ESTEE LAUDER COMPANIES INC
For the period ended Dec 31, 2024. Filed Feb 4, 2025.
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A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Dec 31, 2024 · Filed Feb 4, 2025
EL$110.06+2.2%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2024-09-30; filed 2024-10-31.
0001001250-24-000177
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2024-12-31; filed 2025-02-04.
0001001250-25-000011
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 192 previous paragraphs and 215 current paragraphs.
101 unchanged; 66 reworded; 44 added; 23 removed; 2 previous and 4 current paragraphs rearranged.
Tables are not compared: 28 previous and 32 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (44)
Current report
•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.
Current report
•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.
Current report
•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.
Current report
•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.
Current report
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.
Current report
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.
Current report
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.
Current report
Impairment Analysis During the Six Months Ended December 31, 2024
Current report
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.
Current report
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.
Current report
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:
Current report
(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.
Current report
(2)The carrying values of the trademark intangible assets, subsequent to the impairment charges, are equal to their fair values.
Current report
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.
Current report
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.
Current report
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.
Current report
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.
Current report
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.
Current report
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.
Current report
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.
Current report
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 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.
Current report
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.
Current report
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.
Current report
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.
Current report
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.
Current report
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.
Current report
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%.
Current report
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%.
Current report
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.
Current report
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 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.
Current report
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.
Current report
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.
Current report
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.
Current report
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.
Current report
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.
Current report
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.
Current report
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.
Current report
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.
Current report
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.
Current report
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.
Showing the first 40 of 44 passages. Open the source sections for the rest.
Removed paragraphs (23)
Previous report
•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.
Previous report
•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.
Previous report
•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.
Previous report
•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.
Previous report
•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.
Previous report
•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.
Previous report
Reported net sales were impacted by approximately $18 million of favorable foreign currency translation for the three months ended September 30, 2024.
Previous report
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. 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. 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.
Previous report
Fragrance net sales were impacted by approximately $3 million of favorable foreign currency translation for the three months ended September 30, 2024.
Previous report
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.
Previous report
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. Premium Beauty store. Net sales in Mexico decreased, primarily driven by the unfavorable impact of foreign currency translation.
Previous report
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.
Previous report
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..
Previous report
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.
Previous report
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.
Previous report
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.
Previous report
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.
Previous report
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.
Previous report
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.
Previous report
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.
Previous report
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.
Previous report
(15)Consists of $500 million principal.
Previous report
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.
Reworded paragraphs (66)
Previous wording
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. 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.
Current wording
We manufacture, market and sell beauty products including those in the skin care, makeup, fragrance and hair care categories, which are distributed in approximately 150 countries and territories. The following table is a comparative summary of operating results for the three and six months ended December 31, 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.
Previous wording
(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.
Current wording
(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.
Previous wording
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.
Current wording
•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.
Previous wording
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.
Current wording
•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.
Previous wording
•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.
Current wording
•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.
Previous wording
Our global distribution capability and operations allow us to focus on targeted expanded consumer reach wherever consumer demographics and trends are attractive. Our regional organizations, and the expertise of our people there, enable our brands to be more locally and culturally relevant in both product assortment and communications. We are 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 strive to strengthen our presence in large, image-building core markets, while broadening our presence in emerging markets.
Current wording
Our global distribution capability and operations allow us to focus on targeted expanded consumer reach wherever consumer demographics and trends are attractive. Our regional organizations, and the expertise of our people there, enable our brands to be more locally and culturally relevant in both product assortment and communications. We are 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, recruitment and loyalty. We strive to strengthen our presence in large, image-building core markets, while broadening our presence in emerging markets.
Previous wording
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. 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.
Current wording
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.
Previous wording
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. Accordingly, our long-term strategy has numerous initiatives across geographic regions, product categories, brands, channels of distribution and functions designed to grow our sales, provide cost efficiencies, leverage our strengths and make us more productive and profitable. We plan to build upon and leverage our history of outstanding creativity and innovation, high quality products and services, and engaging communications while investing for long-term sustainable growth.
Current wording
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.
Previous wording
We continue to monitor the effects of the global macro environment, including the risk of recession; currency volatility; inflationary pressures; supply chain challenges; social and political issues; competitive pressures; legal and regulatory matters, including the imposition of tariffs and sanctions; geopolitical tensions; 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.
Current wording
We continue to monitor the effects of the global macro environment, including the risk of recession; currency volatility; inflationary pressures; supply chain challenges; social and political issues; competitive pressures; legal and regulatory matters, including the imposition of tariffs and sanctions; geopolitical tensions; and global security issues. 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 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 PRGP. 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.
Previous wording
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.
Current wording
As announced on November 1, 2023, we launched the PRGP to help progressively rebuild our profit margins in fiscal years 2025 and 2026.
Previous wording
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. We committed to this course of action on February 1, 2024.
Current wording
As a component of the PRGP, on February 5, 2024, we announced a two-year restructuring program. 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.
Previous wording
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.
Current wording
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.
Previous wording
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.
Current wording
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.
Previous wording
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.
Current wording
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.
Previous wording
From the end of August 2024 through October 2024, we reached agreements with certain plaintiff law firms (collectively, the “talcum litigation settlement agreements”) for: (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.
Current wording
From the end of August 2024 through October 2024, we reached agreements with certain plaintiff law firms (collectively, the “talcum litigation settlement agreements”) for: (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 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.
Previous wording
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.
Current wording
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.
Previous wording
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.
Current wording
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.
Previous wording
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.
Current wording
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.
Previous wording
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.
Current wording
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 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.
Previous wording
Makeup net sales were impacted by approximately $2 million of favorable foreign currency translation for the three months ended September 30, 2024.
Current wording
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.
Previous wording
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.
Current wording
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.
Previous wording
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.
Current wording
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.
Previous wording
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%.
Current wording
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.
Previous wording
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. 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.
Current wording
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. The increase in net sales from Editions de Parfums Frédéric Malle reflected growth across the product portfolio as well as targeted expanded consumer reach.
Previous wording
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.
Current wording
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.
Previous wording
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%.
Current wording
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.
Previous wording
Net sales in The Americas were impacted by approximately $11 million of unfavorable foreign currency translation for the three months ended September 30, 2024.
Current wording
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.
Previous wording
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.
Current wording
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.
Previous wording
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.
Current wording
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.
Previous wording
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.
Current wording
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.
Previous wording
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.
Current wording
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.
Previous wording
Net sales in Asia/Pacific were impacted by approximately $6 million of favorable foreign currency translation for the three months ended September 30, 2024.
Current wording
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.
Previous wording
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%.
Current wording
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.
Previous wording
Gross margin increased to 72.4% for the three months ended September 30, 2024, as compared with 69.6% in the prior-year period.
Current wording
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.
Previous wording
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.
Current wording
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.
Previous wording
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.
Current wording
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.
Previous wording
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.
Current wording
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.
Previous wording
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.
Current wording
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 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.
Previous wording
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.
Current wording
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.
Previous wording
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.
Current wording
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.
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Rearranged current paragraphs (4)
Current report — wording carried from elsewhere
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.
Current report — wording carried from elsewhere
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.
Current report — wording carried from elsewhere
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.
Current report — wording carried from elsewhere
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.
Rearranged previous paragraphs (2)
Previous report — wording carried elsewhere
Further information about the talcum litigation settlement agreements, is described in Notes to Consolidated Financial Statements, Note 8 – Commitments and Contingencies herein.
Previous report — wording carried elsewhere
Skin care net sales were impacted by approximately $13 million of favorable foreign currency translation for the three months ended September 30, 2024.