Good day, everyone, and welcome to The Estée Lauder Companies Fiscal 2013 First Quarter 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; Tracey Travis, Executive Vice President and Chief Financial Officer; and Karen Buglisi, Group President of our M-A-C brand. Karen will discuss the evolution of M-A-C and its future opportunities. 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. You can find a reconciliation between GAAP and non-GAAP figures in our press release and on the Investor Relations section of our website. I'll turn the call over to Fabrizio.

Thank you, Dennis. Good morning, everyone. Before we discuss the quarter, I want to acknowledge how terrific it is to be sitting here and holding this call on schedule beyond the difficult situation in the New York area this week. I am proud of the dedication of our employees who have enabled it to take place. I also appreciate all of you, taking the time to hear our discussion, where you may have more pressing matters. I hope you and your families are well and safe. Now I want to officially welcome our new Chief Financial Officer, Tracey Travis, to her first Estée Lauder Companies conference call. Tracey will review the quarter financials in a few minutes. I am pleased to report that our fiscal '13 first quarter sales in local currency were on target with our expectation, while diluted earnings per share came in slightly better than we anticipated. Sales grew 6%, a solid performance, following a 14% sales gain in last year's first quarter and worse than expected market challenges in Western Europe and Korea. Sales rose solidly in each of the 3 biggest brands and increased in our top 5 markets and emerging markets in general. In China, our third largest market, sales were again exceptionally strong, even against a tough comparison to last year. Additionally, our North America department store business continued to thrive, thanks to well-received product launches, effective advertising programs and excellent personalized service. Many of our brands and channels that have been growing rapidly in recent quarters maintained their momentum. Our luxury brands, including La Mer, Jo Malone and Tom Ford, continued strong double-digit growth, as did channels that tend to attract young consumers, mainly online and North America specialty retail. On reported sales -- our reported sales rose 3%, which was higher…

Well, thank you, Fabrizio, and good morning, everyone. I started in the beauty industry more than 20 years ago and joined M-A-C in 1998 when Estée Lauder took full [indiscernible]. In 2010, I was honored to become the brand's global President. M-A-C was founded in 1984 in Toronto as a professional makeup brand. Staying true to our makeup artistry and fashion heritage has enabled us to agree [ph] great success and enhanced brand equity. And we are proud to say that M-A-C is #1 in prestige makeup in many countries, such as the U.S., U.K., Canada and Mexico, as well as in emerging markets like Brazil, the Middle East and India. M-A-C is the third biggest brand in Estée Lauder Companies' portfolio and one of the most profitable. Which is impressive when you consider that about 95% of our business is done in just makeup. Our strength in this category is even more pronounced given that we trade in less than 2,000 doors in just over 80 countries and territories globally, compared with many of our competitors that are in at least 3x as many doors. This speaks to the fact that M-A-C's economic model is based on highly productive doors. Over the last 10 years, M-A-C has quadrupled global sales and profits. Our largest region is North America, where M-A-C is the second largest brand in the company, growing at an average annual rate of 12% over the past 10 years. By staying true to our brand credo, All Ages, All Races, All Sexes, we have as many consumers under 25 as over 45 years old, and we have plenty of consumers in every age in between, and over 40% of our consumers are non-Caucasian. Since this is a more established market, we grow by recruiting new consumers into…

Thank you, Karen, and good morning, everyone. As a quick reminder, my commentary on the quarter and the outlook excludes restructuring and other charges, which is consistent with the way we have reported results in prior quarters. As Fabrizio noted in his remarks, we delivered sales in the quarter in line with our expectations while managing increasingly challenging economic environments in some of the markets where we operate, and while anniversary-ing strong sales growth results in our prior-year quarter. In local currency, net sales rose 6% with all regions and product categories contributing to growth. Net earnings for the quarter increased 11% to $312.1 million compared with $281.5 million in the prior year, and diluted EPS came in above the top end of our expectations at $0.79. Sales of skin care products rose 7% in local currency, and we generated growth in all of our regions. New product launches from Estée Lauder, Clinique and La Mer, combined with continued strength in China, helped the category grow this quarter on top of the 20% local currency growth we experienced in the prior-year quarter. In makeup, local currency sales rose 6%. Results were driven by solid gains primarily from new and existing products at Clinique and M-A-C. Our fragrance business rose very slightly in local currency. Double-digit growth from our luxury brands was offset by lower promotional sales from Estée Lauder and Clinique. In hair care, sales rose 12% in local currency. Aveda benefited from the success of the new Invati product line and other product launches. All 3 of our hair care brands expanded distribution, including Aveda and Bumble and bumble, adding new salon customers to their network. Geographically in the quarter, sales in our Americas region increased 8% in local currency. Within the Americas, the United States, Latin America and…

[Operator Instructions] Our first question comes from Neely Tamminga with Piper Jaffray.

So just want to dig a little bit in, now that we have Karen on the call this morning on M-A-C and some of the opportunities for M-A-C. Could you just talk a little bit more about Brazil and dot-com for us? Could you offer some insights as to how Sephora, assuming you go through some of the Sephora doors down in Brazil, what maybe some of their expansion plans are down in that region, or how far penetrated you are with Sephora, down in Brazil? And then from a dot-com perspective, I'm just trying to size up the dot-com relevancy to the M-A-C brands and maybe how that index is relative to Estée as well as Clinique.

This is Fabrizio, before giving the word to Karen, I just want to say that we are not in Sephora, Brazil with M-A-C, at this point in time. But I'd like Karen to answer the question.

Certainly. I would love to talk a little bit about Brazil, because it's probably the most important emerging market that we have. Currently, as I stated, we are the leader in prestige makeup there. We have about 30 points of distribution. We plan to double -- we're in 11 cities. We plan to double our distribution in the next 3 to 4 years and double the number of cities that we're in, so we will continue to trailblaze for the prestige beauty market there and recruit customers into beauty, into the prestige market. Secondly, dot-com offers a great opportunity for us, especially m-commerce. Right now, our m-commerce is 12% of our overall e- and m-commerce, so we think there's a great opportunity for us to continue to maximize those channels.

Your next question comes from Nik Modi with UBS.

Fabrizio, can you just frame kind of you -- the longer-term opportunity in China. Just trying to understand kind of, as a percentage of the total distribution you could potentially have, where are you today and kind of how do you see that investment and that strategy playing out over the next couple of years?

Yes. As we say, we are today, in 68 cities in China. We believe there are at least 100, 120 cities that already now will be ready for the distribution. If, from a consumer standpoint, if the distribution network will be available. So our plan is to continue to expand into Tier 2 or 3 cities, is continue expand, particularly our most successful brands, the brands which are more ready for the expansion. Our plan is to continue advertise and build awareness for our brands in China and basically to continue expansion in this way. To be clear, if you look at the -- what's happening in China in this moment is that the market in Tier 1 cities in our industry is growing less aggressively than in the past, in term of comp growth, particularly. And -- but the potentials of continuous expanding into new cities and attracting new consumers is enormous. That's why, this quarter we grew 32% in this situation. The other thing that is part of the plan is to continue working on what we call the traveling corridors for China's consumers. We know today that there are a lot of consumers that are traveling, and this consumer traveling are coming actually, from these Tier 2 and 3 cities where we are just launched recently or where we are not yet in. Which means that the expansion in Tier 2 or 3 cities, in turn drives also the expansion in travel retail and in what date by when they travel. And the other thing we know is today, 70% of our online sales in China come from cities in which we are not distributed, indicating that the consumer demand is already there and we need just to continue accelerating the distribution. So that's it.

Your next question comes from David Wu with Telsey Advisory. The question has been withdrawn. Your next question comes from Chris Ferrara with Bank of America.

Tracey, maybe this is an unfair question, given that you've only been there, let's say, it's your first quarter. But can you just talk about your view on the balance sheet? I mean, the dividend increase is great, but can you talk about, in general, the status of the unlevered balance sheet and how you feel about that, right? I mean, do you think there is a path to more aggressive use of it and what do you see for M&A opportunities?

David, that is an unfair question after 2 months, but I'll do my best to respond. So I think, obviously, our capital structure is something that we discuss on a regular basis with our Board of Directors, and that includes our dividend issuance, our share repurchase activity and the amount of debt that we hold as a company. I think right now, given the increase that we announced this morning, as well as the additional share repurchase activity, we are certainly, and the board is certainly committed to returning cash to shareholders, that we deem to be excess at this point in time and increase shareholder value. In terms of debt, we obviously did most recently take on some additional debt, some of that was to retire old debt. But we do have slightly higher debt than we had previously on our balance sheet, and I think we're very comfortable with that at this point in time. It has been discussed previously that we certainly are open to appropriate acquisitions to enhance our portfolio, and I think we'll make those judgments at that time with respect to how we fund those acquisitions. But at this point in time, we think we're pretty comfortable with our capital structure.

Your next question comes from Alice Longley with Buckingham.

My question is about your guidance for organic sales growth for the year, it's 6% to 7%. It was 6% the first quarter, and then if you take out the accelerated shipments in Asia, above and beyond what you had last year, it looks like your organic sales growth in the second quarter is 4% to 5%. So that means it sounds like you're expecting accelerating organic sales, adjusted for these timing issues in the second half. Can you explain why that's the case?

Yes. As we said before, we believe we will grow 6% to 7%, which is double the market. And in this moment, the market, our estimate is we grow about 3%. Just to be fair, this is different what we felt in August. In August, we felt 3% to 4% would have been the market growth. And the reality, what we have seen, particularly in some southern European markets which are now on the negative market trend. And in Korea, which is flattened, while it was a very strong growth market in the past, we had to readjust our point of view on the global market for the fiscal year. Then in term of our plan, we continue to grow market share and to grow, both in great markets like China or North America in this moment. And frankly, we continue to grow and grow market share in many of the weak market that we are seeing, yes. For example, in places like Italy, we continue to grow well ahead of the market trend, the same in France. So it's good results. The reason why we believe we will accelerate as or generally are twofold: First of all, we have an initiative plan, and an innovation plan, which is very strong there; second, we have a strong innovation plan supported by extra advertising in the second quarter this year. We will spend $80 million more advertising in the second quarter of the year versus last year, which we believe will add a good, a very strong influence on the third quarter sales and results, and obviously, also on the fourth quarter. So this year, because of the calendarization of our innovation, and because of the -- our intention to push our best opportunities as soon as possible in the fiscal year, we have an anticipated increased advertise through the second quarter. As you remember, this was happening mainly in the fourth quarter in our previous year. And I think this will be beneficial to the further acceleration in the last 6 months. So in a nutshell, is calendarization of initiatives, key opportunities by market and the impact of our advertising behind us, and the innovation plan, that we believe will further accelerate the sales growth. Lastly, keep in mind that we have a very high base in the first 6 months of the fiscal year from last year, and we have an easier base to beat in the second 6 months of this fiscal year.

Your next question comes from Ali Dibadj with Bernstein. Ali Dibadj - Sanford C. Bernstein & Co., LLC., Research Division: Actually I just have one follow-up from a previous question and then another one. So just to get underneath this kind of spending, and impact on margins, I mean, one of the bigger stories that has been very positive about Estée Lauder, is the margin expansion and as we look at gross margins, as you look at SG&A opportunities this quarter and going forward, it's still a little bit more detail. I know you try every once in a while, but just a little bit more detail about where the opportunities lie, going forward. And how much of the investment has to be increased investments to just grow the way it used to grow? And then tied to that a little bit, but a part of the other question is, if you could give a little bit more detail about Europe and how that may figure into it. So how much of the European issues we're hearing are really impacting the consumer versus just retailers and inventory, and how should we think about that going forward? So part of that's for 2 questions, but hopefully, you can help.

Yes, and I'll try to answer both, Ali. And Ali, I'd like then Tracey to add on, on what I say on this question. So let me start with Europe. So what we see in Europe is that the markets are, in [indiscernible] in Italy, in Spain, in Greece, in Portugal, and now also in France, are start being tough and negative, frankly more than what we expected, the markets. We are doing well in these markets, but the markets are very, very tough and there is less consumers buying than what we originally expected, which is understandable, given the very tough economical situation. What happens in this case, when you have a worsening of the market in Europe, is that trade start destocking as well. And this happens because, as you know, the retail stocks in Europe are pretty high. So Europe is a market where, where we see a deceleration, deceleration is actually increased by the combined trade destocking. At the same time, when we see an acceleration, the acceleration is increased by the trade restocking. So that's what you should expect in Europe, that's why you see this -- the variation. Now what we expect in Europe for the future, our estimate in this moment is that the negative markets based in south of Europe will continue for the fiscal year. And then I believe they will stabilize and then probably start bouncing back in the '14 and '15 years. But for the moment, we assume they will stay bad for the remaining of the fiscal year. To answer your second question, is -- we are continuing cutting cost, and we are continuing improving gross margin. We are continuing reducing promotions and particularly, we are continuing to drive our mix of initiative, very strongly toward the most…

Yes. I think Fabrizio summed it up well. The only thing that I would add to it is the company has laid out a number of cost savings initiatives and expense leverage initiatives, which I think you're all familiar with, that have really helped and support a lot of the things that Fabrizio laid out over the last few years, helping to increase advertising expenses or expenditures in a very strategic way, while increasing or expanding our margin. We are certainly focused on continuing to identify projects and programs within the organization that allow us to better leverage expenses. One of the things that I know has been discussed quite a bit on these calls has been the Strategic Modernization Initiative, and the SAP implementation, which will certainly allow us to improve some of the areas like inventory optimization, which can -- will have tremendous benefits with respect to cash flow improvement, as well as expense and margin improvement as well. So we're pretty excited about the next few years with all of the capability building that's happened in the last couple of years, to be able to continue to leverage expenses and continue to grow with the innovation that Fabrizio indicated.

Your next question comes from Caroline Levy with CLSA. Caroline S. Levy - Credit Agricole Securities (USA) Inc., Research Division: Question on the SAP impact to sales and earnings in the second quarter. If there's any way you can quantify that and how that would compare to the SAP impact from the year before. So is it more, adding more to sales growth and earnings than it did a year ago? And then also, if you could just elaborate a little bit on the trade destocking in travel retail in particular. So the difference between retail takeaway of up 12 and the up 2 that you reported and when you expect that might normalize.

So why don't I answer the SAP shift, and then Fabrizio can answer the second part of your question. As I said in my prepared remarks, you're absolutely correct, the impact this year, given the number of affiliates that we have rolling out in January, is greater than it was in the prior year's quarters. So this year, we're expecting approximately $70 million to $90 million in sales to shift between the third quarter into the second quarter, and that compares to about $30 million last year. So that's what the impact will be in the quarter.

Yes. And on travel retail, is -- the destocking has been mainly in Asia and in the Americas, and was the result of a change of rhythm of increased traffic in July, particularly, and then adjusting in August. And some of the retailers decided to destock. We don't believe this will continue. We believe that the overall net sales will gradually align to the retail sales in the remaining of the fiscal year. And I explained in my prepared remark, the retail sales increase in travel retail globally, has been about 11%, despite a tough quarter in Korea, which is 15% of our total global travel retail business.

Your next question comes from Bill Schmitz with Deutsche Bank.

Just to follow up on the SAP pre-buy. I mean, I think in years past, it was like a 70% to 80% operating margin on those sales, pulled forward? So just when we model it, do we assume those same kind of margin levels? And then, the -- my real question is, if things really start to get dicey out there, do you guys have sort of a contingency plan in place that can preserve earnings, meaning that, are there some investments you could pull back on, or are you just going to invest straight through, because it's sort of better for the long-term health of the business?

Okay. So to answer the first part of your question, yes, you can assume the same type of margin on those, that -- on that sales shift in the quarter.

And the second question's yes. We have a pretty sophisticated contingency system, as you have probably seen in the last 2 years, where every brand has an element of contingency and flexible spending. In the course of our year this contingency of flexible spending is then flexed to profit protection or to further investment on our winners, depending how the markets and our fiscal year goes. So we have the opportunity, in case things will get worse in some markets, to protect our plans. To be clear, the way we protect our plans is not necessarily protecting on the profit, but the best way in which we protect our plans is to be agile enough to move resources to our winners, and to be able anyway to protect also our top line growth in the course of the year, wherever we can. So when things get tough, we can protect profit, but most importantly, we can direct our resources where things are not tough, actually are good. And to be clear, the strengths of our portfolio is that our many brands, many channels, many countries, our broad approach in the world offer always, frankly, a possibility to find areas which are growing fast, which are solid, and which is worth investing in. So it's a balance of being able to protect and agile enough to be able to leverage what is working.

Your next question comes from Mark Astrachan with Stifel, Nicolaus. Mark S. Astrachan - Stifel, Nicolaus & Co., Inc., Research Division: I guess on advertising, we're just trying to get a better handle on sort of the incremental spend. So is the absolute amount that you're planning to spend for fiscal '13 the same as you pulling forward some of that into this December quarter? And then, more broadly, I know you've talked a little bit before about AMS spending moderating as a percentage of sales over time, maybe give us a bit of an update in terms of how you're thinking about that now, particularly as it may seem like there seems to be an increasing correlation between that spend and your sales growth.

Okay. So our advertising full year dollar expenditures are expected to increase this year. As Fabrizio noted, the calendarization of the spend is a bit different this year than last year, so we're seeing a fairly heavy spike in the second quarter, which will be offset by a decline in the fourth quarter as it relates to our plans this year. But full year, we are expecting to increase the advertising spending we have. As we had mentioned before, a tremendous launch program this year that we certainly want to be able to support. We are, however, this year, expecting to leverage advertising and promotion expense. So it will not be deleveraging on our margin.

Your next question comes from Linda Bolton-Weiser with Caris & Company. Linda Bolton-Weiser - Caris & Company, Inc., Research Division: I know you made some comments about Russia, but maybe you could give a little bit more color -- just Oriflame on their call the other day mentioned that they felt that the traditional retail channels were gaining share from direct selling in beauty in Russia and that they said there -- they felt there was a very high level of promotion in the regular retail channels. Could you comment, is that more of the mass cosmetics or is that prestige too? And can you just give a little more about the market dynamics in Russia? And also, can you give us some idea as to what size it is for you guys, what percentage of sales, roughly?

Yes. Russia is a small percent, it's a very small percent of our sales. It's around 2% of our sales. The -- what's happening in Russia, the market is growing double-digit overall, the prestige market in Russia, and we are growing double-digit or more with most of the retailers we work with in Russia. But there is a retailer with which we don't have an agreement for the plan forward, and we are discussing with them. So the reason why we, in this moment in time, we are not fully exploiting the growth of the Russian market and we are delivering results in Russia which are below market growth, which is unique, because in all the other emerging markets, all the world in this moment it's just the opposite is happening, meaning we are growing much faster than the market. In this market, the reason why it is happening is because we don't have yet a final agreement with one of the retailers. And so we are evaluating what will be the right strategy in the future to continue growing in Russia at this point in time.

Your next question comes from John Faucher with JPMorgan. John A. Faucher - JP Morgan Chase & Co, Research Division: I was wondering if you could sort of take your category growth comments and then your targets and sort of put them in the context of what you're seeing from a competitive standpoint. Because it seems as though the incremental spending is just about trying to get more out of your marketing budget for fiscal 2013, as opposed to an increase in spending. So do you think that just simply moving the support forward is enough to, I don't know whether you're accelerating your market share gains, or at least sort of maintaining your market share gains? So can you walk through the incremental spending in the context of what you're seeing out there, competitively?

Yes. No, we are intentionally growing double than the industry, so we are growing market share globally and our estimate is the market will grow at about 3%, and we are growing -- we will grow 6% to 7% in our estimate, so we will definitely continue to accelerate global market share. In terms of our main, biggest competitors, we have been growing stronger than them every year, and the most of the quarters, if you look to our history in the last 3 years, it would be only a few quarters where some of our competitors have been growing faster than us, and this is normally associated with the calendarizations of events, rather than with a strategic change. So we are a fast growth company, we have defined fast growth as at least 1% ahead of market every year. So when the market grow 4% to 6%, we will grow 6% to 8%. In a year, where the market seems to grows 3%, particularly because there are some big markets in the world, like the south of Europe, which are negative. When this happens, we may grow 6% to 7%, like we are saying this year. But anyway, is always the same logic, is growing double than the market, much better than the industry, and normally with, again, with the exception of a few quarters, we will believe we'll be ahead of competition in term of growth.

And the only thing I would add to what Fabrizio was saying in terms of our spend this year and the reason we can get a little bit more leverage out of it, we're far more targeted in the spend this year, in terms of the products that we're supporting, and the markets that we're supporting as well, which is allowing us to get tremendous leverage on the dollars.

Your last question comes from Victoria Collin with Atlantic Equities.

Fabrizio, I apologize if you said it already, but I wonder if you could give the same-door sales figure for China, please. And then also maybe a little bit of color on the Q2 guidance, particularly in your key markets. What are you expecting for the holidays, something more buoyant than last year, presumably, for the U.S.? And maybe just the detail on whereabouts in the market you expect to see that?

Yes. The same-door sales in China's been 2% in the quarter. And in term of the holiday, we frankly have early indication of a very solid holiday season and we have great programs out there, some of our programs appeal to value consumer, to consumer which are interested in value, and some of our program appeal to the high-end consumer. We believe we have very balanced programs and very promising. And the first indications, that should be good and we get this indication from online. We have a very strong beginning of online activity linked to holidays, so we are pleased with the first reaction to our programs, and we are encouraged by what we see for the holidays.

That concludes today's question-and-answer session. If you were unable to join the entire call, a playback will be available at 1:00 p.m. Eastern time today through November 15. To hear a recording of the call, please dial (855) 859-2056, and then enter passcode 53701080. 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.