500 million principal, unamortized debt discount of $1 million and debt issuance costs of $5 million. (4) Consists of $450 million principal, net unamortized debt premium of $9 million and debt issuance costs of $4 million. (5) Consists of $250 million principal, unamortized debt discount of $1 million and debt issuance costs of $2 million. (6) Consists of $300 million principal, unamortized debt discount of $2 million and debt issuance costs of $3 million. (7) Consists of $650 million principal, unamortized debt discount of $2 million and debt issuance costs of $5 million. (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. (11) Consists of $700 million principal, unamortized debt discount of $1 million, debt issuance costs of $3 million and a $104 million loss to reflect the fair value of interest rate swaps. (12) Consists of $650 million principal, unamortized debt discount of $4 million and debt issuance costs of $2 million. (13) Consists of $700 million principal, unamortized debt discount of $1 million and debt issuance costs of $3 million. (14) Consists of $500 million principal and debt issuance costs of $1 million. (15) Consists of $500 million principal and unamortized debt discount of $1 million. (16) The Senior Notes contain certain customary covenants, including limitations on indebtedness secured by liens. Total debt as a percent of total capitalization was 57% and 59% at March 31, 2024 and June 30, 2023, respectively. 69 Table of Contents THE ESTÉE LAUDER COMPANIES INC. Cash Flows Nine Months Ended March 31 (In millions) 2024 2023 Net cash flows provided by operating activities $ 1,471 $ 1,017 Net cash flows used for investing activities $ (735) $ (527) 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 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. Dividends 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 There have been no significant changes to our pension and post-retirement funding as discussed in our Annual Report on Form 10-K for the fiscal year ended June 30, 2023. Commitments, Contractual Obligations and Contingencies There have been no other significant changes to our commitments and contractual obligations as discussed in our Annual Report on Form 10-K for the fiscal year ended June 30, 2023 . For a discussion of contingencies, see Notes to Consolidated Financial Statements, Note 9 – Commitments and Contingencies . Derivative Financial Instruments and Hedging Activities For a discussion of our derivative financial instruments and hedging activities, see Notes to Consolidated Financial Statements, Note 5 – Derivative Financial Instruments . Foreign Exchange Risk Management For a discussion of foreign exchange risk management, see Notes to Consolidated Financial Statements, Note 5 – Derivative Financial Instruments (Cash Flow Hedges, Net Investment Hedges) . Credit Risk For a discussion of credit risk, see Notes to Consolidated Financial Statements, Note 5 – Derivative Financial Instruments (Credit Risk) . 70 Table of Contents THE ESTÉE LAUDER COMPANIES INC. Market Risk We address certain financial exposures through a controlled program of market risk management that includes the use of foreign currency forward contracts to reduce the effects of fluctuating foreign currency exchange rates and to mitigate the change in fair value of specific assets and liabilities on the balance sheet. To perform a sensitivity analysis of our foreign currency forward contracts, we assess the change in fair values from the impact of hypothetical changes in foreign currency exchange rates. A hypothetical 10% weakening of the U.S. dollar against the foreign exchange rates for the currencies in our portfolio would have resulted in a net decrease in the fair value of our portfolio of approximately $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. We also enter into cross-currency swap contracts to hedge the impact of foreign currency changes on certain intercompany foreign currency denominated debt. 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 March 31, 2024 and June 30, 2023. 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 $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. It does not represent the maximum possible loss or any expected loss that may occur, since actual future gains and losses will differ from those estimated, based upon actual fluctuations in market rates, operating exposures, and the timing thereof, and changes in our portfolio of derivative financial instruments during the year. We believe, however, that any such loss incurred would be offset by the effects of market rate movements on the respective underlying transactions for which the derivative financial instrument was intended. OFF-BALANCE SHEET ARRANGEMENTS We do not maintain any off-balance sheet arrangements, transactions, obligations or other relationships with unconsolidated entities that would be expected to have a material current or future effect upon our financial condition or results of operations. CRITICAL ACCOUNTING POLICIES As disclosed in our Annual Report on Form 10-K for the fiscal year ended June 30, 2023, the discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in conformity with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and assumptions that affect the amounts of assets, liabilities, revenues and expenses reported in those financial statements. These estimates and assumptions can be subjective and complex, and consequently, actual results could differ from those estimates. Our most critical accounting policies relate to goodwill and other indefinite-lived intangible assets - impairment assessment, income taxes and asset acquisition. Since June 30, 2023, there have been no significant changes to the assumptions and estimates related to our critical accounting policies. RECENTLY ISSUED ACCOUNTING STANDARDS For a discussion regarding the impact of accounting standards that were recently issued but not yet effective, on the Company’s consolidated financial statements, see Notes to Consolidated Financial Statements, Note 1 – Summary of Significant Accounting Policies . 71 Table of Contents THE ESTÉE LAUDER COMPANIES INC. CAUTIONARY NOTE REGARDING FORWARD-LOOKING INFORMATION We and our representatives from time to time make written or oral forward-looking statements, including in this and other filings with the Securities and Exchange Commission, in our press releases and in our reports to stockholders, which may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements may address our expectations regarding sales, earnings or other future financial performance and liquidity, other performance measures, product introductions, entry into new geographic regions, information technology initiatives, new methods of sale, our long-term strategy, restructuring and other charges and resulting cost savings, and future operations or operating results. These statements may contain words like “expect,” “will,” “will likely result,” “would,” “believe,” “estimate,” “planned,” “plans,” “intends,” “may,” “should,” “could,” “anticipate,” “estimate,” “project,” “projected,” “forecast,” and “forecasted” or similar expressions. Although we believe that our expectations are based on reasonable assumptions within the bounds of our knowledge of our business and operations, actual results may differ materially from our expectations. Factors that could cause actual results to differ from expectations include, without limitation: (1) increased competitive activity from companies in the skin care, makeup, fragrance and hair care businesses; (2) our ability to develop, produce and market new products on which future operating results may depend and to successfully address challenges in our business; (3) consolidations, restructurings, bankruptcies and reorganizations in the retail industry causing a decrease in the number of stores that sell our products, an increase in the ownership concentration within the retail industry, ownership of retailers by our competitors or ownership of competitors by our customers that are retailers and our inability to collect receivables; (4) destocking and tighter working capital management by retailers; (5) the success, or changes in timing or scope, of new product launches and the success, or changes in timing or scope, of advertising, sampling and merchandising programs; (6) shifts in the preferences of consumers as to where and how they shop; (7) social, political and economic risks to our foreign or domestic manufacturing, distribution and retail operations, including changes in foreign investment and trade policies and regulations of the host countries and of the United States; (8) changes in the laws, regulations and policies (including the interpretations and enforcement thereof) that affect, or will affect, our business, including those relating to our products or distribution networks, changes in accounting standards, tax laws and regulations, environmental or climate change laws, regulations or accords, trade rules and customs regulations, and the outcome and expense of legal or regulatory proceedings, and any action we may take as a result; (9) foreign currency fluctuations affecting our results of operations and the value of our foreign assets, the relative prices at which we and our foreign competitors sell products in the same markets and our operating and manufacturing costs outside of the United States; (10) changes in global or local conditions, including those due to volatility in the global credit and equity markets, natural or man-made disasters, real or perceived epidemics, supply chain challenges, inflation, or increased energy costs, that could affect consumer purchasing, the willingness or ability of consumers to travel and/or purchase our products while traveling, the financial strength of our customers, suppliers or other contract counterparties, our operations, the cost and availability of capital which we may need for new equipment, facilities or acquisitions, the returns that we are able to generate on our pension assets and the resulting impact on funding obligations, the cost and availability of raw materials and the assumptions underlying our critical accounting estimates; (11) impacts attributable to the COVID-19 pandemic, including disruptions to our global business; (12) shipment delays, commodity pricing, depletion of inventory and increased production costs resulting from disruptions of operations at any of the facilities that manufacture our products or at our distribution or inventory centers, including disruptions that may be caused by the implementation of information technology initiatives, or by restructurings; 72 Table of Contents THE ESTÉE LAUDER COMPANIES INC. (13) real estate rates and availability, which may affect our ability to increase or maintain the number of retail locations at which we sell our products and the costs associated with our other facilities; (14) changes in product mix to products which are less profitable; (15) our ability to acquire, develop or implement new information technology, including operational technology and websites, on a timely basis and within our cost estimates; to maintain continuous operations of our new and existing information technology; and to secure the data and other information that may be stored in such technologies or other systems or media; (16) our ability to capitalize on opportunities for improved efficiency, such as publicly-announced strategies and restructuring and cost-savings initiatives, and to integrate acquired businesses and realize value therefrom; (17) consequences attributable to local or international conflicts around the world, as well as from any terrorist action, retaliation and the threat of further action or retaliation; (18) the timing and impact of acquisitions, investments and divestitures; and (19) additional factors as described in our filings with the Securities and Exchange Commission, including the Annual Report on Form 10-K for the fiscal year ended June 30, 2023. We assume no responsibility to update forward-looking statements made herein or otherwise. Item 3. Quantitative and Qualitative Disclosures About Market Risk. The information required by this item is set forth in Item 2 of this Quarterly Report on Form 10-Q under the caption Liquidity and Capital Resources - Market Risk and is incorporated herein by reference.