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Item 1A. Risk Factors

2025-08-20 compared with 2024-08-19 · 62 added, 46 removed, 149 unchanged (42% of the section changed)

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Securities and Exchange Commission (“SEC”).

Our business may also be adversely affected by risks and uncertainties not presently known to us or that we currently believe to be immaterial.

If any of the events contemplated by the following discussion of risks should occur or other risks arise or develop, our business, which includes our prospects, financial condition and results of operations, the trading prices of our securities and our reputation, may be adversely affected.

Our business may also be adversely affected by risks and uncertainties not presently known to us or that we currently believe to be not material.

If any of the events contemplated by the following discussion of risks should occur or other risks arise or develop, our business, which includes (a) our prospects, (b) our financial condition, (c) our results of operations, (d) our reputation, and (e) the trading prices of our securities, may be adversely affected.

Risks related to our Business and our Industry

The beauty business is highly competitive, and if we are unable to compete effectively our results will suffer.

The beauty business is highly competitive, and if we are unable to compete effectively our business will suffer.

We face vigorous competition from companies throughout the world, including multinational consumer product companies.

Some competitors have greater resources than we do, others are newer companies (some backed by private-equity investors), and some are competing in distribution channels where we are less represented.

Some competitors have greater resources than we do, others are newer companies (such as Indie Brands, some of which are backed by private-equity investors), and some are competing in distribution channels where we are less represented.

The beauty business can change rapidly due to consumer preferences and industry trends.

In some cases, we may not be able to respond to changing business and economic conditions as quickly as our competitors.

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Our ability to compete also depends on the continued strength of our brands, our ability to attract and retain key talent and other personnel, the efficiency of our manufacturing facilities and distribution network, and our ability to maintain and protect our intellectual property and those other rights used in our business.

Our Company has a well-recognized and strong reputation that could be negatively impacted by social media and many other factors, including, given the legal, regulatory and ethical landscape around the use of AI, our ability to adapt and use the emerging technology in an effective and ethical manner.

Our Company has a well-recognized and strong reputation and our ability to maintain our reputation is critical to our business.

Our reputation could be negatively impacted by social media and many other factors, including, given the legal, regulatory and ethical landscape around the use of AI, our ability to adapt and use the emerging technology in an effective and ethical manner.

If our reputation is adversely affected, our ability to attract and retain customers, consumers and employees could be impacted.

In addition, certain of our key retailers around the world market and sell competing brands or are owned or otherwise affiliated with companies that market and sell competing brands.

Our inability to continue to compete effectively in key countries around the world (e.g., China) could have a material adverse effect on our business.

Our inability to anticipate and respond to market trends and changes in consumer preferences could adversely affect our financial results.

Our inability to continue to compete effectively in key countries around the world (e.g., China or the United States) could have a material adverse effect on our business.

Our inability to anticipate and respond to market trends and changes in consumer preferences could adversely affect our business.

Our success depends on our ability to anticipate, gauge and react in a timely and cost-effective manner to changes in consumer preferences for skin care, makeup, fragrance and hair care products, attitudes toward our industry and brands, as well as to where and how consumers shop.

We must continually work to develop, manufacture and market new products, maintain and adapt our “High-Touch” services to existing and emerging distribution channels, maintain and enhance the recognition of our brands, achieve a favorable mix of products, successfully manage our inventories, and modernize and refine our approach as to how and where we market and sell our products.

We must continually work to develop, manufacture and market new products, maintain and adapt our selling, advertising, promotional and other consumer engagement activities to existing and emerging distribution channels, maintain and enhance the recognition of our brands, achieve a favorable mix of products, successfully manage our inventories, and modernize and refine our approach as to how and where we market and sell our products.

We recognize consumer preferences cannot be predicted with certainty and can change rapidly, driven by the use of digital and social media by consumers and the speed by which information and opinions are shared.

If we are unable to anticipate and respond to challenges that we may face in the marketplace, trends in the market for our products and changing consumer demands and sentiment, our financial results will suffer.

In addition, from time to time, sales growth or profitability may be concentrated in a relatively small number of our brands, channels or countries (e.g., China).

In addition, from time to time, sales growth or profitability may be concentrated in a relatively small number of our brands, channels and/or countries.

If such a situation persists or one or more brands, channels or countries fails to perform as expected, there could be a material adverse effect on our business.

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Our future success depends, in part, on our ability to achieve our long-term strategy.

Achieving our long-term strategy will require investment in new capabilities, brands, categories, distribution channels, supply chain facilities, technologies and emerging and more mature geographic markets (e.g., China).

These investments may result in short-term costs without any current sales and, therefore, may be dilutive to our earnings.

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The failure to realize benefits, which may be due to our inability to execute plans, global or local economic conditions, competition, changes in the beauty industry and the other risks described herein, could have a material adverse effect on our business.

Acquisitions and divestitures may expose us to additional risks.

We continuously review acquisition and strategic investment opportunities that would expand our current product offerings, our distribution channels, increase the size and geographic scope of our operations or otherwise offer growth and operating efficiency opportunities.

Acquisitions, divestitures and other strategic actions may expose us to additional risks.

We continuously review acquisition and strategic opportunities that would expand our current product offerings, our distribution channels, increase the size and geographic scope of our operations or otherwise offer growth and operating efficiency opportunities.

In addition, we periodically review our brand portfolio, and our strategy includes potential divestitures of certain brands as we rationalize product offerings.

There can be no assurance we will be able to identify these strategic actions and consummate such transactions on favorable terms.

Acquisitions including strategic investments or alliances entail numerous risks, which may include:

There can be no assurance we will be able to identify these strategic actions, be the successful bidder, and consummate such transactions on favorable terms, or otherwise realize the full intended benefit of such transactions.

Acquisitions including strategic investments or other activities entail numerous risks, which may include:

(i) difficulties in integrating acquired operations or products, including the loss of key employees from, or customers, consumers or suppliers of, acquired businesses;

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and (vi) risks of entering distribution channels, categories or markets in which we have limited or no prior experience.

If required, the financing for these transactions could result in an increase in our indebtedness, dilute the interests of our stockholders or both.

In addition, the assumptions we use to evaluate acquisition opportunities have in the past, and may in the future, prove to be inaccurate, and intended benefits may not be realized.

If required, any financing for these transactions would result in an increase in our indebtedness, dilute the interests of our stockholders or both.

The purchase price for some acquisitions may include additional amounts to be paid in cash in the future, a portion of which may be contingent on the achievement of certain future operating results of the acquired business.

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Completed acquisitions typically result in additional goodwill and/or an increase in other intangible assets on our balance sheet.

We are required at least annually, or as facts and circumstances exist, to test goodwill and other intangible assets with indefinite lives to determine if impairment has occurred.

We are required at least annually, or as facts and circumstances exist, to test goodwill and other intangible assets with indefinite lives to determine if impairment has occurred, as well as assess the recoverability of other intangible assets, and have recorded goodwill and other intangible asset impairment charges in each of the last few fiscal years.

We cannot accurately predict the amount and timing of any impairment of assets.

Should the value of goodwill or other intangible assets become impaired, there could be a material adverse effect on our business.

Our failure to achieve the long-term plan for acquired businesses, as well as any other adverse consequences associated with our acquisition, divestiture and investment activities, could have a material adverse effect on our business.

Our failure to achieve the long-term plan for acquired businesses, as well as any other adverse consequences associated with our acquisition, divestiture and strategic activities, could have a material adverse effect on our business.

Our business could be negatively impacted by social impact and sustainability matters.

There is an increased focus from certain investors, customers, consumers, regulators, employees, and other stakeholders concerning social impact and sustainability and other ESG matters.

There continues to be a focus from certain investors, customers, consumers, regulators, employees, and other stakeholders concerning social impact and sustainability and other ESG matters.

From time to time, we announce certain initiatives, including goals and commitments, regarding our focus areas, which include environmental and climate matters;

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social investments;

and inclusion, diversity and equity.

and inclusion.

We could fail, or be perceived to fail, in our achievement of such initiatives, or in accurately reporting our progress on such initiatives.

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Moreover, the standards by which ESG efforts and related matters are measured are developing and evolving, and certain areas are subject to assumptions that could change over time.

In addition, we could be criticized for the scope of our initiatives or goals or perceived as not acting responsibly in connection with these matters.

In addition, we could be criticized for the scope of our initiatives or goals by stakeholders who support these initiatives or those that oppose them.

In addition, we could be perceived as not acting responsibly in connection with these matters.

Any such matters, or related ESG matters, could have a material adverse effect on our business.

A general economic downturn, or disruption in business conditions may affect our business including consumer purchases of discretionary items and/or the financial strength of our customers that are retailers, which could adversely affect our financial results.

The general level of consumer spending is affected by many factors, including general economic conditions, inflation, interest rates, energy costs, and consumer confidence generally, all of which are beyond our control.

We use AI, and challenges with properly managing its use could have an adverse impact on our business.

We are using AI solutions, including machine learning and generative AI tools, to assist in the development of our products, engage with consumers, and in the use of internal tools that support our business.

These applications may become increasingly important in our operations over time.

This emerging technology presents risks inherent in its use, including risks related to harmful content, inaccuracies, hallucinations, bias or discrimination, and intellectual property infringement.

In addition, the use of AI may increase cybersecurity and data privacy risks, such as intended, unintended, or inadvertent access to, transmission, or leakage of proprietary or sensitive information.

These risks may become more pronounced as organizational reliance on AI increases.

No assurance can be made that the usage of AI will assist us in being more efficient in all cases.

Our competitors or other third parties may incorporate AI into their business, services, and products more rapidly or more successfully than us, which could hinder our ability to compete effectively and adversely affect our business.

The technologies underlying AI and their use cases are rapidly developing, and it is not possible to predict all the legal, reputational, operational or technological risks related to the use of AI.

While new AI initiatives, laws, and regulations are emerging and evolving, uncertainty will remain, and our obligation to comply with the evolving regulatory landscape could entail significant costs, negatively affect our business, or limit our ability to incorporate certain AI capabilities into our business.

A general economic downturn, or disruption in business conditions may adversely affect our business including consumer purchases of discretionary items and/or the financial strength of our customers that are retailers.

The general level of consumer spending is affected by many factors, including general economic conditions, inflation, interest rates, energy costs, and consumer confidence and sentiment generally, all of which are beyond our control.

Consumer purchases of discretionary items tend to decline during recessionary periods, when disposable income is lower, and may impact sales of our products.

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Our inability to collect receivables from our largest customers or from a group of customers could have a material adverse effect on our business.

In addition, disruptions in local or global business conditions, for example, from events such as a pandemic or other health issues, geo-political or local conflicts, civil unrest, terrorist attacks, adverse weather conditions, climate changes or seismic events, can have a short-term and, sometimes, long-term impact on consumer spending.

In addition, disruptions in local or global business conditions, for example, from events such as a pandemic or other health issues, geopolitical or local conflicts, civil unrest, terrorist attacks, adverse weather conditions, climate changes or seismic events, can have a short-term and, sometimes, long-term impact on consumer spending.

Events that impact consumers’ willingness or ability to travel or purchase our products while traveling may impact our business, including travel retail, a significant contributor to our overall results, and our strategy to market and sell products to international travelers at their destinations.

A downturn in the economies of, or continuing recessions in, the countries where we sell our products or a disruption of business conditions in those countries could adversely affect consumer confidence, the financial strength of our retailers and our sales and profitability.

A downturn in the economies of, or continuing recessions in, the countries where we sell our products or a disruption of business conditions in those countries could adversely affect consumer confidence and sentiment, the financial strength of our retailers and our sales and profitability.

We are also cautious of foreign currency movements, including their impact on tourism.

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and global security issues.

For example, tariffs imposed on goods we import into the United States and/or tariffs on goods we import into other countries could have a material adverse effect on our business, as could geopolitical tensions involving countries that are key markets for us, or where we manufacture our products or source ingredients.

Volatility in the financial markets and a related economic downturn in key markets or markets generally throughout the world could have a material adverse effect on our business.

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Deterioration in global financial markets or an adverse change in our credit ratings could make future financing difficult or more expensive.

If any financial institutions that are parties to our revolving credit facility or other financing arrangements, such as foreign exchange or interest rate hedging instruments, were to declare bankruptcy or become insolvent, they may be unable to perform under their agreements with us.

If any financial institutions that are parties to our revolving credit facilities or other financing arrangements, such as foreign exchange or interest rate hedging instruments, were to declare bankruptcy or become insolvent, they may be unable to perform under their agreements with us.

This could leave us with reduced borrowing capacity or unhedged against certain foreign currency or interest rate exposures which could have a material adverse effect on our business.

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Our success depends, in part, on our ability to retain our key personnel, including our executive officers and senior management team.

We have had, and may continue to have, changes to senior management and the composition of our Board of Directors, and we are still in the process of implementing a change in our organizational design, including through Beauty Reimagined and our Profit Recovery and Growth Plan (“PRGP”).

Transition periods accompanying changes in leadership and changes due to business reorganization may result in uncertainty, impact business performance and strategies and retention of personnel.

As we restructure our workforce from time to time, the risk of potential employment-related claims and disputes may also increase, resulting in potential reputational harm, costs, losses, and other liabilities.

The unexpected loss of, or misconduct by, one or more of our key employees could adversely affect our business.

Our success also depends, in part, on our continuing ability to identify, hire, train and retain personnel across all levels of our business.

Competition for employees can be intense.

We may not be able to attract, assimilate or retain necessary personnel in the future, and our failure to do so could have a material adverse effect on our business.

This risk may be exacerbated by the stresses associated with the implementation of our strategic plan and other initiatives, as well as by market conditions.

These risks may be exacerbated by the stresses associated with the implementation of our strategic plan and other initiatives, as well as by market conditions.

Competition for employees can be intense, and although many of our key personnel have signed non-compete agreements, it is possible that these agreements would be unenforceable, in whole or in part, in some jurisdictions, permitting employees in those jurisdictions to work for our competitors.

We are subject to risks related to the global scope of our operations.

We operate on a global basis, with a substantial majority of our fiscal 2024 net sales and operating income generated outside the United States.

We operate on a global basis, with a substantial majority of our net sales and operating income generated outside the United States.

We maintain offices in over 50 countries and have key operational facilities located inside and outside the United States that manufacture, warehouse or distribute goods for sale throughout the world.

Our global operations are subject to many risks and uncertainties, including:

(i) fluctuations in foreign currency exchange rates and the relative costs of operating in different places, which can affect our results of operations, the value of our foreign assets, the relative prices at which we and competitors sell products in the same markets, the cost of certain inventory and non-inventory items required in our operations, and the relative prices at which we sell our products in different markets;

(i) fluctuations in foreign currency exchange rates and the relative costs of operating in different places, which can affect our business, the value of our foreign assets, the relative prices at which we and competitors sell products in the same markets, the cost of certain inventory and non-inventory items required in our operations, and the relative prices at which we sell our products in different markets;

(ii) foreign or U.S.

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(iv) adverse weather conditions and natural disasters;

(v) concentration of sales growth or profitability in one or more countries (e.g., China);

(v) concentration of sales growth or profitability in one or more countries;

and (vi) social, economic and geopolitical conditions, such as a pandemic, terrorist attack, war or other military action.

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As a company engaged in manufacturing and distribution on a global scale, we are subject to the risks inherent in such activities.

water), as well as global shortages, disruptions in supply chain or information technology, loss or impairment of key manufacturing or distribution sites or suppliers, product quality control, safety, increase in commodity prices and energy costs, licensing requirements and other regulatory issues, as well as natural disasters, outages due to fire, floods, power loss, telecommunications failures, break-ins and other events or external factors over which we have no control.

Such risks include industrial accidents, environmental events, strikes and other labor disputes, capacity constraints, disruptions in ingredient, material or packaging supply or availability of natural resources (e.g., water), as well as global shortages, disruptions in supply chain or information technology, loss or impairment of key manufacturing or distribution sites or suppliers, product quality control, safety, increase in commodity prices and energy costs, licensing requirements and other regulatory issues, as well as natural disasters, outages due to fire, floods, power loss, telecommunications failures, break-ins and other events or external factors over which we have no control.

If such an event were to occur, it could have a material adverse effect on our business.

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As we outsource functions, we become more dependent on the entities performing those functions.

As part of our long-term strategy, we are continually looking for opportunities to provide essential business services in a more cost-effective manner.

In some cases, this requires the outsourcing of functions or parts of functions that can be performed more effectively by external service providers.

These include certain information technology, supply chain, finance and human resource functions.

The failure of one or more such providers to deliver the expected services, provide them on a timely basis or to provide them at the prices we expect may have a material adverse effect on our business.

In addition, when we transition external service providers, we may experience challenges that could have a material adverse effect on our business.

As part of our long-term strategy, we are continually looking for opportunities to improve our essential business services, which includes finding ways to be more cost-effective and efficient.

In some cases, this requires the outsourcing of functions or parts of functions that we believe can be performed more effectively by external service providers.

The failure of one or more such providers to deliver the expected services, provide them on a timely basis or to provide them at the prices or service levels that we expect, the failure of one or more of such providers to meet our performance standards and expectations, including with respect to data security, compliance with laws, disruptions arising from the transition of functions to an outsourcing provider, or the costs incurred in returning these outsourced functions to being performed under our management and direct control, could have a material adverse effect on our business.

In addition, when we transition to, from or between external service providers, we may experience challenges that could have a material adverse effect on our business.

Risks related to Legal and Regulatory Matters

Changes in laws, regulations and policies that affect our business could adversely affect our financial results.

Changes in laws, regulations and policies could adversely affect our business.

Our business is subject to numerous laws, regulations and policies around the world.

Changes in these laws, regulations and policies, including the interpretation or enforcement thereof, that affect our business could adversely affect our financial results.

Changes in these laws, regulations and policies, including the interpretation or enforcement thereof, that affect our business could adversely affect our business.

These changes include accounting standards, as well as laws and regulations relating to tax matters, trade (including sanctions), data privacy (e.g., General Data Protection Regulation (GDPR)), cybersecurity, anti-corruption, advertising, marketing, manufacturing, distribution, customs matters, product registration, ingredients, chemicals, packaging, selective distribution, and environmental or climate change matters.

Disputes and other legal or regulatory proceedings could adversely affect our financial results.

Disputes and other legal or regulatory proceedings could adversely affect our business.

We are, and may in the future become, party to litigation, other disputes or regulatory proceedings across a wide range of matters, including ones relating to product liability matters (including asbestos-related claims), advertising, regulatory, employment, intellectual property, real estate, environmental, trade relations, securities, tax and privacy.

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We have e-commerce and other Internet websites in the United States and many other countries.

If our information technology does not function properly, or is not adequately supported, it could adversely affect the Company’s business and operations.

If our information technology does not function properly, or is not adequately supported or updated, it could adversely affect the Company’s business and operations.

We experience cybersecurity incidents of varying degrees on our information technology and, as a result, unauthorized parties have obtained in the past, and may obtain in the future, access to our systems and data (including unauthorized acquisition of such data).

As we disclosed on July 18, 2023, and as noted in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, an unauthorized third party gained access to some of our systems and data (including unauthorized acquisition of such data), which caused disruption to parts of our business operations and resulted in various expenses for investigation, remediation and other related matters.

Such incidents have also caused, and may in the future cause, disruption to parts of our business operations and result in various expenses for investigation, remediation and other related matters.

Cybersecurity incidents at our Company have in the past resulted from, and may in the future result from, social engineering or impersonation of authorized users, and may also result from efforts to discover and exploit design flaws, bugs, security vulnerabilities or security weaknesses, intentional or unintentional acts by employees or other insiders with access privileges, intentional acts of vandalism or fraud by third parties and sabotage.

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Insurance policies that may provide coverage with regard to such events may not cover any or all of the resulting financial losses.

As part of our normal business activities, we collect and store certain information that is confidential, proprietary or otherwise sensitive, including personal information of consumers, customers, suppliers, service providers and employees.

As part of our normal business activities, we collect, maintain, transmit, store and otherwise process certain information that is confidential, proprietary or otherwise sensitive, including personal information of consumers, customers, suppliers, service providers and employees.

We share some of this information with certain third parties who assist us with business matters.

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As of August 13, 2025, members of the Lauder family beneficially own, directly or indirectly, shares of the Company’s Class A Common Stock (with one vote per share) and Class B Common Stock (with 10 votes per share) having approximately 84% of the outstanding voting power of the Common Stock.

In addition, four members of the Lauder family are on our Board of Directors (three of whom are executive officers).

A fifth member of the Lauder family is an executive officer.

In addition, four members of the Lauder family are on our Board of Directors.

One other member of the Lauder family is an executive officer.

As a result of their stock ownership and positions at the Company, as well as our dual-class structure, the Lauder family has the ability to exercise significant control and influence over our business, including all matters requiring stockholder approval (e.g., the election of directors, amendments to the certificate of incorporation, and significant corporate transactions, such as a merger or other sale of our Company or its assets) for the foreseeable future.

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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-K

Item 1A. Risk Factors