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Text: Unless otherwise stated, all net sales growth numbers are in constant currency, and all organic net sales growth excludes the non-comparable impacts of acquisitions, divestitures, brand closures, and the impact of currency translation.
As a reminder, references to online sales include sales we make directly to our consumers through our brand.com sites and through third-party platforms and also includes estimated sales of our products through our retailers' websites.
[Operator instructions] [Audio gap] Fabrizio.
It is good to be with you today as our hearts continues to be with those impacted by COVID-19 around the world.
We achieved record sales and profitability in the second quarter of fiscal year 2022.
Our multiple engines of growth strategy showcased the benefit of its diversification.
Every category, region, and major channel expanded.
We size the favorable dynamics of skincare, fragrance-developed markets in the West, brick and mortar, and continue to prosper in the East with Chinese consumer, as well as in global travel retail and global online.
The flexibility we built into our business model over the last decade enable us to both allocate resources to attractive growth opportunities and effectively manage the impacts by increasing inflationary environment.
Our advanced planning for the key shopping moments of 11.11 and holidays allowed us to overcome supply chain obstacles.
For our second quarter, reported net sales grew 14%.
Organic net sales rose 11%.
Adjusted operating margin expanded, and adjusted diluted earnings per share increased 15%.
Today's results are all the more impressive compared to the pre-pandemic second quarter of fiscal year 2020 when we delivered record organic sales growth in our seasonally largest quarter.
Despite the ensuing challenges of COVID-19, which escalated during the quarter with Omicron, we far exceeded the exceptional results of two years ago.
Reported sales are 20% higher, driven by organic sales growth, and with every region now larger, and we are much more profitable.
Our gains during the last two years reinforced our confidence in our ability to navigate the impacts of the prolonged pandemic.
Moreover, our optimism in the opportunities of tomorrow remains incredibly strong, owing to the timeless desirability of our brands and our commitment during the pandemic to invest for the near and the long term.
Our brand portfolio of large, scaling, and developing brands served as a powerful catalyst for growth as consumer reward the quality of our trusted brand and hero products.
In the second quarter, 11 brands achieved double-digit organic sales growth versus the prior-year period.
This broad-based trend is similar to the contribution in the first quarter despite a far tougher comparison.
The momentum in our largest brands, Clinique, Estee Lauder, La Mer, and M·A·C, continues as the hero franchises capitalize on innovation in product engagement and high-touch experiences and services to drive trial and repeat.
La Mer and Clinique delivered standout results in skin care, while Estee Lauder and M·A·C drove makeup emerging renaissance.
Our scaling and developing brands achieved excellent results.
Jo Malone London and Tom Ford Beauty led fragrance and were among our top-performing brands, while Bobbi Brown grew strongly driven by skincare.
Aveda and Bumble and bumble delivered accelerating sales growth in hair care as Too Faced and Smashbox rose double digits in makeup.
Product innovation also served as a powerful catalyst for growth across our brand portfolio, contributing nearly 25% of sales.
This level of contribution is notable in a quarter when holidays exclusives represent a larger mix of business and especially so in a challenged supply chain environment.
La Mer fueled by its iconic heroes on-trend holidays merchandising and highly sought new The Hydrating Infused Emulsion led the company's sales growth.
The brand excelled in every region and across major channels, cheered by its loyal consumer and embraced by new cohort of consumers, including more men.
Clinique's skincare portfolio with its desirable innovation and hero franchises performed strongly.
Its new Smart Clinical Repair Wrinkle Correcting Serum drove sales gains in North America, amplifying the brand's global momentum in the serum subcategory.
Clinique Take The Day Off makeup remover saw a dramatic uptick in sales, evidence of makeup's emerging renaissance and the staying power of this crowd-favorite skincare product, which is recruiting a new generation of consumers.
For makeup, the Estee Lauder brand is a driving force in the category emerging renaissance, with makeup sales for the brand already larger than two years ago.
Estee Lauder Double Wear hero franchise delivered remarkable performance, while its Futurist foundation, which is an East to West product born of skinification of makeup trend, was very strong.
Our fragrance portfolio continued to go from strength to strength, owing to the enduring sand-based ritual created in the pandemic and enhanced by innovation, better online storytelling, and expanded reach as consumers in the East embrace this category.
Each of Jo Malone London, Tom Ford Beauty, Le Labo, KILIAN PARIS, and Frédéric Malle delivered strong double-digit growth in every region, demonstrating the allure of these brands around the world.
Tom Ford Beauty exemplifies the benefits of a strategic focus on heroes and innovation.
Its new Ombre Leather Parfum had a halo effect on the other perfumes such that sales for the franchise doubled.
In the third quarter, the brand is leveraging its global appeal with a flare of local relevance in the fragrance launch of Tom Ford Rose Trilogy.
Our growth engines also continue to diversify by region as we anticipate.
Developed markets in the West performed especially well.
North America executed with excellence to capture brick-and-mortar reopening trends and deliver a strong holiday across channels.
Festive seasonal exclusive, including Estee Lauder Blockbuster Set and Aveda collaboration with Philip Lim, proved highly sought.
Indeed, our in-store and online activation and merchandising were incredibly successful, with brand.com posting a record Black Friday.
Every category grew double digits organically in North America led by makeup where our brand paired trusted product with enticing innovation as social and professional user education increased.
M·A·C, Bobbi Brown and Too Faced produced engaging content and artist-led education to inspire consumers to size the joy and creativity of the category.
Mainland China delivered high single-digit organic sales growth, an impressive result given the regional restrictions in the quarter, the pressured brick and mortar, and makeup.
Online sales rose double digits organically, even after having posted significant growth in the year-ago period.
For 11.11 on Tmall, the Estee Lauder brand ranked No.
1 flagship store in beauty for the second consecutive year as La Mer's flagship store topped luxury beauty once more and Jo Malone London again led in prestige fragrance.
On JD, the Estee Lauder brand ranked No.
1 flagship store in beauty in its first year.
Skincare and fragrance grew double digits organically in Mainland China.
Hero products and innovation excelled, driving new consumer acquisition and repeat purchases.
Several brands expanded prestige beauty share in the quarter, including Estee Lauder, La Mer, and Dr. Jart+.
Looking ahead, we are excited about the long-term growth opportunity in the vibrant Asia-Pacific region and, most notably, in China.
We are a few months from opening our new innovation center in Shanghai.
Our aspiration for it are bold as we aim to meet and exceed the desires of Chinese consumers.
The center is designed to enable end-to-end innovation from concept, from product packaging through development, scale-up, and commercialization.
I am pleased to share that the build-out of our state-of-art manufacturing facility near Tokyo is also progressing very well, which is a testament to the amazing work of our global supply chain team amid the pandemic.
Its first phase is complete, and we are on track to start limited production by the first quarter of fiscal year 2023.
Our growth engines further diversified by channel as both online and brick and mortar prospered.
Specialty-multi and department store contributed meaningfully, and freestanding store in the West performed very well on reopening.
Traffic improved and complemented our strategic actions, including those under the post-COVID business acceleration program, to benefit productivity in brick and mortar.
This channel trends are encouraging for the long term, even if tempered in this moment by Omicron.
We continued to expand our omnichannel capabilities in the quarter to give consumers flexible and convenient shopping options for greater certainly for fulfillment.
Buy online, pickup in-store offerings in the United States for M·A·C, Aveda, Jo Malone London, and Le Labo are driving favorable average order value trends, and we are expanding the capability to more doors internationally, which holds great promise for the future.
Our global online channel delivered excellent performance, with organic sales rising high single digit after having surged over 50% in the year-ago period.
Each of brand.com, third-party platform, pure play, and retail.com contributed to growth.
The drivers included higher levels of engagement for virtual try-on and tools for choosing shade and scent, sophisticated assembly to drive trial and repeat, and more and better live streaming.
Indeed, in North America, La Mer generated the most sales from a live stream to date in the quarter.
Our brands are innovating in social commerce on Instagram, Snapchat, TikTok, and WeChat, among others.
We gained momentum in this promising online ecosystem during the quarter.
Too Faced leveraged an Instagram live shopping event to launch its new fragrance.
Estee Lauder Double Wear followers on TikTok skyrocketed with its latest campaign also driving brand awareness and affinity much higher.
And Tom Ford Beauty creatively debuted its new flagship site on WeChat's mini program in China.
Embedded with these outstanding results across categories, regions, and channels is the progress we are making in social impact and sustainability.
Since we spoke with you in November, we are pleased to have received several external recognition of our ESG efforts.
We were named to Forbes inaugural list identifying the world's top female-friendly companies, leading the way to support women inside and outside the workforces.
And for the fifth year in a row, we were named to Bloomberg Gender Equality Index.
We were included in the CDP's Climate A-List for the second consecutive year, which is a tribute to our deep commitment to climate action and to the highest level of transparency around our environmental interest.
Last, MSCI recognized our progress toward our 2025 ESG goal in its recent upgrade of the company to an A rating.
The company, our brands, and our employees have a number of events and activations planned in honor of Black History Month, and we are continuing to focus on our racial equity commitments and the work of accomplishing our goals.
As we embarked in -- on the second half of our fiscal year, our innovation pipeline is rich with newness, especially for sustainability.
La Mer newly advanced The Treatment Lotion, which will be on country in March as a powerful upgrade inside and out, crafted using our unique Green Score methodology and housed in a new recyclable glass bottle made with 20% post-consumer recycled glass.
This methodology, which was peer-reviewed in academic journal, Green Chemistry, during the quarter, evaluate ingredients and formulas throughout the lenses of human health, ecosystem health, and the environment.
This approach can be adopted, built upon, and scaled by others across our industry to further advance sustainability.
Estee Lauder is launching an all-new Revitalizing Supreme moisturizer created with innovations in formula and ingredients in a new recyclable glass jar.
Smashbox is introducing Photo Finish Silkscreen Primer collection featuring vegan formulas with a skin-defending complex and instant makeup benefits.
Lastly, DECIEM vegan brands, The Ordinary, is welcoming back Salicylic Acid 2% Solution, boosting a win list of over 400,000 for the new formula.
In closing, we delivered outstanding performance amid the accelerated volatility and variability, as well as supply chain challenges of the pandemic.
This demonstrates that we have the competency to navigate complexity well.
Our commitment to invest for the long term is of great importance in this moment as we benefit from the advancement we have made over the last few years in data analytics, technology, R&D, and supply chain.
These announced capabilities, combined with our strong portfolio of desirable brands, exceptional talent, and more flexible resource allocation, are enabling us to realize the power of our multiple engines of growth strategy even in a difficult external environment.
The grace, wisdom, and ingenuity of our employees in this still-challenging moment knows no bounds.
They are the embodiment of our company's strong culture.
And to them, I extend my deepest gratitude.
As you just heard, our momentum continued in our second quarter, with net sales growing 11% organically and 14% in total, led by a continued overall progression and recovery despite the volatility inherent across markets with a prolonged pandemic.
We had a solid holiday performance across all of our regions.
The inclusion of sales from the May 2021 DECIEM investment added approximately 3 points to reported net sales growth, and the currency impact was neutral.
From a geographic standpoint, organic net sales in the Americas rose 19% as holiday shoppers return to brick-and-mortar retail where we had an exciting array of gifting products and holiday activations in-store.
And even with more consumer shopping in stores, organic sales online also grew solidly in the Americas, with online representing more than a third of sales in the region.
Every market in the region contributed to sales growth this quarter, and the inclusion of sales from DECIEM added approximately 5 points to the total reported sales growth in the region.
In our Europe, the Middle East, and Africa region, organic net sales rose 13%.
Growth was diverse and broad-based, with global travel retail, as well as every market contributing.
All channels grew, led by double-digit growth across brick and mortar as recovery continued in both developed and emerging markets in the region.
Despite a strong performance during key shopping moments, organic sales online declined slightly, primarily driven by the U.K., due to a tough comparison with the prior year, which was more severely impacted by brick-and-mortar lockdowns.
The inclusion of sales from DECIEM added about 3 points to total reported sales growth in the region.
Our global travel retail business grew low double digits.
Travel restrictions have eased globally, and international passenger traffic continued to progressively improve, resulting in some stores reopening during the quarter, particularly in Europe and the Americas.
Travel retail continues to be led by Asia Pacific where demand from Chinese consumers remain strong.
In our Asia-Pacific region, organic net sales rose 5%.
Most of the markets in the region grew, led by Mainland China and Australia, although we continue to see variability in COVID restrictions and retail traffic across markets.
Sales grew across most major channels in the region, especially online, which benefited from the recent launch of three brands on JD.com.
The inclusion of sales from DECIEM added approximately 1 point to total reported sales growth in the region.
From a category standpoint, organic net sales of fragrances grew 30% with double-digit increases across all regions.
Exceptional double-digit increases from Jo Malone London, Tom Ford Beauty, Le Labo, and KILIAN PARIS reflected strong performances from hero products, new product launches, and the continued growth of the bath and body and home subcategories.
Organic net sales in makeup rose 12% as consumers in the Americas and Europe responded to social media activations, holiday assortments, and trends.
Estee Lauder foundations continue to resonate very strongly with consumers, especially those in the Double Wear and Futurist franchises.
M·A·C continued to drive the makeup renaissance with engaging, interactive campaigns throughout the quarter, like the special M·A·C trend Halloween report and solid holiday collections.
Too Faced, Tom Ford Beauty, Smashbox, and Bobbi Brown also contributed to growth in the category this quarter.
Organic net sales in skincare grew 7%, reflecting double-digit increases from La Mer, Clinique, and Bobbi Brown.
The inclusion of sales from DECIEM added 4 percentage points to reported growth.
Our organic net sales in hair care rose 18% as traffic in salons and stores improved, primarily in the Americas.
Aveda's growth came mostly from holiday gifts and hero franchises and in online and freestanding stores, while Bumble and bumble focused on recruiting new consumers in the specialty-multi channel.
Our gross margin improved 20 basis points compared to last year.
The benefits of strategic price increases and favorable currency more than offset the impact of higher makeup mix and lower gross margin on DECIEM products.
Inflationary pressures in our supply chain are expected to begin to more prominently impact cost of goods in our fiscal third quarter.
Operating expenses decreased 140 basis points as a percent of sales.
Our leverage of selling expense and general and administrative expense was partially offset by increases in advertising and shipping costs, the latter due to both inflation and our direct-to-consumer online growth.
Operating income rose 22% to $1.44 billion, and our operating margin expanded 160 basis points to 25.9% in the quarter.
Our tax rate at 21.4% continued at a more normal level this year versus the prior year, which was impacted by a one-time benefit associated with GILTI.
Diluted earnings per share of $3.01 increased 15% compared to the prior year.
For the six months, we generated $1.85 billion in net cash flows from operating activities, compared to $1.98 billion last year, which reflects both a return to more normalized working capital needs, as well as increased inventory, to mitigate some of the risk of supply chain disruption, given the ongoing global macro challenges.
We significantly increased our capital investment to $459 million to support the construction of our new production facility near Tokyo, as well as investments in our online business and other technology enhancements.
And we returned $1.84 billion in cash to stockholders through a combination of share repurchases and dividends, with an increase in our dividend rate occurring in the second quarter.
So turning now to our outlook.
We delivered an exceptional first half characterized by strong and diversified double-digit organic sales growth and disciplined cost management in the context of intermittent COVID disruptions, including the rise of the omicron variant, high inflation, and volatility.
Looking ahead, we are raising guidance to reflect our expectation for a strong year despite the potential further spread of Omicron, supply chain challenges, and increased inflationary pressures.
Inflation and transportation and procurement is expected to impact our cost of goods in the second half.
However, the benefit of pricing and cost mitigation efforts are helping to offset some of the inflation impacts for the fiscal year.
At this time, we expect pricing to add approximately 3.5 points of growth with the inclusion of the additional pricing actions we are taking during our second half.
We are planning to support the continuation of the recovery with increased point-of-sale staffing as retail traffic continues to gradually improve.
We are also planning to support key hero franchise launches in our third quarter from Estee Lauder, La Mer, and Origins with increased marketing and advertising support.
This investment will increase cost toward the latter part of the third quarter with more of the benefit to be realized in the fourth quarter.
For the full fiscal year, organic net sales are forecasted to grow 10% to 13%.
Based on rates of 1.146 for the euro, 1.357 for the pound, and 6.399 for the Chinese yuan, we expect currency translation to be negligible for the full year.
This range excludes approximately 3 points from acquisitions, divestitures, and brand closures, primarily the inclusion of DECIEM.
Diluted earnings per share is expected to range between $7.43 and $7.58 before restructuring and other charges.
This includes approximately $0.07 of accretion from currency translation and $0.03 of accretion from DECIEM.
In constant currency, we expect earnings per share to rise by 14% to 17%.
We expect organic sales for our third quarter to rise 8% to 10%.
The net incremental sales from acquisitions, divestitures, and brand closures are expected to add about 3 points to reported growth, and currency is forecasted to be negative by about 1 point.
We expect third quarter earnings per share of $1.55 to $1.65.
Currency is expected to be $0.01 accretive to EPS, and the inclusion of DECIEM is not expected to be material.
In closing, our results thus far clearly demonstrate the power of our diversified portfolio.
Temporary softness in our Eastern markets driven by the pandemic was again offset by renewed growth in our Western markets.
A resulting slight slowing of growth in skin care was offset by remarkable growth in fragrances.
We continue to be choiceful about where we invest, and the flexibility we have built into our cost structure is helping us to mitigate some of the COVID-related disruptions and inflation while allowing us to continue to invest appropriately in our future growth.
This agility, along with the resilience of our remarkable teams worldwide, gives us confidence that we can continue to manage through the temporary complexities caused by the prolonged pandemic by focusing clearly on our long-term strategy and executing against it with excellence.

user
sees q3 earnings per share $1.55 to $1.65 excluding items.
q2 adjusted earnings per share $3.01 excluding items.
q2 sales rose 14 percent to $5.54 billion.
q3 reported net sales are forecasted to increase between 10% and 12% versus prior-year period.
full year fiscal 2022 reported net sales are forecasted to increase between 13% and 16% versus prior-year period.
sees fy 2022 earnings per share $7.43 to $7.58 excluding items.
q3 adjusted diluted net earnings per common share are projected to be between $1.55 and $1.65.
expects to take charges associated with previously approved restructuring and other activities in fy 2022.
company expects higher costs to negatively impact cost of sales and operating expenses for remainder of fiscal 2022.

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