What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-02-04 compared with 2024-10-31 · 396 added, 195 removed, 482 unchanged (55% of the section changed)

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

The following table is a comparative summary of operating results for the three months ended September 30, 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.

The following table is a comparative summary of operating results for the three and six months ended December 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 months ended September 30, 2023.

See Note 13 – Segment Data and Related Information for additional details.

Three Months Ended

December 31, Six Months Ended

(In millions) 2024 2023 2024 2023

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Hair Care 159 173 298 321

Other 30 30 55 62

4,004 4,280 7,365 7,798

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

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Asia/Pacific 1,287 1,449 2,231 2,507

4,004 4,280 7,365 7,798

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

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Hair Care (3) (3) (21) (25)

Other (45) 9 (34) 27

(399) 582 (414) 682

Charges associated with restructuring and other activities (181) (8) (287) (10)

Operating income (loss)

$ (580) $ 574 $ (701) $ 672

By Region (1) :

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Asia/Pacific 108 258 171 396

(399) 582 (414) 682

Charges associated with restructuring and other activities (181) (8) (287) (10)

Operating income (loss)

$ (580) $ 574 $ (701) $ 672

(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.

During the fiscal 2025 second quarter, the Company exited Dr.Jart+ from the travel retail channel in Korea.

THE ESTÉE LAUDER COMPANIES INC.

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Three Months Ended

December 31, Six Months Ended

2024 2023 2024 2023

Net sales 100.0 % 100.0 % 100.0 % 100.0 %

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Restructuring and other charges 4.5 0.2 3.8 0.1

Impairment of goodwill and other intangible assets

21.5 — 11.7 —

Talcum litigation settlement agreements

1 unchanged sentence

Operating income (loss)

(14.5) 13.4 (9.5) 8.6

Interest expense 2.2 2.3 2.5 2.5

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Earnings (loss) before income taxes

(16.2) 12.1 (11.3) 7.2

Provision (benefit) for income taxes

(1.5) 4.6 (1.1) 2.6

Net earnings (loss)

(14.7) 7.6 (10.1) 4.6

Net earnings attributable to redeemable noncontrolling interest

— (0.3) — (0.2)

Net earnings (loss) attributable to The Estée Lauder Companies Inc.

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Prices of skin care and fragrance products are typically higher than makeup and hair care products.

THE ESTÉE LAUDER COMPANIES INC.

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.

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The impact of new product introductions, including timing compared to introductions in prior periods, also affects our results.

THE ESTÉE LAUDER COMPANIES INC.

Non-GAAP Financial Measures

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Elements of our strategy are described below, as well as in the Overview on page 31 of our Annual Report on Form 10-K for the year ended June 30, 2024.

• Our skin care net sales decreased 7% for the three months ended September 30, 2024, primarily driven by lower net sales from La Mer and Estée Lauder.

Net sales from La Mer decreased, primarily driven by lower net sales in our Asia travel retail business, due to lower replenishment orders reflecting (i) the challenging retail environment, including worsened consumer sentiment in China, (ii) travelers diverting spending towards experiences, which continued to dampen conversion for beauty products and (iii) inventory pressure given the further retail market deceleration.

The decrease in net sales from Estée Lauder was primarily driven by lower net sales in mainland China, reflecting the impacts from further softening in overall prestige beauty in mainland China, due in large part to worsened consumer sentiment.

• Our makeup net sales decreased 2% for the three months ended September 30, 2024, primarily reflecting lower net sales from M·A·C, and to a lesser extent, Too Faced and Smashbox.

The decrease in net sales from M·A·C was primarily driven by lower net sales in North America, reflecting softness in the brand's retail sales, resulting in lower replenishment orders, and lower net sales in the Middle East reflecting ongoing business disruption.

Partially offsetting the decrease in makeup net sales was higher net sales from Clinique and, to a lesser extent, Estée Lauder.

• Our fragrance net sales decreased 1% for the three months ended September 30, 2024, reflecting lower net sales from TOM FORD, Clinique, and Estée Lauder.

Net sales from TOM FORD decreased, primarily driven by lower net sales in North America, reflecting softness in the brand's retail sales, resulting in lower replenishment orders.

The decrease in net sales from Clinique reflected lower replenishment orders in our global travel retail business and in other parts of Europe, the Middle East & Africa primarily due to lower demand.

Net sales from Estée Lauder decreased, primarily driven by lower net sales across our product portfolio.

Partially offsetting the decrease in fragrance net sales were higher net sales from Le Labo and Kilian Paris.

• Our hair care net sales decreased 6% for the three months ended September 30, 2024, primarily attributable to lower net sales from Aveda and to a lesser extent, The Ordinary.

The decrease in net sales from Aveda was primarily driven by the timing of shipments and continued softness in our North America salon channel and our direct-to-consumer business.

• Our skin care net sales decreased 12% for the three months ended December 31, 2024, primarily driven by lower net sales from Estée Lauder and La Mer.

The decrease in net sales from Estée Lauder for the three months ended December 31, 2024 was primarily driven by declines in mainland China, as well as, to a lesser extent, declines in net sales in our Asia travel retail business and in Hong Kong SAR, reflecting the overall challenging retail environments, including ongoing pressure from subdued sentiment from Chinese consumers.

Net sales from La Mer decreased, primarily driven by the aforementioned overall challenging retail environment within our Asia travel retail business.

• Our makeup net sales decreased 1% for the three months ended December 31, 2024, primarily reflecting lower net sales from M·A·C, TOM FORD, Smashbox and Bobbi Brown.

The decrease in net sales from M·A·C was primarily driven by lower net sales in the eye and face subcategories.

Net sales from TOM FORD decreased, primarily driven by lower net sales in mainland China and our Asia travel retail business, reflecting the overall challenging retail environments, including ongoing pressure from subdued sentiment from Chinese consumers, as well as lower net sales in Hong Kong SAR, driven by the eye subcategory.

Net sales from Smashbox decreased, primarily driven by North America, reflecting lower net sales in the face subcategory.

The decrease in net sales from Bobbi Brown was driven by lower net sales in the lip subcategory.

Partially offsetting the decrease in makeup net sales were higher net sales from Clinique in all geographic regions, led by North America, reflecting the launch in Amazon's U.S.

Premium Beauty store, as well as the success of hero products, and higher net sales from Estée Lauder, driven by growth in the face subcategory.

THE ESTÉE LAUDER COMPANIES INC.

• Our fragrance net sales increased 1% for the three months ended December 31, 2024, reflecting higher net sales from Le Labo, and to a lesser extent, Editions de Parfums Frédéric Malle.

Net sales from Le Labo increased, primarily reflecting growth of hero products, targeted expanded consumer reach and new product launches.

The increase in net sales from Editions de Parfums Frédéric Malle reflected growth across the product portfolio as well as targeted expanded consumer reach.

Offsetting the reported fragrance net sales increase were lower net sales from Estée Lauder, Clinique and TOM FORD.

Net sales from Estée Lauder decreased, primarily driven by lower net sales across its fragrance portfolio.

The decrease in net sales from Clinique was primarily due to lower net sales from the Clinique Happy franchise line of products.

Net sales from TOM FORD decreased, primarily driven by lower net sales in North America, reflecting softness in the brand's retail sales, resulting in lower replenishment orders, as well as the overall challenging retail environments in mainland China and Hong Kong SAR, including ongoing pressure from subdued sentiment from Chinese consumers.

• Our hair care net sales decreased 8% for the three months ended December 31, 2024, primarily attributable to lower net sales from Aveda, reflecting our softness in the North America and Europe, the Middle East & Africa salon channels, softness in our direct-to-consumer business, as well as the unfavorable impact of timing of shipments compared to the prior-year period.

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

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We are continually 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 tailor implementation of our strategy by market to drive consumer engagement, recruitment and loyalty.

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

• Net sales in The Americas decreased 2% for the three months ended September 30, 2024, primarily reflecting lower net sales in North America and Mexico.

The decrease in net sales in North America reflected the challenges from M·A·C, Aveda, TOM FORD, Too Faced and Smashbox.

Partially offsetting these pressures in North America was the launch of seven brands to-date in Amazon's U.S.

Beauty store.

Net sales in Mexico decreased, primarily driven by the unfavorable impact of foreign currency translation.

• Net sales in Europe, the Middle East & Africa decreased 2% for the three months ended September 30, 2024, primarily driven by lower net sales from our Asia travel retail business and the United Kingdom.

Asia travel retail net sales declined, due to lower replenishment orders reflecting (i) the challenging retail environment, including worsened consumer sentiment in China, (ii) travelers diverting spending towards experiences, which continued to dampen conversion for beauty products and (iii) inventory pressure given the further retail market deceleration.

Partially offsetting the decrease in net sales in Europe, the Middle East & Africa were higher net sales in Germany, the Nordic countries and Russia.

• Net sales in Asia/Pacific decreased 11% for the three months ended September 30, 2024, primarily driven by lower net sales from mainland China and Hong Kong SAR, reflecting worsened consumer sentiment.

This drove further softening in overall prestige beauty in mainland China and low conversion rates among traveling consumers in Hong Kong SAR.

We have experienced challenges within our business, including in our Asia travel retail business, and we expect volatility and uncertainty to continue including inventory pressure in Asia travel retail given the further retail market deceleration.

We have experienced, and are expecting to continue to experience, weakness in overall prestige beauty due in large part to worsened consumer sentiment in China, which is also expected to impact Asia travel retail.

Looking ahead, we are cautiously optimistic about the potential medium- to long-term growth opportunities presented by the new economic stimulus measures in China, but volatility and uncertainty remain elevated in the near-term.

In North America, we are experiencing ongoing competitive pressures along with the continued slowdown in prestige beauty growth.

We also expect further business disruption in Israel and other parts of the Middle East.

Net sales from Israel and the Middle East accounted for approximately 2% and 3% of consolidated net sales in fiscal 2024 and the first quarter of fiscal 2025, respectively.

• Net sales in The Americas decreased 2% for the three months ended December 31, 2024, primarily reflecting lower net sales in North America and to Latin America distributors.

Net sales in North America decreased, reflecting softness in our retail sales, including challenges with our distribution mix, skewed towards slower-growing channels.

These challenges were largely offset by the launch of nine brands to-date in Amazon's U.S.

Premium Beauty store.

Net sales to Latin America distributors decreased, due in part, to lower net sales in fragrance, driven by Estée Lauder.

• Net sales in Europe, the Middle East & Africa decreased 6% for the three months ended December 31, 2024, primarily driven by lower net sales in our Asia travel retail business, reflecting the impacts from an overall challenging retail environment, including ongoing pressure from subdued sentiment from Chinese consumers.

• Net sales in Asia/Pacific decreased 11% for the three months ended December 31, 2024, primarily driven by lower net sales from mainland China, Korea, and Hong Kong SAR, reflecting the impacts from the overall challenging retail environments, including subdued consumer sentiment.

The net sales decline in Korea also reflects the exit of Dr.Jart+ from the travel retail channel in Korea during the fiscal 2025 second quarter.

We have experienced challenges within our business, including in our Asia travel retail business, and we expect volatility and uncertainty to continue, given the ongoing, subdued consumer sentiment in China and Korea, as well as pressures from changes in selling policies at several Korean retailers.

In North America, we continue to underperform the industry.

We are also monitoring evolving global geopolitical risks and tensions, including the imposition of tariffs.

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 believe that the best way to increase long-term stockholder value is to provide superior products and services in the most efficient and effective manner while recognizing shifts in consumers’ behaviors and shopping practices.

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

THE ESTÉE LAUDER COMPANIES INC.

We continue to believe that the best way to increase long-term stockholder value is to provide 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, such as our history of outstanding creativity and innovation, high quality products and services, and engaging communications, and make us more productive and profitable.

With the transition of leadership announced in the second quarter of fiscal 2025, we have embarked on “Beauty Reimagined,” that aims to accelerate best-in-class consumer coverage, create transformative innovation, boost consumer-facing investments and enable growth through more efficiencies expected through the expansion of the Profit Recovery and Growth Plan ("PRGP"), as discussed below.

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

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and global security issues.

For example, the geopolitical tensions between the United States and China 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, and the impact of changes being made in the organization, including those related to the Profit Recovery and Growth Plan.

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

THE ESTÉE LAUDER COMPANIES INC.

For example, any potential tariffs on imports into the United States and/or tariffs on imports into other countries could have a material adverse effect on our business, as could geopolitical tensions between the United States and other countries.

We are also mindful of, and monitoring, the potential impact of changes expected to be made as part of the PRGP on suppliers, retailers and others, and challenges relating to successfully outsourcing select services.

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

Restructuring Program Component of the Profit Recovery and Growth Plan

As previously communicated on November 1, 2023, we launched the Profit Recovery and Growth Plan ("PRGP"), to help progressively rebuild our profit margins in fiscal years 2025 and 2026.

As announced on November 1, 2023, we launched the PRGP to help progressively rebuild our profit margins in fiscal years 2025 and 2026.

The PRGP is focused on rebuilding stronger, more sustainable profitability, supporting sales growth acceleration and increasing speed and agility.

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As a component of the PRGP, 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.

The restructuring program’s main focus included 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 September 30, 2024, we continue to 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 of the PRGP, which includes the restructuring program, are expected to be between $1,100 million and $1,400 million.

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

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

We planned to substantially complete specific initiatives under the restructuring program through fiscal 2026.

We expected that the restructuring program would 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.

After reviewing additional potential initiatives and the progress of previously approved initiatives, on February 3, 2025, we committed to the expansion of the PRGP, including an expansion of the restructuring program.

The expansion of the overall PRGP is focused on three key areas.

First, we plan to adopt a more competitive approach to procurement, a key pillar of savings, by further consolidating spending and strategically re-evaluating key supplier relationships.

Second, we plan to further improve efficiencies within our supply chain network through a zero-waste approach, aiming to improve demand forecasting and innovation planning to minimize excess inventory and product destruction.

Third, we are outsourcing select services to proven global partners.

THE ESTÉE LAUDER COMPANIES INC.

The expanded component of the restructuring program will begin during our fiscal 2025 third quarter with all initiatives to be approved by the end of fiscal 2026.

Specific initiatives under the expanded component of the restructuring program are expected to be substantially completed by the end of fiscal 2027.

The focus of the now expanded restructuring program (now, collectively the “Restructuring Program”) includes (i) reorganization and rightsizing of certain areas and (ii) simplification and acceleration of processes, along with the newly added focus on (i) outsourcing of select services and (ii) evolution of go-to-market footprint and selling models.

In connection with the Restructuring Program, we now estimate a net reduction in the range of approximately 5,800 to 7,000 positions globally, which is about 9-11% of our positions including temporary and part-time employees as of June 30, 2023.

This net reduction takes into account the elimination of positions after retraining and redeployment of certain employees in select areas.

We now expect that the Restructuring Program will result in restructuring and other charges totaling between $1,200 million and $1,600 million, before taxes, consisting of employee-related costs, contract terminations, asset write-offs and other costs associated with implementing these initiatives, which other than the non-cash charges, are expected to result in future cash expenditures funded from cash provided by operations.

Once fully implemented, we now expect the Restructuring Program to yield annual target gross benefits of between $800 million and $1,000 million, before taxes, a portion of which is expected to be reinvested in consumer-facing activities.

The net benefits of the PRGP, which includes the Restructuring Program, are expected to enable a return to a double-digit operating margin over the next few years.

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

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(i) the resolution of pending cosmetic talcum powder matters handled by those firms as well as (ii) a process for resolving potential future cosmetic talcum powder claims expected to be brought on behalf of plaintiffs by those firms from January 1, 2025 through December 31, 2029, with annual capped amounts per year for each participating law firm.

To account for the talc litigation settlement agreements, we recorded a charge of $159 million for the three months ended September 30, 2024 for the amount agreed to settle these current and potential future claims.

To account for the talcum litigation settlement agreements, we recorded a charge of $159 million during the fiscal 2025 first quarter for the amount agreed to settle the current claims and an estimated amount for potential future claims.

Further information about the talcum litigation settlement agreements, is described in Notes to Consolidated Financial Statements, Note 8 – Commitments and Contingencies herein.

THE ESTÉE LAUDER COMPANIES INC.

Impairment Analysis During the Six Months Ended December 31, 2024

During the fiscal 2025 second quarter, the TOM FORD brand experienced lower-than-expected growth within key geographic regions and channels, including in mainland China, Asia travel retail and Hong Kong SAR.

Also during the fiscal 2025 second quarter, the Too Faced reporting unit experienced lower-than-expected results in key geographic regions and channels.

As a result, we made revisions to the internal forecasts relating to our TOM FORD brand and Too Faced reporting unit.

Additionally, there were increases in the weighted average cost of capital for both the TOM FORD brand and Too Faced reporting unit as compared to the prior-year annual goodwill and other indefinite-lived intangible asset impairment testing as of April 1, 2024.

We concluded that the changes in circumstances in the TOM FORD brand and Too Faced reporting unit, along with increases in the weighted average cost of capital, triggered the need for interim impairment reviews of the TOM FORD trademark and the Too Faced trademark and goodwill.

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

Accordingly, we performed interim impairment tests for the TOM FORD and Too Faced trademarks and Too Faced goodwill as well as a recoverability test for the Too Faced long-lived assets as of December 31, 2024.

We concluded that the carrying value of the trademark intangible assets exceeded their estimated fair values, which were determined utilizing the relief-from-royalty method, and recorded an impairment charge of $773 million for TOM FORD and $75 million for Too Faced.

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

Additionally, as a result of the interim impairment review, the remaining carrying value of Too Faced’s goodwill was not recoverable and we recorded an impairment charge of $13 million, reducing the carrying value to zero.

The significant assumptions used in the relief-from-royalty method include revenue growth rates and profit margins, terminal values, weighted-average cost of capital used to discount future cash flows and royalty rates.

The most significant unobservable input used to estimate the fair value of the TOM FORD and Too Faced trademark intangible assets was the weighted average cost of capital, which was 11.5% and 14%, respectively.

A summary of the impairment charges for the three and six months ended December 31, 2024 and the remaining trademark and goodwill carrying values as of December 31, 2024, for the TOM FORD brand and Too Faced reporting unit, are as follows:

Impairment Charges (1)

Carrying Value

(In millions)

Three and Six Months Ended

December 31, 2024

As of December 31, 2024

Brand/Reporting Unit

Geographic Region

Trademark (2)

$ 773 $ — $ 1,805 $ —

Total $ 848 $ 13 $ 1,917 $ —

(1) The date of the fair value measurement for the TOM FORD and Too Faced trademark intangible assets and Too Faced reporting unit was December 31, 2024.

(2) The carrying values of the trademark intangible assets, subsequent to the impairment charges, are equal to their fair values.

The impairment charge related to the TOM FORD trademark intangible asset for the three and six months ended December 31, 2024 of $773 million was reflected in the fragrance, makeup and other product categories of $549 million, $170 million and $54 million, respectively.

The trademark and goodwill impairment charges related to Too Faced were reflected in the makeup product category.

The fair value of the TOM FORD and Too Faced trademarks were equal to their carrying values subsequent to the impairment charges taken as of December 31, 2024.

The key assumptions used to determine the estimated fair value of the trademarks are primarily predicated on the success of future new product launches, the ability to secure strategic price increases, the achievement of distribution expansion plans, and the realization of cost reduction and other efficiency efforts.

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

THE ESTÉE LAUDER COMPANIES INC.

Three Months Ended

December 31, Six Months Ended

($ in millions) 2024 2023 2024 2023

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GAAP measures.

Reported net sales decreased for the three months ended September 30, 2024, reflecting a decrease in net sales in all product categories, primarily driven by skin care.

The decrease in skin care net sales was primarily driven by lower net sales from La Mer and Estée Lauder.

By region, reported net sales decreased for the three months ended September 30, 2024, reflecting lower net sales across all regions, primarily driven by Asia/Pacific.

The decrease in net sales in Asia/Pacific was primarily driven by lower net sales from mainland China and Hong Kong SAR.

Reported net sales were impacted by approximately $18 million of favorable foreign currency translation for the three months ended September 30, 2024.

Reported net sales decreased 4% for the three months ended September 30, 2024, driven by the decrease from volume of 8%.

Partially offsetting this decrease was an increase from pricing of 3% due to the favorable impact from strategic pricing actions, partially offset by changes in mix, and the favorable impact of foreign currency translation of 1%.

Reported net sales decreased for the three and six months ended December 31, 2024, primarily driven by a decrease in skin care and, to a lesser extent, makeup and hair care.

The decrease in skin care net sales in both periods was primarily driven by lower net sales from Estée Lauder and La Mer.

By geographic region, reported net sales decreased for the three and six months ended December 31, 2024, reflecting lower net sales across all geographic regions, primarily driven by Asia/Pacific and Europe, the Middle East & Africa.

The decrease in net sales in Asia/Pacific was primarily driven by lower net sales from mainland China, Korea and Hong Kong SAR.

For the three and six months ended December 31, 2024, the decrease in net sales in Europe, the Middle East & Africa was primarily driven by lower net sales in our travel retail business.

Reported net sales decreased 6% for the three months ended December 31, 2024, driven by the decrease from volume of 11%.

Partially offsetting this decrease was an increase from pricing of 4% due to the favorable impact from strategic pricing actions, partially offset by changes in mix.

Reported net sales decreased 6% for the six months ended December 31, 2024, driven by the decrease from volume of 9%.

Partially offsetting this decrease was an increase from pricing of 4% due to the favorable impact from strategic pricing actions, partially offset by changes in mix.

Returns 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.

For the three months ended September 30, 2024 and 2023, there were no returns associated with restructuring and other activities.

For the three and six months ended December 31, 2024, there were no returns associated with restructuring and other activities, and for each of the three and six months ended December 31, 2023, there were $1 million in returns associated with restructuring and other activities.

THE ESTÉE LAUDER COMPANIES INC.

Product Categories

Three Months Ended

December 31, Six Months Ended

($ in millions) 2024 2023 2024 2023

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GAAP measures.

THE ESTÉE LAUDER COMPANIES INC.

Reported skin care net sales decreased for the three months ended September 30, 2024, reflecting lower net sales from La Mer and Estée Lauder, combined, of approximately $117 million.

Net sales from La Mer decreased, primarily driven by declines in our Asia travel retail business, due to lower replenishment orders reflecting (i) the challenging retail environment, including worsened consumer sentiment in China, (ii) travelers diverting spending towards experiences, which continued to dampen conversion for beauty products and (iii) inventory pressure given the further retail market deceleration.

The decrease in net sales from Estée Lauder was primarily driven by declines in mainland China, reflecting the impacts from further softening in overall prestige beauty in mainland China, due in large part to worsened consumer sentiment.

Skin care net sales were impacted by approximately $13 million of favorable foreign currency translation for the three months ended September 30, 2024.

Reported skin care net sales decreased 7% for the three months ended September 30, 2024, driven by the decrease from volume of 8%.

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

Reported skin care net sales decreased for the three and six months ended December 31, 2024, reflecting lower net sales from Estée Lauder and La Mer, combined, of approximately $201 million and $318 million, respectively.

The decrease in net sales from Estée Lauder for the three and six months ended December 31, 2024 was primarily driven by declines in mainland China, as well as, to a lesser extent, declines in net sales in our Asia travel retail business and in Hong Kong SAR, reflecting the overall challenging retail environments, including ongoing pressure from subdued sentiment from Chinese consumers.

For the three and six months ended December 31, 2024, net sales from La Mer decreased, primarily driven by the aforementioned overall challenging retail environment within our Asia travel retail business.

Skin care net sales were impacted by approximately $2 million of unfavorable and $11 million of favorable foreign currency translation for the three and six months ended December 31, 2024, respectively.

Reported skin care net sales decreased 12% for the three months ended December 31, 2024, driven by the decrease from volume of 15%.

Partially offsetting this decrease was an increase from pricing of 4% due to the favorable impact from strategic pricing actions, partially offset by changes in mix.

Reported skin care net sales decreased 10% for the six months ended December 31, 2024, driven by the decrease from volume of 12%.

Partially offsetting this decrease was an increase from pricing of 2% due to the favorable impact from strategic pricing actions, partially offset by changes in mix.

Three Months Ended

December 31, Six Months Ended

($ in millions) 2024 2023 2024 2023

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GAAP measures.

Reported makeup net sales decreased for the three months ended September 30, 2024, reflecting lower net sales from M·A·C, and to a lesser extent, Too Faced and Smashbox, combined, of approximately $55 million.

Net sales from Too Faced decreased, primarily driven by North America, reflecting lower net sales in the lip and mascara subcategories.

Net sales from Smashbox decreased, primarily driven by North America, reflecting lower net sales in the foundation, concealer and lip subcategories.

Partially offsetting the makeup net sales decrease for the three months ended September 30, 2024 were higher net sales from Clinique and, to a lesser extent, Estée Lauder, combined, of approximately $34 million.

Net sales from Clinique increased across all geographic regions, driven by the success of hero products.

Net sales from Estée Lauder increased, primarily driven by higher net sales in the foundation, concealer and corrector subcategories.

Makeup net sales were impacted by approximately $2 million of favorable foreign currency translation for the three months ended September 30, 2024.

Reported makeup net sales decreased 2% for the three months ended September 30, 2024, driven by the decrease from volume of 9%.

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

THE ESTÉE LAUDER COMPANIES INC.

Reported makeup net sales decreased slightly for the three months ended December 31, 2024, primarily driven by lower net sales from M·A·C, TOM FORD, Smashbox and Bobbi Brown, combined, of approximately $30 million.

The decrease in net sales from M·A·C was primarily driven by lower net sales in the eye and face subcategories.

Net sales from Smashbox decreased, primarily driven by North America, reflecting lower net sales in the face subcategory.

The decrease in net sales from Bobbi Brown was driven by lower net sales in the lip subcategory.

Reported makeup net sales decreased for the six months ended December 31, 2024, reflecting lower net sales from M·A·C, and to a lesser extent, Smashbox, Too Faced and TOM FORD, combined, of approximately $84 million.

The decrease in net sales from M·A·C was primarily driven by lower net sales in the face and eye subcategories and reflected softness in the brand's retail sales in North America.

Net sales from Smashbox decreased, primarily reflecting lower net sales in the face and eye subcategories.

The decrease in net sales from Too Faced was primarily driven by North America, reflecting lower net sales in the face and lip subcategories.

Net sales from TOM FORD decreased, primarily driven by lower net sales in mainland China, reflecting the overall challenging retail environment, including ongoing pressure from subdued sentiment from Chinese consumers, as well as lower net sales in Hong Kong SAR, driven by the eye subcategory.

Partially offsetting the makeup net sales decreases for the three and six months ended December 31, 2024 were higher net sales from Clinique and Estée Lauder, combined, of approximately $18 million and $52 million, respectively.

Net sales from Clinique increased across all geographic regions, led by North America, reflecting the launch in Amazon's U.S.

Premium Beauty store, as well as the success of hero products.

Net sales from Estée Lauder increased, primarily driven by growth in the face subcategory.

Makeup net sales were impacted by approximately $11 million and $9 million of unfavorable foreign currency translation for the three and six months ended December 31, 2024, respectively.

Reported makeup net sales decreased 1% for the three months ended December 31, 2024, driven by the decrease from volume of 7% and the unfavorable impact from 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.

Reported makeup net sales decreased 2% for the six months ended December 31, 2024, driven by the decrease from volume of 8%.

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

Three Months Ended

December 31, Six Months Ended

($ in millions) 2024 2023 2024 2023

6 unchanged sentences

GAAP measures.

Reported fragrance net sales decreased for the three months ended September 30, 2024, reflecting lower net sales from TOM FORD, Clinique, and Estée Lauder, combined, of approximately $29 million.

Net sales from TOM FORD decreased, primarily driven by lower net sales in North America, reflecting softness in the brand's retail sales, resulting in lower replenishment orders.

The decrease in net sales from Clinique was primarily due to lower replenishment orders in our global travel retail business and in other parts of Europe, the Middle East & Africa, primarily due to lower demand.

Net sales from Estée Lauder decreased, primarily driven by lower net sales across its fragrance portfolio.

Partially offsetting the reported fragrance net sales decrease for the three months ended September 30, 2024, were higher net sales from Le Labo and Kilian Paris, combined, of approximately $18 million.

Reported fragrance net sales increased slightly for the three months ended December 31, 2024, reflecting higher net sales from Le Labo, and to a lesser extent, Editions de Parfums Frédéric Malle, combined, of approximately $26 million.

Net sales from Le Labo increased, primarily reflecting growth of hero products, targeted expanded consumer reach and new product launches.

The increase in net sales from Editions de Parfums Frédéric Malle reflected growth across the product portfolio as well as targeted expanded consumer reach.

THE ESTÉE LAUDER COMPANIES INC.

Reported fragrance net sales remained virtually flat for the six months ended December 31, 2024, reflecting higher net sales from Le Labo, and to a lesser extent, Kilian Paris, Editions de Parfums Frédéric Malle and incremental net sales associated with the fiscal 2025 first quarter launch of BALMAIN Beauty, combined, of approximately $50 million.

Net sales from Le Labo increased, primarily reflecting targeted expanded consumer reach, growth of hero products and new product launches.

The increase in net sales from Kilian Paris reflected the success of new product launches.

Fragrance net sales were impacted by approximately $3 million of favorable foreign currency translation for the three months ended September 30, 2024.

Reported fragrance net sales decreased 1% for the three months ended September 30, 2024, driven by the decrease from volume of 7%.

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

The increase in net sales from Editions de Parfums Frédéric Malle reflected growth across the product portfolio as well as targeted expanded consumer reach.

Offsetting the reported fragrance net sales increase for the three and six months ended December 31, 2024 were lower net sales from Estée Lauder, Clinique and TOM FORD, combined, of approximately $25 million and $54 million, respectively.

Net sales from Estée Lauder decreased in both periods, primarily driven by lower net sales across its fragrance portfolio.

The decrease in net sales from Clinique in both periods was primarily due to lower net sales from the Clinique Happy franchise line of products.

Net sales from TOM FORD decreased in both periods, primarily driven by lower net sales in North America, reflecting softness in the brand's retail sales, resulting in lower replenishment orders, as well as the overall challenging retail environments in mainland China and Hong Kong SAR, including ongoing pressure from subdued sentiment from Chinese consumers.

Fragrance net sales were impacted by approximately $5 million and $2 million of unfavorable foreign currency translation for the three and six months ended December 31, 2024, respectively.

Reported fragrance net sales increased 1% for the three months ended December 31, 2024, driven by an increase from pricing of 7%, due to the favorable impact from strategic pricing actions and changes in mix.

Partially offsetting this increase was the decrease from volume of 5% and the unfavorable impact from foreign currency translation of 1%.

Reported fragrance net sales were virtually flat for the six months ended December 31, 2024, driven by an increase from pricing of 6%, due to the favorable impact from strategic pricing actions and changes in mix, offset by the decrease from volume of 6%.

Three Months Ended

December 31, Six Months Ended

($ in millions) 2024 2023 2024 2023

6 unchanged sentences

GAAP measures.

Reported hair care net sales decreased for the three and six months ended December 31, 2024, driven by lower net sales from Aveda, primarily driven by our softness in the North America and Europe, the Middle East & Africa salon channels, softness in our direct-to-consumer business, as well as the unfavorable impact of timing of shipments compared to the prior-year periods.

Reported hair care net sales decreased 8% for the three months ended December 31, 2024, driven by the decrease from volume of 6% and a decrease from pricing of 2%, due to changes in mix, partially offset by the favorable impact from strategic pricing actions.

Reported hair care net sales decreased 7% for the six months ended December 31, 2024, driven by the decrease from volume of 6% and a decrease from pricing of 2%, due to changes in mix, partially offset by the favorable impact from strategic pricing actions.

THE ESTÉE LAUDER COMPANIES INC.

Reported hair care net sales decreased for the three months ended September 30, 2024, driven by lower net sales from Aveda and to a lesser extent, The Ordinary, combined, of approximately $9 million.

The decrease in net sales from Aveda was driven by the timing of shipments and continued softness in our North America salon channel and our direct-to-consumer business.

Reported hair care net sales decreased 6% for the three months ended September 30, 2024, driven by the decrease from volume of 5% and a decrease from pricing of 1%, due to changes in mix, partially offset by the favorable impact from strategic pricing actions.

Geographic Regions

Three Months Ended

December 31, Six Months Ended

($ in millions) 2024 2023 2024 2023

6 unchanged sentences

GAAP measures.

Reported net sales in The Americas decreased for the three months ended September 30, 2024, primarily reflecting lower net sales in North America and Mexico, combined, of approximately $18 million.

The decrease in net sales in North America reflected the challenges from M·A·C, Aveda, TOM FORD, Too Faced and Smashbox as previously mentioned.

Partially offsetting these pressures in North America was the launch of seven brands to-date in Amazon's U.S.

Reported net sales in The Americas decreased for the three months ended December 31, 2024, primarily reflecting lower net sales in North America, and to Latin America distributors, combined, of approximately $12 million.

Net sales in North America decreased, reflecting softness in our retail sales, including challenges with our distribution mix, skewed toward slower-growing channels.

These challenges were largely offset by the launch of nine brands to-date in Amazon's U.S.

Premium Beauty store.

Net sales in Mexico decreased, primarily driven by the unfavorable impact of foreign currency translation.

Net sales in The Americas were impacted by approximately $11 million of unfavorable foreign currency translation for the three months ended September 30, 2024.

Reported net sales in The Americas decreased 2% for the three months ended September 30, 2024, driven by the decrease from volume of 6% and the unfavorable impact from foreign currency translation of 1%.

These decreases were partially offset by an increase from pricing of 5%, due to the favorable impact of strategic pricing actions.

Net sales to Latin America distributors decreased for the three months ended December 31, 2024, due in part, to lower net sales in fragrance, driven by Estée Lauder.

Reported net sales in The Americas decreased for the six months ended December 31, 2024, primarily reflecting lower net sales in North America, to Latin America distributors and in Mexico, combined, of approximately $31 million.

The decrease in net sales from North America reflected softness in our retail sales, including challenges with our distribution mix, skewed towards slower-growing channels.

These challenges were largely offset by the launch of nine brands to-date in Amazon's U.S.

Premium Beauty store.

Net sales to Latin America distributors decreased, due in part, to lower net sales in fragrance, driven by Estée Lauder.

The decrease in net sales in Mexico was primarily driven by the unfavorable impact of foreign currency translation.

Net sales in The Americas were impacted by approximately $13 million and $24 million of unfavorable foreign currency translation for the three and six months ended December 31, 2024, respectively.

Reported net sales in The Americas decreased 2% for the three months ended December 31, 2024, driven by the decrease from volume of 11% and the unfavorable impact from foreign currency translation of 1%.

These decreases were partially offset by an increase from pricing of 11%, due to the favorable impact of strategic pricing actions and changes in mix.

Reported net sales in The Americas decreased 2% for the six months ended December 31, 2024, driven by the decrease from volume of 9% and the unfavorable impact from foreign currency translation of 1%.

These decreases were partially offset by an increase from pricing of 8%, due to the favorable impact of strategic pricing actions and changes in mix.

THE ESTÉE LAUDER COMPANIES INC.

Europe, the Middle East & Africa

Three Months Ended

December 31, Six Months Ended

($ in millions) 2024 2023 2024 2023

6 unchanged sentences

GAAP measures.

THE ESTÉE LAUDER COMPANIES INC.

Reported net sales decreased in Europe, the Middle East & Africa for the three months ended September 30, 2024, primarily reflecting lower net sales from our Asia travel retail business, due to lower replenishment orders reflecting (i) the challenging retail environment, including worsened consumer sentiment in China, (ii) travelers diverting spending towards experiences, which continued to dampen conversion for beauty products and (iii) inventory pressure given the further retail market deceleration.

Partially offsetting the decrease in Europe, the Middle East & Africa in fiscal 2024 was higher net sales in Germany, the Nordic countries and Russia, combined, of approximately $29 million.

The increase in net sales from Germany was driven by the favorable year-over-year impact relating to the timing of shipments.

Net sales from the Nordic countries increased, primarily driven by the favorable year-over-year impact relating to the expansion of The Ordinary towards the end of the fiscal 2024 first quarter.

The increase in net sales from Russia was primarily driven by growth in fragrance and makeup.

Net sales in Europe, the Middle East & Africa were impacted by approximately $23 million of favorable foreign currency translation for the three months ended September 30, 2024.

Reported net sales in Europe, the Middle East & Africa decreased 2% for the three months ended September 30, 2024, driven by the decrease from volume of 4%, partially offset by the favorable impact from foreign currency translation of 2%.

The impact of pricing was flat compared to the prior-year period.

Reported net sales decreased in Europe, the Middle East & Africa for the three and six months ended December 31, 2024, primarily driven by lower net sales in our Asia travel retail business, reflecting the impacts from an overall challenging retail environment, including ongoing pressure from subdued sentiment from Chinese consumers.

Partially offsetting the decrease in reported net sales in Europe, the Middle East & Africa for the six months ended December 31, 2024 were higher net sales from Israel and Turkey, combined, of approximately $21 million.

Net sales in Israel increased, reflecting business disruption in the prior-year period, including the closure of stores which have since reopened.

Net sales from Turkey increased, primarily driven by growth in makeup, led by higher net sales from M·A·C, and growth in skin care, led by higher net sales from Estée Lauder.

Net sales in Europe, the Middle East & Africa were impacted by approximately $4 million of unfavorable and $19 million of favorable foreign currency translation for the three and six months ended December 31, 2024, respectively.

Reported net sales in Europe, the Middle East & Africa decreased 6% for the three months ended December 31, 2024, driven by the decrease from volume of 5%.

The impact of pricing was flat period-over-period.

Reported net sales in Europe, the Middle East & Africa decreased 4% for the six months ended December 31, 2024, driven by the decrease from volume of 5%, partially offset by the favorable impact from foreign currency translation of 1%.

The impact of pricing was flat period-over-period.

Three Months Ended

December 31, Six Months Ended

($ in millions) 2024 2023 2024 2023

6 unchanged sentences

GAAP measures.

Reported net sales decreased in Asia/Pacific for the three months ended September 30, 2024, primarily driven by lower net sales from mainland China, and Hong Kong SAR, combined, of approximately $105 million, reflecting worsened consumer sentiment.

This drove further softening in overall prestige beauty in mainland China and low conversion rates among traveling consumers in Hong Kong SAR..

Net sales in Asia/Pacific were impacted by approximately $6 million of favorable foreign currency translation for the three months ended September 30, 2024.

Reported net sales in Asia/Pacific decreased 11% for the three months ended September 30, 2024, driven by the decrease from volume of 15%.

Partially offsetting this decrease was an increase from pricing of 4%, due to the favorable impact from strategic pricing actions, partially offset by changes in mix, and the favorable impact of foreign currency translation of 1%.

THE ESTÉE LAUDER COMPANIES INC.

Gross margin increased to 72.4% for the three months ended September 30, 2024, as compared with 69.6% in the prior-year period.

Reported net sales decreased in Asia/Pacific for the three and six months ended December 31, 2024, primarily driven by lower net sales from mainland China, Korea, and Hong Kong SAR, combined, of approximately $166 million and $285 million, respectively, reflecting the impacts from the overall challenging retail environments, including subdued consumer sentiment.

The net sales decline in Korea in both periods also reflects the exit of Dr.Jart+ from the travel retail channel in Korea during the fiscal 2025 second quarter.

Net sales in Asia/Pacific were impacted by approximately $1 million of unfavorable and $5 million of favorable foreign currency translation for the three and six months ended December 31, 2024, respectively.

Reported net sales in Asia/Pacific decreased 11% for the three months ended December 31, 2024, driven by the decrease from volume of 16%.

Partially offsetting this decrease was an increase from pricing of 4% due to the favorable impact from strategic pricing actions, partially offset by changes in mix.

Reported net sales in Asia/Pacific decreased 11% for the six months ended December 31, 2024, driven by the decrease from volume of 15%.

Partially offsetting this decrease was an increase from pricing of 4% due to the favorable impact from strategic pricing actions, partially offset by changes in mix.

Gross margin increased to 76.1% and 74.4% for the three and six months ended December 31, 2024, as compared with 73.0% and 71.5% in the prior-year periods.

Favorable (Unfavorable) Basis Points

September 30, 2024

Three Months Ended

December 31, 2024

Three Months Ended Six Months Ended

Mix of business 55 35

7 unchanged sentences

Non-GAAP Gross Margin Basis Point Variance

The increase in gross margin for the three months ended September 30, 2024 was driven by lower obsolescence charges, due to a reduction in excess inventory.

Also contributing to the increase in gross margin was the favorable impact from manufacturing costs and other, reflecting the impact in the three months ended September 30, 2024 from the recognition of manufacturing variances associated with reduced manufacturing volumes on our standard cost within cost of sales in the fiscal 2024 third quarter, as well as favorability in cost management, partially offset by the impact of inflation on our costs.

These increases were partially offset by an unfavorable impact from our mix of business, driven by the impact of lower net sales, including the change in category mix reflecting a decrease in skin care net sales which typically have higher margins than other product categories.

These increases in mix of business were partially offset by the benefit of strategic pricing actions.

The increase in gross margin for the three and six months ended December 31, 2024 was driven by lower obsolescence charges, due to a reduction in excess inventory.

Also contributing to the increase in gross margin was the favorable impact from manufacturing costs and other, reflecting favorability in cost efficiencies within our global supply chain network, the impact in both periods of the recognition of manufacturing variances associated with reduced manufacturing volumes on our standard cost within cost of sales in the second half of fiscal 2024, partially offset by the impact of inflation on our costs.

Additionally, there was a favorable impact from our mix of business, reflecting the benefit of net strategic pricing actions, partially offset by the impact of lower net sales.

THE ESTÉE LAUDER COMPANIES INC.

OPERATING EXPENSES

Operating expenses as a percentage of net sales was 76.0% for the three months ended September 30, 2024, as compared with 66.8% in the prior-year period.

Operating expenses as a percentage of net sales were 90.6% and 83.9% for the three and six months ended December 31, 2024, as compared with 59.6% and 62.9% in the prior-year periods.

Favorable (Unfavorable) Basis Points

September 30, 2024

Three Months Ended

December 31, 2024

Three Months Ended Six Months Ended

General and administrative expenses (200) (140)

1 unchanged sentence

Selling (130) (120)

Shipping 30 20

Store operating costs (20) (20)

Stock-based compensation (10) 10

Foreign exchange transactions 30 20

Charges associated with restructuring and other activities (430) (370)

Goodwill and other intangible asset impairments

(2,150) (1,170)

Talcum litigation settlement agreements

Changes in fair value of acquisition-related stock options 30

Changes in fair value of DECIEM acquisition-related stock options

As Reported Operating Expense Margin Basis Point Variance

(3,100) (2,100)

Non-GAAP Financial Measure Adjustments:

Impact of restructuring and other activities

Goodwill and other intangible asset impairments

Talcum litigation settlement agreements

Changes in fair value of acquisition-related stock options (30)

Changes in fair value of DECIEM acquisition-related stock options

Non-GAAP Operating Expense Margin Basis Point Variance

Higher selling expenses in the fiscal 2025 first quarter were driven by continued investments in our business, including in support of new product launches and targeted expanded consumer reach.

The unfavorable change in operating expense margin for the three and six months ended December 31, 2024 reflects the impact of the decrease in net sales, as well as higher general and administrative and selling expenses, and for the three months ended December 31, 2024, also reflects higher advertising, merchandising, sampling and product development expenses.

The increase in general and administrative expenses in both periods primarily reflected the year-over-year unfavorable impact of a change in policy related to local government subsidies in China.

Selling expenses increased in both periods as we continue to invest in our business, reflecting higher staffing costs to support sales, targeted expanded consumer reach and key campaigns.

The increase in advertising, merchandising, sampling and product development expenses for the three months ended December 31, 2024 reflected investments to support sales, including through key campaigns and launches, as well as the year-over-year timing of expenses.

THE ESTÉE LAUDER COMPANIES INC.

OPERATING RESULTS

Three Months Ended

December 31, Six Months Ended

($ in millions) 2024 2023 2024 2023

Operating income (loss)

$ (580) $ 574 $ (701) $ 672

$ Change from prior-year period (1,154) (1,373)

2 unchanged sentences

Non-GAAP Financial Measure (1) :

% Change in operating income from the prior-year period adjusting for the impact of charges associated with restructuring and other activities, talcum litigation settlement agreements and the change in fair value of acquisition-related stock options 33 %

% Change in operating income from the prior-year period adjusting for the impact of charges associated with restructuring and other activities, the impact of goodwill and other intangible asset impairments, talcum litigation settlement agreements and the change in fair value of DECIEM acquisition-related stock options (20) % (12) %

(1) See “ Reconciliations of Non-GAAP Financial Measures” beginning on page 57 for reconciliations between non-GAAP financial measures and the most directly comparable U.S.

GAAP measures.

THE ESTÉE LAUDER COMPANIES INC.

The decrease in reported operating margin for the three months ended September 30, 2024 was primarily driven by a decrease in net sales and an increase in operating expense margin, partially offset by an increase in gross margin, as discussed above.

The decrease in reported operating margin for the three and six months ended December 31, 2024 primarily reflects an increase in operating expense margin, driven by goodwill and other intangible asset impairments relating to TOM FORD and Too Faced, combined, of $861 million, included in the makeup, fragrance and other product categories, and a decrease in net sales, partially offset by an increase in gross margin, as 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 (loss) by Product Categories and Geographic Regions exclude the impact of charges associated with restructuring and other activities for the three months ended September 30, 2024 and 2023 of $106 million and $2 million, respectively.

Accordingly, the following discussions of Operating income (loss) by Product Categories and Geographic Regions exclude the impact of charges associated with restructuring and other activities for the three months ended December 31, 2024 and 2023 of $181 million and $8 million, respectively, and for the six months ended December 31, 2024 and 2023 of $287 million and $10 million, respectively.

THE ESTÉE LAUDER COMPANIES INC.

Product Categories

Three Months Ended

December 31, Six Months Ended

($ in millions) 2024 2023 2024 2023

3 unchanged sentences

Non-GAAP Financial Measure (1) :

% Change in operating income from the prior-year period adjusting for the change in fair value of acquisition-related stock options

% Change in operating income from the prior-year period adjusting for the change in fair value of DECIEM acquisition-related stock options

(1) See “ Reconciliations of Non-GAAP Financial Measures” beginning on page 57 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 September 30, 2024, reflecting favorability in cost of sales across the category, including lower obsolescence charges compared to the prior-year period due to a reduction in excess inventory, as well as higher operating results from Clinique, primarily driven by a decrease in cost of sales, due in part, to a decrease in promotional items, and lower advertising and promotional expenses due to the timing of advertising and promotional activities compared to the prior-year period.

Partially offsetting the increase in reported skin care operating income for the three months ended September 30, 2024 was lower operating results from La Mer, driven by a decrease in net sales, partially offset by lower cost of sales.

THE ESTÉE LAUDER COMPANIES INC.

Reported skin care operating income decreased for the three and six months ended December 31, 2024, primarily driven by lower operating results from La Mer, and to a lesser extent, The Ordinary and Estée Lauder, combined, of approximately $132 million and $192 million, respectively.

Operating results from La Mer decreased in both periods, primarily driven by a decrease in net sales and an increase in advertising and promotional activities to support key shopping moments and new product launches, partially offset by lower cost of sales.

The decrease in operating results from The Ordinary in both periods was primarily driven by higher advertising and promotional expenses due to the timing of advertising and promotional activities compared to the prior-year period and higher cost of sales due to changes in product mix.

Operating results from Estée Lauder decreased in both periods, primarily driven by a decrease in net sales, partially offset by lower cost of sales and reflecting disciplined advertising and promotional expense management.

Partially offsetting the decline in skin care operating income for the product category overall was lower cost of sales.

Three Months Ended

December 31, Six Months Ended

($ in millions) 2024 2023 2024 2023

Operating loss

Operating income (loss)

$ (211) $ 30 $ (396) $ (10)

2 unchanged sentences

Non-GAAP Financial Measure (1) :

% Change in operating income from the prior-year period adjusting for the impact of talcum litigation settlement agreements

% Change in operating income (loss) from the prior-year period adjusting for the the impact of goodwill and other intangible asset impairments and talcum litigation settlement agreements

(1) See “ Reconciliations of Non-GAAP Financial Measures” beginning on page 57 for reconciliations between non-GAAP financial measures and the most directly comparable U.S.

GAAP measures.

Reported makeup operating loss increased for the three months ended September 30, 2024, primarily reflecting the talcum litigation settlement agreements of $159 million, as well as lower operating results from M·A·C and Too Faced, combined, of approximately $23 million.

The decrease in operating results from M·A·C was primarily driven by a decrease in net sales, partially offset by a decrease in cost of sales, including lower obsolescence charges compared to the prior-year period due to a reduction in excess inventory, and lower advertising and promotional expenses due to disciplined expense management and the timing of advertising and promotional activities compared to the prior-year period.

Operating results from Too Faced decreased, primarily driven by a decrease in net sales.

Partially offsetting the decrease in reported makeup operating results for the three months ended September 30, 2024 was higher operating results from Clinique, primarily driven by an increase in net sales.

THE ESTÉE LAUDER COMPANIES INC.

Reported makeup operating results decreased for the three and six months ended December 31, 2024, primarily driven by the unfavorable year-over-year impacts of other intangible asset impairment charges relating to TOM FORD and Too Faced, combined, of $245 million and a goodwill impairment charge relating to Too Faced of $13 million, as well as lower net sales, partially offset by lower cost of sales.

Also contributing to the decrease in makeup operating results for the six months ended December 31, 2024 was the charge in the fiscal 2025 first quarter associated with the talcum litigation settlement agreements of $159 million.

Three Months Ended

December 31, Six Months Ended

($ in millions) 2024 2023 2024 2023

Operating income $ 60 $ 107

Operating income (loss)

$ (446) $ 131 $ (386) $ 238

$ Change from prior-year period (577) (624)

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

Reported fragrance operating income decreased for the three months ended September 30, 2024, reflecting lower operating results from TOM FORD, and to a lesser extent, Jo Malone London, combined, of approximately $32 million.

Operating income from TOM FORD decreased, primarily driven by a decrease in net sales, higher advertising and promotional activities to support new product launches and targeted expanded consumer reach, and higher selling expenses also driven by targeted expanded consumer reach.

The decrease in operating results from Jo Malone London was primarily driven by an increase in selling expenses and store operating costs to support new product launches and targeted expanded consumer reach.

THE ESTÉE LAUDER COMPANIES INC.

Non-GAAP Financial Measure (1) :

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

(21) % (32) %

(1) See “ Reconciliations of Non-GAAP Financial Measures” beginning on page 57 for reconciliations between non-GAAP financial measures and the most directly comparable U.S.

GAAP measures.

Reported fragrance operating income decreased for the three and six months ended December 31, 2024, primarily driven by lower operating results from TOM FORD, and to a lesser extent, Jo Malone London, combined, of approximately $571 million and $603 million, respectively.

The decrease in operating results from TOM FORD in both periods was primarily driven by an unfavorable year-over-year impact of the other intangible asset impairment charge of $549 million.

Also contributing to the decrease in operating results from TOM FORD for the six months ended December 31, 2024 was a decline in net sales, an increase in selling expenses to support the growth of the business and an increase in advertising and promotional activities to support new product launches.

The decrease in operating results from Jo Malone London in both periods was due to higher advertising and promotional activities and selling expenses to support key campaigns, partially offset by lower cost of sales.

Also contributing to the decrease in operating results from Jo Malone London for the six months ended December 31, 2024 was higher store operating costs to support targeted expanded consumer reach.

Three Months Ended

December 31, Six Months Ended

($ in millions) 2024 2023 2024 2023

Operating loss $ (3) $ (3) $ (21) $ (25)

$ (18) $ (22)

$ Change from prior-year period — 4

% Change from prior-year period — % 16 %

Reported hair care operating loss decreased during the three months ended September 30, 2024, primarily reflecting lower cost of sales, including lower obsolescence charges compared to the prior-year period due to a reduction in excess inventory, lower general and administrative expenses, and a decrease in advertising and promotional activities, partially offset by a decrease in net sales.

Reported hair care operating results were flat for the three months ended December 31, 2024 and increased slightly for the six months ended December 31, 2024, primarily reflecting a decrease in operating expenses and lower cost of sales, partially offset by a decrease in net sales.

THE ESTÉE LAUDER COMPANIES INC.

Geographic Regions

Three Months Ended

December 31, Six Months Ended

($ in millions) 2024 2023 2024 2023

Operating loss $ (823) $ (55) $ (991) $ (237)

$ (168) $ (182)

$ Change from prior-year period (768) (754)

1 unchanged sentence

Non-GAAP Financial Measure (1) :

% Change in operating income from the prior-year period adjusting for the impact of talcum litigation settlement agreements and change in fair value of acquisition-related stock options

% Change in operating loss from the prior-year period adjusting for the impact of goodwill and other intangible asset impairments, talcum litigation settlement agreements and change in fair value of DECIEM acquisition-related stock options 100+% 100+%

(1) See “ Reconciliations of Non-GAAP Financial Measures” beginning on page 57 for reconciliations between non-GAAP financial measures and the most directly comparable U.S.

GAAP measures.

Reported operating loss in The Americas decreased for the three months ended September 30, 2024, primarily reflecting lower operating losses in North America, of approximately $20 million.

The decrease in operating loss was primarily driven by lower cost of sales, including lower obsolescence charges compared to the prior-year period due to a reduction in excess inventory, and a favorable year-over-year impact relating to net intercompany activity, largely offset by the talcum litigation settlement agreements of $159 million.

Partially offsetting the decrease in operating loss in The Americas for the three months ended September 30, 2024 was lower operating results in Mexico, reflecting a decrease in net sales and higher selling expenses, partially offset by lower cost of sales.

THE ESTÉE LAUDER COMPANIES INC.

Reported operating loss in The Americas increased for the three and six months ended December 31, 2024, primarily reflecting lower operating results in North America of approximately $764 million and $744 million, respectively.

The lower operating results were primarily driven by the unfavorable year-over-year impacts of other intangible asset impairment charges relating to TOM FORD and Too Faced of $848 million and a goodwill impairment charge relating to Too Faced of $13 million, partially offset by lower cost of sales, including lower obsolescence charges compared to the prior-year period due to a reduction in excess inventory, and the favorable year-over-year impact relating to net intercompany activity.

Also contributing to the decrease in operating results in North America for the six months ended December 31, 2024 was the charge in the fiscal 2025 first quarter associated with the talcum litigation settlement agreements of $159 million.

Europe, the Middle East & Africa

Three Months Ended

December 31, Six Months Ended

($ in millions) 2024 2023 2024 2023

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% Change from prior-year period (17) % (22) %

Reported operating income decreased in Europe, the Middle East & Africa for the three months ended September 30, 2024, primarily driven by lower results from our travel retail business and the United Kingdom, combined, of approximately $54 million.

The decrease in operating income from our travel retail business was primarily due to a decrease in net sales and an unfavorable year-over-year impact of net intercompany activity, partially offset by disciplined advertising and promotional expense management.

Operating income decreased in the United Kingdom, primarily driven by an increase in cost of sales, higher advertising and promotional expenses to support key campaigns, and an unfavorable year-over-year impact of net intercompany activity.

Reported operating income decreased in Europe, the Middle East & Africa for the three and six months ended December 31, 2024, primarily driven by lower results from our travel retail business, reflecting a decrease in net sales and the unfavorable year-over-year impact of net intercompany activity, partially offset by lower cost of sales and disciplined advertising and promotional expense management.

THE ESTÉE LAUDER COMPANIES INC.

Three Months Ended

December 31, Six Months Ended

($ in millions) 2024 2023 2024 2023

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% Change from prior-year period (58) % (57) %

Reported operating income decreased in Asia/Pacific for the three months ended September 30, 2024, primarily driven by lower results in mainland China and Hong Kong SAR, combined, of approximately $55 million.

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

Operating results in Hong Kong SAR decreased, primarily driven by a decrease in net sales.

Reported operating income decreased in Asia/Pacific for the three and six months ended December 31, 2024, primarily driven by lower results in mainland China, Hong Kong SAR and Korea, combined, of approximately $131 million and $189 million, respectively.

The decrease in operating results from mainland China in both periods was primarily driven by a decrease in net sales and the year-over-year unfavorable impact of a change in policy related to local government subsidies in China, partially offset by disciplined advertising and promotional expense management and lower cost of sales.

Hong Kong SAR operating results decreased in both periods, primarily driven by a decrease in net sales.

Operating results in Korea decreased in both periods, primarily driven by a decrease in net sales, partially offset by lower store operating costs relating to the exit of Dr.Jart+ from the travel retail channel during the fiscal 2025 second quarter as well as lower cost of sales.

INTEREST AND INVESTMENT INCOME

Three Months Ended

December 31, Six Months Ended

(In millions) 2024 2023 2024 2023

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Interest income and investment income, net $ 23 $ 40 $ 58 $ 81

Interest expense decreased for the three months ended September 30, 2024, primarily reflecting a lower average debt balance compared to the prior-year period.

Interest income and investment income, net decreased, primarily reflecting a lower average cash balance compared to the prior-year period, partially offset by higher interest rates compared to the prior-year period.

THE ESTÉE LAUDER COMPANIES INC.

Interest expense decreased for the three and six months ended December 31, 2024, primarily reflecting a lower average debt balance compared to the prior-year periods.

Interest income and investment income, net decreased for the three months ended December 31, 2024, primarily reflecting a lower average cash balance and lower interest rates compared to the prior-year period.

For the six months ended December 31, 2024, interest income and investment income decreased, primarily reflecting a lower average cash balance compared to the prior-year period, partially offset by higher interest rates compared to the prior-year period.

PROVISION FOR INCOME TAXES

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Three Months Ended

December 31, Six Months Ended

2024 2023 2024 2023

Effective rate for income taxes 9.2 % 37.6 % 10.1 % 36.3 %

Basis-point change from the prior-year period (2,840) (2,620)

The decrease in the effective tax rate of 840 basis points was primarily attributable to the impact of the discrete treatment of the charge associated with the talcum litigation settlement agreements and charges associated with restructuring and other activities recorded in the first quarter of fiscal 2025.

The loss before income taxes in the first quarter of fiscal 2025 increased the impact of these discrete items on the effective tax rate.

For the three months ended December 31, 2024, the decrease in the effective tax rate was primarily attributable to the impact of the discrete treatment of charges associated with restructuring and other activities, the impairment of goodwill and other intangible assets, as well as an unfavorable impact associated with previously issued stock-based compensation.

THE ESTÉE LAUDER COMPANIES INC.

For the six months ended December 31, 2024, the decrease in the effective tax rate was primarily attributable to the impact of the discrete treatment of charges associated with restructuring and other activities, the impairment of goodwill and other intangible assets, the charge associated with the talcum litigation settlement agreements (See Note 8 - Commitments and Contingencies for further discussion) and an unfavorable impact associated with previously issued stock-based compensation.

NET EARNINGS (LOSS) ATTRIBUTABLE TO THE ESTÉE LAUDER COMPANIES INC.

Three Months Ended

December 31, Six Months Ended

($ in millions, except per share data) 2024 2023 2024 2023

Net earnings (loss) attributable to The Estée Lauder Companies Inc.

$ (590) $ 313 $ (746) $ 344

$ Change from prior-year period (903) (1,090)

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Non-GAAP Financial Measure (1) :

% Change in diluted net earnings per common share from the prior-year period adjusting for the impact of charges associated with restructuring and other activities, talcum litigation settlement agreements and the change in fair value of acquisition-related stock options 33 %

% Change in diluted net earnings per common share from the prior-year period adjusting for the impact of charges associated with restructuring and other activities, goodwill and other intangible asset impairments, talcum litigation settlement agreements and the change in fair value of DECIEM acquisition-related stock options (29) % (22) %

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

GAAP measures.

THE ESTÉE LAUDER COMPANIES INC.

RECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES

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

goodwill and other intangible asset impairments;

talcum litigation settlement agreements;

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

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

and the effects of foreign currency translation.

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

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

GAAP measures.

THE ESTÉE LAUDER COMPANIES INC.

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

September 30 Variance % Change

Variance % Change

constant currency

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Charges associated with restructuring and other activities 181 8 173

Goodwill and other intangible asset impairments

Change in fair value of DECIEM acquisition-related stock options

Operating income, as adjusted $ 462 $ 577 $ (115) (20) % (19) %

Diluted net earnings (loss) per common share, as reported

$ (1.64) $ .87 $ (2.51) (100+)% (100+)%

Charges associated with restructuring and other activities .39 .02 .37

Goodwill and other intangible asset impairments

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

Diluted net earnings per common share, as adjusted $ .62 $ .88 $ (.26) (29) % (27) %

THE ESTÉE LAUDER COMPANIES INC.

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

Variance % Change

constant currency

Net sales, as reported $ 7,365 $ 7,797 $ (432) (6) % (6) %

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

Net sales, as adjusted $ 7,365 $ 7,798 $ (433) (6) % (6) %

Operating income (loss), as reported

$ (701) $ 672 $ (1,373) (100+)% (100+)%

Charges associated with restructuring and other activities 287 10 277

Goodwill and other intangible asset impairments

Talcum litigation settlement agreements

Change in fair value of acquisition-related stock options — 8 (8)

Change in fair value of DECIEM acquisition-related stock options

Operating income, as adjusted $ 606 $ 685 $ (79) (12) % (12) %

Diluted net earnings per common share, as reported $ (0.43) $ 0.09 $ (.52) (100+)% (100+)%

Diluted net earnings (loss) per common share, as reported

$ (2.07) $ .95 $ (3.02) (100+)% (100+)%

Charges associated with restructuring and other activities .63 .02 .61

Goodwill and other intangible asset impairments

Talcum litigation settlement agreements

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

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

Diluted net earnings per common share, as adjusted $ .77 $ .98 $ (.21) (22) % (23) %

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THE ESTÉE LAUDER COMPANIES INC.

The following table reconciles 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:

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

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THE ESTÉE LAUDER COMPANIES INC.

The following table reconciles the change in operating results by product category and geographic region, as reported, to the change in operating income excluding the impact of talcum litigation settlement agreements and the change in fair value of acquisition-related stock options:

As Reported Impact of foreign

currency translation Variance,

in constant currency % Change,

as reported % Change,

in constant currency

Six Months Ended

($ in millions) 2024 2023 Variance

By Product Category:

Skin Care $ 3,450 $ 3,813 $ (363) $ (11) $ (374) (10) % (10) %

Makeup 2,188 2,229 (41) 9 (32) (2) (1)

Fragrance 1,374 1,373 1 2 3 — 0

Hair Care 298 321 (23) — (23) (7) (7)

Other 55 62 (7) — (7) (11) (11)

7,365 7,798 (433) — (433) (6) (6)

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

Total $ 7,365 $ 7,797 $ (432) $ — $ (432) (6) % (6) %

The Americas $ 2,410 $ 2,450 $ (40) $ 24 $ (16) (2) % (1) %

Europe, the Middle East & Africa 2,724 2,841 (117) (19) (136) (4) (5)

Asia/Pacific 2,231 2,507 (276) (5) (281) (11) (11)

7,365 7,798 (433) — (433) (6) (6)

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

Total $ 7,365 $ 7,797 $ (432) $ — $ (432) (6) % (6) %

THE ESTÉE LAUDER COMPANIES INC.

The following tables reconcile the change in operating results by product category and geographic region, as reported, to the change in operating income excluding the impact of goodwill and other intangible asset impairments and the change in fair value of DECIEM acquisition-related stock options, as well as the talcum litigation settlement agreements for the six months ended December 31, 2024:

As Reported Add:

Talcum litigation settlement agreements

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

goodwill and other intangible asset impairments

Change in fair value of DECIEM acquisition-related stock options

Variance, as adjusted % Change, as reported % Change, as adjusted

Three Months Ended

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Total $ (580) $ 574 $ (1,154)

THE ESTÉE LAUDER COMPANIES INC.

As Reported Add:

goodwill and other intangible asset impairments

Talcum litigation settlement agreements

Change in fair value of DECIEM acquisition-related stock options

Variance, as adjusted % Change, as reported % Change, as adjusted

Six Months Ended

($ in millions) 2024 2023 Variance

By Product Category:

Skin Care $ 423 $ 452 $ (29) $ — $ — $ (3) $ (32) (6) % (7) %

Makeup (396) (10) (386) 258 159 — 31 (100+) 100+%

Fragrance (386) 238 (624) 549 — — (75) (100+) (32)

Hair Care (21) (25) 4 — — — 4 16 16

Other (34) 27 (61) 54 — — (7) (100+) (26)

(414) 682 (1,096) $ 861 $ 159 $ (3) $ (79) (100+)% (12) %

Charges associated with restructuring and other activities (287) (10) (277)

Total $ (701) $ 672 $ (1,373)

The Americas $ (991) $ (237) $ (754) $ 861 $ 159 $ (3) $ 263 (100+)% 100+%

Europe, the Middle East & Africa 406 523 (117) — — — (117) (22) (22)

Asia/Pacific 171 396 (225) — — — (225) (57) (57)

(414) 682 (1,096) $ 861 $ 159 $ (3) $ (79) (100+)% (12) %

Charges associated with restructuring and other activities (287) (10) (277)

Total $ (701) $ 672 $ (1,373)

FINANCIAL CONDITION

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

At September 30, 2024, we had cash and cash equivalents of $2,350 million compared with $3,395 million at June 30, 2024.

At December 31, 2024, we had cash and cash equivalents of $2,586 million compared with $3,395 million at June 30, 2024.

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

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If these reinvested earnings were repatriated into the United States as dividends, we would be subject to state income taxes and applicable foreign taxes in certain jurisdictions.

THE ESTÉE LAUDER COMPANIES INC.

Inflation impacted our overall operating results in the fiscal 2025 first quarter and we expect it to continue.

Inflation impacted our overall operating results in the fiscal 2025 second 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.

THE ESTÉE LAUDER COMPANIES INC.

Credit Ratings

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

As of October 24, 2024, our long-term debt is rated A with a negative outlook by Standard & Poor’s and A2 with a stable outlook by Moody’s.

As of January 28, 2025, our long-term debt is rated A with a negative watch by Standard & Poor’s and A2 with a negative outlook by Moody’s.

THE ESTÉE LAUDER COMPANIES INC.

At September 30, 2024, our outstanding borrowings were as follows:

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

($ in millions) Long-term

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3.150% Senior Notes, due March 15, 2027 (“2027 Senior Notes”) (14), (15)

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

Other long-term borrowings 26 — 26

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(12) Consists of $650 million principal, unamortized debt discount of $3 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 $2 million.

(13) Consists of $700 million principal, 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.

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

Total debt as a percent of total capitalization was 61% and 59% at September 30, 2024 and June 30, 2024, respectively.

In December 2024, the Company repaid the outstanding principal balance of its $500 million, 2.000% Senior Notes at maturity with cash from operations.

Total debt as a percent of total capitalization was 64% and 59% at December 31, 2024 and June 30, 2024, respectively.

THE ESTÉE LAUDER COMPANIES INC.

Three Months Ended

Six Months Ended

(In millions) 2024 2023

Net cash flows used for operating activities

$ (670) $ (408)

Net cash flows provided by operating activities

Net cash flows used for investing activities $ (294) $ (557)

1 unchanged sentence

$ (878) $ (489)

The change in net cash flows used for operating activities was primarily driven by the loss before tax for the three months ended September 30, 2024, excluding non-cash items, and an unfavorable change in operating assets and liabilities variances, reflecting an unfavorable change in other accrued and noncurrent liabilities, accounts payable and inventory and promotional merchandise, partially offset by a favorable change in accounts receivable.

The change in net cash flows used for investing activities was primarily driven by a favorable year-over-year impact from payments made relating to the manufacturing facility in Japan, near Tokyo in the prior-year period.

For a summary of quarterly cash dividends declared per share on our Class A and Class B Common Stock during the three months ended September 30, 2024, see Notes to Consolidated Financial Statements, Note 11 – Equity and Redeemable Noncontrolling Interest .

The change in net cash flows provided by operating activities was primarily driven by lower earnings for the six months ended December 31, 2024, excluding non-cash items, and an unfavorable change in operating assets and liabilities variances, including the impact from the significant reduction in inventory in the prior-year period, as compared to the reduction in inventory in the current-year period.

The change in net cash flows used for investing activities was primarily driven by a favorable year-over-year impact from capital expenditure payments made relating to the manufacturing facility in Japan, near Tokyo, in the prior-year period.

The change in net cash flows used for financing activities primarily reflected an increase in repayments of long-term debt due to the repayment of the outstanding principal balance of our $500 million, 2.000% Senior Notes that matured during the fiscal 2025 second quarter, partially offset by a decrease in dividends paid to stockholders.

For a summary of quarterly cash dividends declared per share on our Class A and Class B Common Stock during the six months ended December 31, 2024, see Notes to Consolidated Financial Statements, Note 11 – Equity and Redeemable Noncontrolling Interest .

Pension and Post-retirement Plan Funding

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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, 2024 .

There have been no significant changes to our commitments and contractual obligations as discussed in our Annual Report on Form 10-K for the fiscal year ended June 30, 2024 .

For a discussion of contingencies, see Notes to Consolidated Financial Statements, Note 8 – Commitments and Contingencies .

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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 $375 million and $371 million as of September 30, 2024 and June 30, 2024, respectively.

dollar against the foreign exchange rates for the currencies in our portfolio would have resulted in a net decrease in the fair value of our portfolio of approximately $299 million and $371 million as of December 31, 2024 and June 30, 2024, respectively.

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 at each of September 30, 2024 and June 30, 2024.

THE ESTÉE LAUDER COMPANIES INC.

We also enter into cross-currency swap contracts to hedge the impact of foreign currency changes on certain intercompany foreign currency denominated debt and to hedge a portion of the net investment in certain foreign operations.

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 $85 million and $49 million as of December 31, 2024 and June 30, 2024, respectively.

In addition, we enter into interest rate derivatives to manage the effects of interest rate movements on our aggregate liability portfolio, including future debt issuances.

Based on a hypothetical 100 basis point increase in interest rates, the estimated fair value of our interest rate derivatives would decrease by approximately $49 million and $48 million as of September 30, 2024 and June 30, 2024, respectively.

Based on a hypothetical 100 basis point increase in interest rates, the estimated fair value of our interest rate derivatives would decrease by approximately $45 million and $48 million as of December 31, 2024 and June 30, 2024, 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.

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Our most critical accounting policies relate to goodwill and other indefinite-lived intangible assets - impairment assessment and income taxes.

Since June 30, 2024, there have been no significant changes to the assumptions and estimates related to our critical accounting policies.

Since June 30, 2024, there have been no significant changes to the assumptions and estimates related to our critical accounting policies, except as disclosed within the Impairment Analysis During the Six Months Ended December 31, 2024 section in Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations on page 43.

RECENTLY ISSUED ACCOUNTING STANDARDS

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

THE ESTÉE LAUDER COMPANIES INC.

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

(2) our ability to develop, produce and market new products on which future operating results may depend and to successfully address challenges in our business;

THE ESTÉE LAUDER COMPANIES INC.

(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;

1 unchanged sentence

(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;

(6) shifts in the preferences of consumers as to how they perceive value and 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;

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(16) 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;

THE ESTÉE LAUDER COMPANIES INC.

(17) the timing and impact of acquisitions, investments and divestitures;

(18) 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, 2024.

THE ESTÉE LAUDER COMPANIES INC.

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

2 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis