Good day, everyone, and welcome to The Esteé Lauder Companies Fiscal 2012 Fourth Quarter and Full Year Conference Call. Today's call is being recorded and webcast. For opening remarks and introductions, I would like to turn the call over to the Vice President of Investor Relations, Mr. Dennis D'Andrea. Please go ahead, sir.

Good morning, everyone. On today's call are Fabrizio Freda, President and Chief Executive Officer; Rick Kunes, Executive Vice President and Chief Financial Officer; and Dennis McEniry, President, Estée Lauder Online. Dennis will discuss the current status and future opportunities for our online business. Since many of our remarks today contain forward-looking statements, let me refer you to our press release and our reports filed with the SEC, where you'll find factors that could cause actual results to differ materially from these forward-looking statements. Except when noted, our discussion of our financial results and our expectations are before restructuring and other charges. And as noted, our discussion of the fourth quarter will also be before sales shifts attributable to our Strategic Modernization Initiative. You can find a reconciliation between GAAP and non-GAAP figures in our press release and on the Investor Relations section of our website. Now I'll turn the call over to Fabrizio.

Thank you, Dennis. Good morning, everyone. We have now successfully completed 3 years of our long-term strategy which has driven our momentum and produced superb results. Our business model continued to deliver strong sustainable sales growth that was highly profitable. I'm extremely pleased that in fiscal year 2012, for the second consecutive year, our company achieved double-digit sales gains and record profits despite difficult economic condition in some key markets. The company's 10% sales increase was about twice the rate of global prestige beauty which means we gained share and further strengthened our position as industry leader. We also made significant progress against our strategic objectives. We continue to focus on fewer but more impactful products and an increasing number geared to local consumers in specific markets. We improved our pull-push activities with innovative advertising that bring new consumers to our brands and at point-of-sales offered best-in-class, high-class services both in person and online. Moreover, we did all this while reducing costs and rolling out SAP to more business units. Before I discuss the full year, let me touch on some key areas in the fourth quarter. We were encouraged that our business in important markets remained strong despite macroeconomic concerns. Local currency sales in the U.S. and Western Europe generated solid growth, while China and travel retail climbed strong double-digits. These results demonstrate strong demand for our products. As we have done in previous 4 quarters, we increased advertising spending over last year to build momentum in future quarters. In fiscal 2012, our operating margin reached a record 14.2%, up 120 basis points. Our excellent performance give us the confidence to raise our operating margin goals yet again. And today, we are announcing a new target of 15.5% to 16% by the end of fiscal 2015. I am proud…

Thank you, Fabrizio, and good morning, everyone. I worked in the e-commerce space for about 17 years and joined The Estée Lauder Companies 11 years ago. I have been President of our online division since May 2003, where my team and I have the responsibility for the global online P&L, as well as development of our brand marketing sites around the world. Our online business is critical to the company's strategy of winning in high-growth channels. We were the first global prestige beauty company to go online. And that headstart has helped us become the industry leader. Our online sales have grown rapidly over the years. And this highly profitable business is margin-accretive to the company overall. We will continue investing in High-Touch services online, new technologies, marketing tools and retailer partnerships to further enhance our prospects. The online channel's growing importance makes it an integral part of the company's 10-year compass. And we see it as a key engine of the company's future growth. During my time here, our online efforts have expanded dramatically from just 4 sites in the U.S. in 2001 to about 340 marketing and e-commerce sites today in more than 50 countries. My team also works with our retailers to support their 76 sites around the world that offer our products. In fiscal 2012, we launched e- and m-commerce sites in 6 new markets, for a total of 15 now. And this year, we plan on selling in an additional 6 more countries around the world. Throughout our history, we have experienced excellent sales momentum, illustrated by 24% growth in fiscal 2012. We achieved strong double-digit gains in every region for our brand sites, retailer partner site and practically every brand. We expect this pace to continue over the next few years. Wider distribution helped…

Thank you, Dennis, and good morning, everyone. A quick reminder. My commentary reflects our results and expectations before restructuring and other charges. I will quickly cover the highlights of fiscal 2012, and then discuss our outlook for fiscal 2013. As Fabrizio noted, we once again made significant progress in the third year of our strategic plan. We exceeded sales and profit targets despite macroeconomic challenges in some areas of the world, demonstrating the resilience of our prestige beauty category, the strength of our strategy, our deep execution capabilities and the strength of our channel and geographic diversification. In our fourth quarter, we turned in terrific local currency sales growth of 12%, above recent trends, due in part to the prior year $42 million sales shift into the third quarter related to the SAP rollout. After adjusting for the shift, sales growth at constant rates was 10%, with all regions and major product categories contributing. Net earnings for the quarter rose 39%, to $69.2 million, compared with $49.7 million in the prior year. And diluted EPS was $0.17, $0.01 above the top end of our guidance. Our press release gives all the reported figures for regions and categories and a reconciliation between GAAP and non-GAAP measures. We consider non-GAAP measures useful for the analysis to help you understand the underlying growth of our business. My discussion also adjusts for the sales and income shift on the SAP rollout. For the quarter, sales in skin care rose 9% in local currency. Skin care grew in each region, reflecting our continued global focus on this category. In makeup, local currency sales rose 12%. Results were driven by solid gains from our makeup artist brands. Our fragrance business rose 11% in local currency. Luxury brands Tom Ford and Jo Malone generated double-digit growth. In…

[Operator Instructions] Our first question today comes from Nik Modi, UBS.

The question is really about share gains. Fabrizio, can you provide any kind of perspective on kind of where you think you're sourcing your share gains from? And what I'm trying to get at is oftentimes the share situation has just looked upon the largest players, which happen to be publicly traded. Can you talk about what's going on with some of the smaller players and if you're seeing any benefits from any share gains there?

Yes. I think we are gaining shares depending by country, by channel, frankly, with different source. And we are also -- in some channels, we are gaining share from the small players. But there are some channels, where, frankly, we are getting shares from the big player. Let me give you examples. In the fastest-growing channels, like travel retail or online, we are definitely getting share from the big players. And on the contrary, in some more traditional channels and in some other areas where we are growing but we are not very big into a market share yet, like specialty doors, in this case, we are taking share also from small players. So it's a mixed picture. And the other important aspect is that we continue to source business, in general, from mass, meaning that as you have seen, this is the second consecutive year where, in general, prestige in several countries around the world is growing faster than the mass. And I believe this is also the result of our strategy and the strategy of some of our big competitors, which is going through continuous improved innovation, continuous improved services in the prestige environment and stronger advertising of these better products and better services, which is leading more and more consumers to be interested in our space.

Your next question comes from the line of Connie Maneaty, BMO Capital Markets.

I'm wondering what you still see, Fabrizio, is the big opportunities for the company for change after the SMI investments have been made. What parts of the organization do you think still haven't been touched enough or the future looks different now than it did 3 years ago?

Yes. There are several areas where we have only scratched the surface of improvement because of lack of systems and lack of a unified way to look at the opportunity across the globe. So first of all, we still can improve dramatically the service level to our retailers. That, in turn, will generate greater sales because we will lose less volume from out of stock and less volume from delays or lack of being able -- or not being able to deliver. And obviously, most importantly, we will get less returns. As you know, with still a significant amount of money that we use every year to manage returns, to destroy products that is very inefficient, obviously, and we have opportunity to improve. Second area is we can add more responsive supply chain and better cost across our global supply chain and, in general, across our operations, including the interface between supply chain and product innovation and product development. Third, we can definitely improve our inventory management and bring them to lower levels and, in turn, get lower obsolescence and lower distractions. And we can move our turns from 3 to 2 possibly over the years. Fourth, we can improve our entire procurement. We have done some good progress there, but we have a long way to go. And so far, we're already 3x our original expectations. And frankly, I believe there is much more once the systems will allow us to work globally in the correct way. Then we are going to further reduce our points and -- points of inventory of warehouses. And this will, in turn, reduce further over time our distribution cost. We will support also many processes that today are very much people-intensive. And so this will continue to allow us to grow, improve our productivity. And finally, just in general, better availability of information that from my experience can create an even better allocation of resources. And since we are spending a lot of money in OpEx, as you know, at least allocating this money correctly and generating better return, we would still further improve our efficiencies. So that's in summary. And obviously, we have many more details that we are working on. And as Rick mentioned, the PMT, which is the group inside the company which has driven the delivery of the value of our restructuring while completing our restructuring, is also initiating a very deep and in-depth analysis of the next opportunity that I just mentioned.

Your next question comes from the line of Linda Bolton-Weiser, Caris. Linda Bolton-Weiser - Caris & Company, Inc., Research Division: You mentioned a lot of different numbers and objectives and everything. And I'm sorry if you mentioned this, but can you give us an update in terms of what you're selling expense ratio was in FY '12 and how that compared to FY '11? And then can you also talk about if, like, if you expect a trend of reduction of that going forward, given that you're sort of changing some of your selling methods there at retail? And can you update us on the initiative to expand the As You Like It selling format? Is that completed in terms of all over the world? And are you expanding that into other brands? Or can you just talk about that whole issue of selling expense and efficiencies there?

Okay. Let me start just framing the strategic issue, and then we'll give you all the specific numbers. First of all, the High-Touch services, like the one you mentioned from Clinique, Service As You Like It, is expanded by brand, meaning Service As You Like It is a Clinique point of view of services that is Lauder, La Mer, other brands that have different point of view. So what we are expanding globally is a specific High-Touch service model for each of our brands. And we are very advanced. But the point is not that we -- once we finished expansion, that's not the end of it, because now we are working with the concept of service innovation, meaning like each of our brand launch new products every year, our brands have people thinking what is the next service that a consumer wants to make our products even more exciting. And this happens on every brand. So you will see a continuous rollout of services. Now some of these services require capital, like the one that require counter restructuring. But many, I would say the majority of them, do not require capital, just require a good execution using our existing resources. In terms of selling efficiencies, we have -- we will continue to improve our efficiency in-store, which, as you can imagine, they are linked, that sales per door. So the better sales we sell per door, the more efficient in sales expenses we become in general. Then the total company sales expense is also subject to mix in the sense the more we grow in segments, where sales expenses are lower, like specialty doors or like online that we are discussing today, the more the mix improves in this area. Now I'd like Rick to give you some specifics.

Sure. And -- so in the past year, our selling expense improved about 40 basis points versus the year before. In the last 3 years, it's over a 200 basis point improvement. And as Fabrizio said, the opportunity is really to set productivity metrics by door and by counter, by brand to really improve those numbers. And there is a mix effect, as Fabrizio mentioned. We also have, in a sense, the other way is that as we expand our retail stores, which have a slightly higher selling expense than our normal business, that works the other way. But we see it as an opportunity and we intend to go after it.

Your next question comes from the line of Alice Longley, Buckingham Research.

My questions are about growth in the U.S. You said it would slow. I think your sales in North America have grown 9% to 10% over the last couple of years. Is it fair to assume something like 5% to 6% for this year? And another part of this question is, you've pretty consistently grown but lost share in U.S. department stores in makeup and fragrance. You've gained share in skin care, which I know is your focus. But are you comfortable with growing at slower rate in the market in makeup and fragrance, or might that change going ahead?

No. You said it very well. U.S. market has been growing very, very fast in prestige in the last couple of years. And this is also because of all what we have done, frankly, of moving consumers from mass to prestige. Now what we are seeing is that we do not expect the market to continue a double-digit growth overall, but still we expect the market will grow mid to high digit. So very solid market, but maybe not double-digit. That's as far as the market is concerned. We have been growing very well, as you said. We have been growing market share in skin care that was our focus. Frankly, we are doing very well also in makeup because what you don't see in the NPD numbers is the M-A-C freestanding stores, which are a very successful part of our business. And we have been losing share in fragrances because we have been cleaning up our fragrance activity from heavy promotion or unprofitable parts of our activities. And this obviously is subject to change. We believe we'll go back growing in fragrances as well once we have reached the level of profitability and when the business model will be ready for that. And I think we are close to the moment where we should see growth also in fragrances in the U.S., in the sense that in the next months, we'll start progressing in that direction. And then probably in fiscal year '14, we'll see the most of the impact of the activity we are preparing. And also I wanted to add, we are growing very largely in hair care because while it's true that our Ojon brand is not yet hitting the way it will, I believe, but our Aveda and Bumble brands are really growing nicely. And we are enjoying a development of this category as well in the U.S. The last thing I want to say on the U.S., by the way, this is an opportunity, I think one of our most successful channels in the U.S. has been online. And online, we have been growing very, very fast. I would like Dennis to say a few words on the success of our online business in the U.S.

So online business in the U.S. is about -- we expect it this year to be about 9% of the total U.S. business. And we've been growing in the low 20% year-over-year for many years. And it's a very strong business for us in the U.S. And that U.S. business has allowed us to bring that model successfully to other markets around the world. So the capabilities that we've built in the U.S. have been kind of the core of what we've been able to do and roll that out to Asia-Pacific and Europe.

Do you know how much of your U.S. business has been generated by the Chinese, Brazilian and Middle East consumer coming here?

No. I don't have a number, unfortunately. I wish I have systems that are so sophisticated to allow to answer this question specifically, but is significant, in the sense that we know, for example, in some stores where we have this information, like some M-A-C stores in New York, we know that Brazilians could be even 1/3 of sales. But obviously, not in all stores but in a few stores, where there are a lot of tourists. And the same for Chinese in California or in the West part of the country. So can be significant, but is significant in the cities and in the areas, where there are a lot of tourists and travelers. It's less significant obviously, on the average of the country.

Do you have any interest in celebrity fragrances, which have been growing?

No.

No? Why?

Because our expertise and our focus is in different areas of the fragrance market, which, by the way, are also growing very fast, like high-end prestige fragrances that the lists in our model are more profitable.

Your next question comes from the line of Javier Escalante, Consumer Edge Research.

I have a clarification, if I may, and then my question. The clarification has to do whether your guidance for the September quarter has any benefit from the timing of shipments versus the December quarter, as has been the case in the past. And then my question has to do with, if you talk about the weakening of the consumer environment, which is consistent with what we had seen with retail sales in the U.S., only up 2%. And then your sales guidance is the same as last year, 6% to 8%. So it seems to me that your budget relative to last year is a bit more risky. And that the one key difference seems to be that you are pushing distribution more aggressively. So are you putting inventory at risk at a time when consumers are retrenching? And also if you can tell us how many freestanding stores you have in fiscal 2011. How many did you leave open by 2012? How many stores are you planning to open in fiscal '13? And what are the margins of these stores?

Javier, that's about 20 questions in that one. But we'll do our best to answer them. So first, there is no timing impact on our first quarter of shipments. The growth guidance that we have is just year-over-year growth. And actually, growth over a prior year quarter, that grew, I think, 18%. So we're pretty comfortable with the first year's growth. As far as the budget goes, when we were at this time frame last year, there were risks that were out there as well. And quite honestly, the 6% to 8% guidance that we gave then, we just had a good year. We were very successful with some of our new launches. We grew our business. We expanded some distribution. So I mean, we had a great year this year, which allowed us to exceed those numbers. We go into this fiscal year with certainly a level of uncertainty that we're all aware of that's out there. But we're comfortable with our 6% to 8% guidance, and we think that it's built as solidly as our budget was last year. It's just that we'll have to see what develops over the course of the year. But we're comfortable with the guidance that we've given.

Also I just want to mention one thing for simplicity is that last year, the year we just closed, our analysis of the global market, the prestige market, grew 5%. We are saying that we believe our estimate for the next 12 months is 3% to 4%. In other words, our concern about North America being solid but a little bit slower, China being solid but slower or Western Europe being actually in trouble, our concern reflects into our assumption, which is a capital point. So global market growth less than we have seen so far. And now obviously, if this will happen, we believe we can deliver the 6% to 8%. If this will not happen, meaning if the market will grow better than 3%, we may deliver more. If the market will grow worse than 3%, then, obviously, we will have something at risk and we'll need to find offsets within our activity as we do every time, where we have a risk to manage. So that's as simple as the way we look at it.

Yes. Regarding the number of freestanding stores, we have 800 freestanding stores versus 750 last year, and we're going to add about 75 new doors in fiscal 2013. And I hope that covers most of your question.

Your next question comes from the line of Tim Conder, Wells Fargo Securities.

I'll stay on the sort of multiple questions on the stores. And specifically related to the travel retail, can you talk a little bit more about the increased push here for some of your own branded stores in this channel? And then maybe a little bit more detail, Rick, on those incremental stores, how those break down by brands and regions.

Okay. While Rick will open all our books to look for the source by region and brands, let me take the travel retail one. So in travel retail, as you know, traffic has been increasing in the last year, around 5%. The information we have is traffic for the next 12 months is projected to be 4.2%, so a bit lower than that. The good thing for us, I mean, is that where this traffic is slowing is Western Europe, as Asia remains pretty high-traffic growth. I think the number is about 10%. And the Americas is also pretty solid, while the Western European traffic is the one that gets strongly offset. But as you know we are the market leader in Asia. We are pretty strong in Americas. And we are the only the fourth or the fifth company in Europe. So we are less affected by our competition on where the traffic is going to slow, assuming those assumptions will prove to be true. The other thing we are seeing in travel retail is that we are learning really to manage the travelers as the consumer across all our business rather than only having travel retail like a separate division. What I mean, we really manage through corridors, we look at the consumers from Shanghai to Hong Kong in their travels to Paris in the airports, and we try to coordinate initiative activity. We look at market spending now in a more coordinated fashion. The level of collaboration between our outstanding travel retail division and the various affiliates has increased dramatically, allowing us very clear visibility for best resource allocations on the travelers around the world, which I think is developing into another competitive advantage. And then what you mentioned, which is yes, we have a beautiful portfolio of brands to seek the new needs of travel retail because travel retail growing mainly driven by makeup and skin care. And obviously, our portfolio of brands fits the current trends fantastically well. Now Rick?

I'm sorry, Tim, I'm going to disappoint you a little bit. Out of the 75 doors, I know that 35 are M-A-C. They are spread, quite honestly, geographically around the world. But if you want, if you give Dennis a call sometime after our conference call, we'll be able to give you the other details, where the rest are.

Your next question comes from the line of Neely Tamminga, Piper Jaffray.

I just wanted to really take advantage of Dennis being on the call this morning and talk a little bit more about e-com and digital if we can. Some of the things that I think that are very unique to prestige beauty and were unique to you guys is you have very high loyalty factor and the ability to control your distribution. So I'm wondering how you would respond to this crowd this morning in terms of talking about maybe the role of Amazon and all the related beauty-dot-comers out there in terms of what it is that you do, as well as maybe addressing some of the flash sales sites and how you partner with some of the digital content providers, like HSN and QVC. And then maybe just a bigger picture, broader issue here is you guys stand for service. And the definition of customer service is changing in a post dot-com sort of world. And there's really a rise and move towards same-day delivery. How could you meet that part of your customer's experience and meeting her demand for service?

So just some general comments. First of all, starting with your last points on service. High-Touch service for us has been one of the hallmarks in the way we've built the business online. We staff our customer service areas with the real beauty advisors and makeup artists, hair salon specialists, et cetera. So that is a key thing that we do. And as I mentioned earlier, we're rolling that out to each of the markets around the world. In terms of service delivery, we track that very carefully. We have one of the highest speed-to-deliveries. So from order to the door, we track that in each market. And we are doing very well there. We are planning on testing same-day delivery in key megacities around the world. And that's upcoming. In terms of other distribution choices, flash sales, et cetera, our brands have experimented with that. It, frankly, is not a key part of our strategy online, although we are constantly testing out all of these new models, and that's a core of what we do.

Your next question comes from the line of Chris Ferrara, Bank of America.

The question's on advertising, I guess, and, I guess, one clarification. Did you say you expect to grow sales 6% to 8% over the next several years? I thought maybe you said that. And then the other question is, so relative to the 3% to 4% market growth rate, right, you're saying 6% to 8%. Last quarter, you talked a little bit about advertising not having to go up in these huge increments forever, right? So I was wondering if you could pull that together, right? I mean, what's the fiscal '13 thought process around how much more advertising needs to go up for fiscal '13 and beyond? And then, again, is that a several year 6% to 8% rate that you're out looking for?

Yes. Again, let me answer the overall question, then Rick will give you the specific numbers in a second. Yes, I did say for several years. So 6% to 8%, on one side, is our specific guideline for fiscal year '13. On the other side, 6% to 8% is also what I already said, I think, for sure in CAGNY. That was our long-term view, which was coming from us believing that the long-term, the market will grow around 5% and we will be able to grow always at least 1 point ahead of the market. That, with that assumption, will translate into a 6% to 8% power over several years. That's what I meant. But the specific guideline of 6% to 8% next year, I mean, in fiscal year '13 is based actually on the assumption of the 3% to 4% market growth in fiscal year '13 and our ability in that moment of time of our growth to grow double the market. On advertising, yes, we are going to further increase advertising in absolute term over time. If the advertising will increase in terms of percentage, obviously, this will slow down. The percentage increase will slow down over time gradually. But we will continue to look for ways to turn savings in areas which, in our opinion, are less efficient, like promotion, into advertising. So the continuous increase of advertising will not translate necessarily in an increase of overall OpEx but may translate into a better mix of spending in our portfolio in the future. Rick?

Yes. No, I think you said it perfectly, Fabrizio. We have 2 initiatives for savings in the advertising area, and one is on efficiency, which, as Fabrizio says, how can we spend our dollars better, wiser? Can we use less service providers, if you will, around the creation of some of our advertising? Is there ways to be more efficient in the way we spend our money? And the second initiative that's under way is around effectiveness. So of the advertising that we do, are we reaching the right consumer? Are we running the right ads in the right locations in the right media, if you will, that gives us the best effectiveness of the dollars that we spend? So we will see the percentage growth and percentage of sales start to slow down somewhat. But we think that underlining that will be a much more effective and much more efficient spend of those dollars.

Your next question comes from the line of David Wu, Telsey Advisory Group.

I have just some questions for Dennis. Dennis, you mentioned that online sales could double over the next 5 years. And I was wondering how much could come from the U.S. versus the newer markets, such as China, and the resulting margin dynamics there. And could you also comment on how much of the online business is replenishment versus new customer purchases and perhaps talk about sort of the biggest challenges that you face of driving stronger sales of new customer purchases and how you plan to address them?

Sure. So a couple of points. One, we see the U.S. growth being very strong for the years to come, the next several years. We also -- however, though, as we open up more markets and we build our capabilities in more markets, we see a growing percentage of our mix coming from international sales. And that's been happening now for the last 3 or 4 years, as we open up markets around the world. China, frankly, can be one of the biggest markets for us in the future. It is expected that in 2015, China will become the largest e-commerce market in the world, surpassing the U.S. for the first time. So the U.S. has always been the largest e-commerce market. And by 2015, it's expected that China will become the #1 e-commerce market in the world, and we are aggressively pursuing that opportunity. In terms of replenishment and new sales, it kind of differs by category. Fragrance for us is more of a replenishment market. However, for skin care and makeup, our strong brand launches are always equally done well online. And so new purchases, for instance, for the M-A-C, Lauder, Clinique brands always work outstanding online. And so we see both new consumers and new product launches do well. And frankly, for fragrance, it's more of a replenishment market.

Your next question comes from the line of Caroline Levy of CLSA. Caroline S. Levy - Credit Agricole Securities (USA) Inc., Research Division: I have 3 questions. The first is a shorter-term one. You've talked about the risks in the environment. But I was just wondering if anything has deteriorated in July-August relative to the fourth quarter. The second question is if the rest of the world grows faster than the U.S., all these different channels, because you've had this unusually fast growth in North America, is that actually good for margins because it's a lower-margin area? Or are there other factors at play because of your manufacturing here? And then just finally, within travel retail, which is now over $1 billion, can you -- do you have a sense of how much of that is incremental business that you wouldn't otherwise get in the local territories? And is there a rise in competition in pricing, given how high margins are?

Okay. I'll answer the first and the third and let Rick answer the one on margins. So in July-August, frankly, what we have seen is what we told you. And in a sense, the areas that we have illustrated being worrying, like Western Europe, Korea, Australia is slightly softer U.S. growth, although strong. Those are exactly what we're seeing also in July. So I will not say there's a big difference between what we saw maturing in the last quarter and what we are seeing in July and is the same trends. On the other side, there is nothing improving, the rest of the world, we just told you in July-August. In terms of your travel retail question, the -- we don't believe that there is more competition on price. Actually, the pricing in travel retail is already very interesting for the consumer worldwide and is completely linked to the prices in the various affiliates. So there is a connection. So the competition on travel retail depends really from the strengths of the brands in the country of origin of the traveler. So the real core investment for building travel retail is to build winning brands in the countries that provide the biggest number of travelers. In other words, if we win in China, you win with Chinese consumers, wherever they shop in the world. The same with Brazilians and the same with every other consumer. And that's where we are focusing on. Rick?

Sure. And regarding the regional profitability, if you were to look at a Clinique business, a Clinique counter around the world, that profitability is relatively the same. I think what you see as far as our regional profitability is somewhat of a mixed effect, if you will. Number one, I mentioned during my comments that we have a large U.S. dollar-based expense base here in the U.S. So that is our corporate headquarters. We have lots of our brand management located in the United States. So that sort of remains, if you will. And we have a larger fragrance business here, which is a lower-profitability category of business for us. Going in the right direction, by the way, and we're making some pretty good strides in improving its profitability. But it is a fairly large business here in the U.S. That makes it somewhat less profitable. So as we grow faster internationally, because of that mix effect a little bit, you get some benefit related to the fragrance comment I just made. But we still have this U.S. dollar-denominated expense base, which is something that we deal with as a company. So I don't think it's quite the picture that you were envisioning.

And I just realized I didn't answer your part on the question on travel retail on is this new consumers or just cannibalizing the base business in the countries. No, we know that there are a lot of new consumers. In other words, different from what maybe people believe, travel retail is not only a replenishment business and lower cost for people that are lucky enough to travel, it's really new trial. In fact, travel retail, like online, like Dennis just explained, is a beautiful channel for launching products, for creating new trial, for making people interested for the first time into your brands. And so it's an excellent channel. Basically, travel retail and online have a lot of similar elements in being a strong trial channel, high-margin, great service and an opportunity to build unique competitive advantage.

Your next question comes from the line of Ali Dibadj, Bernstein. Ali Dibadj - Sanford C. Bernstein & Co., LLC., Research Division: I actually just at this point had a couple of follow-up questions. One is going back to the answer, Fabrizio had given about SMI benefits. And you looked at 5 or 6 things: obsolescence, pre-promotions, out of stocks, et cetera. All of those sounded like -- except maybe for indirect procurement, like COGS benefits. So I wanted to get a sense from you, first off and a follow-up to that question, about what the trajectory is to get to your margin goals between COGS and SG&A. How should we think about that mix? And then the second follow-up is you've had a couple question about freestanding stores, but we haven't really -- I haven't really gotten a great sense over the years of kind of both the economics and operational challenges that brings in. So when you open up a store, what's the lead time to really ramp it up? What are the ROIC implications? I'm assuming the returns are a little bit worse, like a traditional retailer, what are the margin implications, et cetera? And how should we think about that as you become more and more of a retailer and we try to project your returns, et cetera, as you go forward? So those 2 follow-ups will be really helpful, if you can, please.

Yes. Let me start from the last one, and then ask Rick to start answering the first one. We're now becoming a retailer. Again, in freestanding stores, we have 10% of our business. And freestanding stores have fairly different roles. In some places, it's just -- it's the only way, like Brazil. In Brazil, unless we have the possibility of building freestanding store for M-A-C, we will never be the leader in prestige in Brazil without that option. So it just is the only opportunity. In other emerging markets, it's the same. In other markets, it's the way to build the brand asset, meaning creating flagship. M-A-C in Champs-Élysées is going to be an amazing marketing investment beyond what the specific door will deliver. That is then spread across the entire M-A-C business. So there are different roles. Some roles of the retailing activity are actually to be seen like advertising, other roles in other cases, as I said, is the best way to build a brand in the market. And in some cases, they are very profitable, too. I mean, if the belief is that retailing stores are in general less profitable, that our normal wholesaler activities, that's not correct. We have many instances where our retailing store actually are more profitable. And as I said, we're not becoming a retailer. So we have 10% of the business in freestanding stores and 90% of the business is still more in our traditional platforms. Rick?

And then, Ali, you are correct that we do have some opportunities in cost of goods that should result from the implementation of SAP software. And in fiscal 2013 in particular, you'll see some more so from pricing and from continuation of product mix, some improvements in cost of goods. But we will see some additional benefits beyond '13 coming in cost of goods from the implementation of SMI. However, we will see some pretty strong improvements in operating expenses from a few areas. First, this productivity metric that we put in place controls, if you will, our people cost, which are about -- well, they used to be 50% of our operating expense base. And right now, they're actually dropped down to about 45%. So already this productivity has taken a big effect on the people cost within operating expenses. Also the A&P effectiveness that we just talked about is obviously an operating expense. The indirect procurement opportunity that Fabrizio mentioned is really around everything that we spend in indirect procurement. We do a pretty good job in purchasing and in -- of our cost of sales-related items. But when you get into operating expenses, that's where we really have the opportunity to get some efficiencies through the indirect procurement process. And we also have the distribution savings that Fabrizio mentioned. So really, the combination of all of those should give us a opportunity for our operating expense improvement going forward.

Your final question today will come from the line of Lauren Lieberman, Barclays.

Just quickly, I wanted to ask about hair care. First time I can recall you guys calling out hair care as being the category that'll see the fastest growth in the coming fiscal year. And then obviously, the big jump this quarter. So is it mostly the distribution gains you talked about? Or is there something else that's changed in the business that you haven't addressed so far?

I mean, hair care as a whole, what you are seeing is that, first of all, Aveda is doing well. And recently, Aveda launched a product line called Invati, which is doing exceptionally well. And we are going to further expand this product line, where we are in distribution and expand Aveda distribution. Bumble is doing extraordinarily well in the U.S. and we are going to expand the model also internationally. Ojon, on the contrary, has been below expectation and also, you've seen the numbers, the impaired assets this fiscal year, the fiscal year we just closed, they obviously are within total hair care. So we believe next year will be a further acceleration because Aveda and Bumble will continue to further improve their expansion. And, for example, we have the first-time TV advertising on Aveda that will join our big brands in this activity. Aveda is also our fourth biggest brand. So it's one -- will be one of the key drivers of our growth and we are expanding also in travel retail in Asia and it is one of the key drivers. Also we really are embarking into the bigger year for the long-term to create a hair care prestige business. And Aveda and Bumble are brands which are already ready for that. And Ojon, we continue preparing it for that. But we believe we have good chances of succeeding also there.

That concludes today's question-and-answer session. If you were unable to join for the entire call, a playback will be available at 1:00 p.m. Eastern today through August 28. To hear a recording of the call, please dial (855) 859-2056, passcode number 99971722. That concludes today's Estée Lauder conference call. I would like to thank you all for your participation, and wish you all a good day.

Thank you.