Good day, everyone, and welcome to The Estée Lauder Companies Fiscal 2019 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 Senior Vice President of Investor Relations, Ms. Rainey Mancini. Laraine A. Mancini - The Estée Lauder Companies, Inc.: Good morning. On today's call are Fabrizio Freda, President and Chief Executive Officer; and Tracey Travis, Executive Vice President and Chief Financial Officer. 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. To facilitate the discussion of our underlying business, the commentary on our financial results and expectations is before restructuring and other charges, changes to the provisional amounts related to the recently enacted U.S. tax law, the new accounting standard for revenue recognition and other adjustments disclosed in our press release. You can find reconciliations between GAAP and non-GAAP figures in our press release and on the Investors section of our website. During the Q&A session, we ask that you please limit yourself to one question so we can respond to all of you within the time scheduled for this call. And now I'll turn the call over to Fabrizio. Fabrizio Freda - The Estée Lauder Companies, Inc.: Thank you, Rainey, and good morning, everyone. Our fiscal year is off to an excellent start as our multiple engines of growth once again drove double-digit sales and earnings per share gains, reflecting strength across our categories, brands, markets and channels. Strong double-digit advances in many areas of our business enhanced by targeted investments drove comparable sales growth of 11%, our sixth consecutive quarter…

The floor is now open for questions. Our first question today comes from Dara Mohsenian, Morgan Stanley. Sir, your line is open. Dara W. Mohsenian - Morgan Stanley & Co. LLC: Hey. Good morning, guys. Sorry about that. Fabrizio Freda - The Estée Lauder Companies, Inc.: Good morning. Dara W. Mohsenian - Morgan Stanley & Co. LLC: So, Fabrizio, you were pretty clear that the fiscal 2019 guidance now assumes more onerous external assumptions in China and travel retail, given the external environment despite the internal momentum. I was hoping you could also take that out to more sort of a longer-term basis as you look out over the next few years. And, A, maybe just on a backwards-looking basis give us some historical context for how much of the top line momentum in these two areas have been driven by macros more recently in the last couple of years versus more enduring factors, just to help us conceptualize the macro risk. And, B, going forward, can you talk a little bit about how you can practically manage or adapt your strategies in those two areas, or even maybe at the corporate level, elsewhere in the organization, if the macro pressure materialized, particularly given the inventory swings in China and travel retail historically which can often exacerbate a retail sales slowdown? So again, that's sort of beyond fiscal 2019 as you look longer term. Thanks. Fabrizio Freda - The Estée Lauder Companies, Inc.: Yeah, that is a long question. Let me start from the 2019 part of your question, which was the first part, and then I'll address the long term. So, we have recognized that given the external environment, there is a risk the China TR moderate growth and there is a risk of tariffs. So we have frankly…

Our next question comes from Lauren Lieberman, Barclays.

Thanks. Good morning. Tracey Thomas Travis - The Estée Lauder Companies, Inc.: Good morning.

I was hoping you could talk a little bit about M•A•C. So M•A•C being called out for double digit performance – I know, Middle East was a big part of it, so some are probably reselling, you know, sort of, the reset that you've done in the Middle East in the route to market. Can you just talk about performance for M•A•C in the U.S., both online, separate from mid-tier department stores? What you're seeing in terms of – you've talked about your hero products, bigger innovation? What is it strategically that's driving some change in that business? Thanks. Fabrizio Freda - The Estée Lauder Companies, Inc.: Yeah, no. Thank you. M•A•C is improving sequentially its performance. This definitely in the quarter in the short term has the positive implication to restock in the Middle East and to the improvements of this trend in the Middle East. Therefore, M•A•C is very important. But now also to speak about the negatives, I will say there's also – there is the negative that Brazil is another important market for M•A•C which it was not very active in this quarter. So, there are positive and negative also internationally. The drivers start becoming many, many. China continue to be a great driver. Asia in total continue to be a great driver. TR continue to be a great driver, and many other emerging markets, and markets in Europe – Italy, for example, that we have mentioned as for the overall business is one of the best performing markets for M•A•C. And to your question, we continue to see... (34:08 – 34:18)

There will be a slight delay in today's conference. Please hold. (34:22 – 35:43) Laraine A. Mancini - The Estée Lauder Companies, Inc.: Hello.

Ms. Mancini, you may proceed. Laraine A. Mancini - The Estée Lauder Companies, Inc.: Okay. Lauren?

Yes. Laraine A. Mancini - The Estée Lauder Companies, Inc.: Okay. Fabrizio Freda - The Estée Lauder Companies, Inc.: Yeah. Hi.

Yeah. You talked about Brazil, right, emerging markets, Italy... Fabrizio Freda - The Estée Lauder Companies, Inc.: Yeah. I was speaking about – so you dropped when I was speaking that there was the positive of the Middle East that you highlighted, but there was also some negative, like Brazil is not yet back, but obviously because of our external environmental situation. But I was also mentioning the positives for M•A•C. There were China, TR, every single Asia market, Italy. And I was speaking about the improvements in the U.S. in specialty-multi, in online, and I was saying that these improvements are also generated by a more focused innovation plan with fewer initiatives, bigger, and focus on the key drivers. And I made the example of lipstick, but we have also a big example in foundation and an exciting innovation plan in front of us. So, M•A•C is on improvement trend in the U.S. and continues its solid performance overall internationally.

Our next question comes from Michael Binetti, Credit Suisse. Michael Binetti - Credit Suisse Securities (USA) LLC: Hey, guys. Thanks. Great quarter. Let me add my congrats. Fabrizio Freda - The Estée Lauder Companies, Inc.: Thank you. Tracey Thomas Travis - The Estée Lauder Companies, Inc.: Thank you. Michael Binetti - Credit Suisse Securities (USA) LLC: Tracey, would you mind adding any, kind of – is there any kind of numbers you could add around how much you guys adjusted guidance related to the tariffs and the more conservative assumption around China and travel global? Tracey Thomas Travis - The Estée Lauder Companies, Inc.: Basically, when we gave guidance in August we included the known announced guidance at that time that we knew were going to be impacting us. And so that was tariff related to the EU and some preliminary tariffs in China. Subsequently, it has become more certain at least that – or at least we believe that we may experience higher tariffs in January. So, some of the – embedded in the guidance in the second half from an EPS standpoint is the inclusion of that increase in tariffs. We do, as we said on the last call, 30% of our product in China comes from the U.S. The balance comes from our factories around the rest of the globe. So, that's generally what the exposure is. We also export products out of China, primarily raw materials and components. And so, we do get a duty drawback on that. Michael Binetti - Credit Suisse Securities (USA) LLC: Okay. Just following up then. I think some of your competitors have mentioned seeing the category, the beauty category accelerate globally. And then, there has been some comments on strengthening trends behind premiumization. As I look through your guidance, I…

Our next question comes from Bonnie Herzog with Wells Fargo.

Thank you. Good morning. Fabrizio Freda - The Estée Lauder Companies, Inc.: Good morning.

Good morning. I had a question on your Makeup business. Operating income declined as did margins, so you called out stepped-up spending behind Too Faced. So, I was hoping you could drill down a little further on this to give us a sense of, I guess, where you're at with the spending and then maybe how much your Makeup business would be performing excluding the spending. And then, hoping to get a sense of how much longer the spending levels might be or stay elevated behind Too Faced. And then finally, more importantly, what kind of lift you're seeing right now if any or really what your expectations are? Thanks. Tracey Thomas Travis - The Estée Lauder Companies, Inc.: Yeah. So, regarding Makeup, we did have – we called out as well some declines in our Smashbox business. But the Too Faced investment – the Too Faced had quite a few large launches this quarter. They launched their Born This Way Foundation with extended shades, Born This Way Concealer. Their Tutti Frutti line as well launched this quarter. So, they had – quarter-to-quarter, it's very difficult to look at our results from a spending standpoint because we are so launch and innovation driven. And if it's a bigger launch one quarter than the next, you'll see perhaps outsized spending and depending on when that spending happens in the quarter. So I would expect that our Makeup operating margins will improve throughout the balance of the year, and you'll see more normalization there.

Thanks.

Our next question is from Robert Ottenstein, Evercore ISI.

Great. Thank you very much and terrific quarter. You're obviously doing a really nice job on some of the larger well-established brands and I know this is a tricky question, it's very hard to dissect, but I was wondering if you could give us a sense of the contribution of innovation to those brands and e-commerce and if it's possible, obviously they're connected, but I was wondering if it's possible to kind of tease out the impact of both of those factors? Thank you. Fabrizio Freda - The Estée Lauder Companies, Inc.: Yeah, so first of all, on all these brands, and frankly on every brand that the impact of e-commerce is very positive. As we explained, we have brand sites, retail.com and overall platforms like Tmall. We are growing in each one of these three segments very strongly, double-digits, and particularly on platform at very strong double-digits, and also in retail.com at very strong double-digits. And we expect this strong trend to continue because also we are creating great experiences online in all these platforms and the consumer is more and more interested. We are very strong, and we have been investing for years in this area, so we consider our e-commerce business a strength and something we can continue to leverage and be at the forefront of the industry with it. In terms of the contribution of innovation, as I touched in my prepared remarks, we are really taking innovation to the next level. Our innovation today is much more focused on the right opportunities, on the right consumer targets, on the right benefits, thanks to a major work we have done in the last couple of years on adding analytics and more sophisticated analytics to our way to determine how to innovate and to focus our marketing…

So it sounds like you've got a very nice, for lack of a better word, formula working that has had this gaining traction, and it seems to be gaining some traction in Clinique. Would that be fair? And do you see – and how would you look at the mix between the innovation in e-commerce in terms of getting Clinique even to a higher sales trajectory? Fabrizio Freda - The Estée Lauder Companies, Inc.: Thank you for this question. Actually, yes, we do expect Clinique to get a lot of acceleration, definite from online. That's already happening and will continue to happen more, but as I mentioned particularly from innovation. I believe Clinique is one of the best innovation programs in this moment in front of us, and I said there will be a new launch of Clinique, which is very important in December which is very exciting in the area of Skin Care. And there is more innovation to come. Plus the ingredient story of Clinique has been taken to the next level, and this also is having an initial encouraging impact on consumers. So we are in a situation where three of our biggest brands are already growing double-digits, in which M•A•C is gradually improving, in some points, which has been U.S. and UK. And in a situation where Clinique, we believe has the potential for the total fiscal year to go back to growth as well. And so our ambition is to finish this fiscal year with all our top-four brands on a growth trajectory.

Our next question comes from Wendy Nicholson, Citi.

Hi. Could you talk about the trends in the specialty-multi business in the U.S.? I think for the last few quarters, we've heard you talk about strong double-digit growth, and it has clearly slowed a little bit in this quarter. Is that just a function of Smashbox weakness? And can you update us on kind of where you are? I know you don't want to tell us exactly how many ULTA doors M•A•C is in, but kind of where you are maybe inning-wise? Are you in the third inning of distribution expansion for M•A•C into ULTA doors? Or just how much more run-way is there for new door expansion in specialty-multi? Thanks. Fabrizio Freda - The Estée Lauder Companies, Inc.: Yeah, you're welcome. And so we are doing well in specialty-multi. We continue to grow. And this has continued to be one of our key drivers. And we are at the point already, we communicated that last quarter, where the benefit of specialty-multi start to being substantial, so having a significant impact on our growth in the quarter. That's very positive. Now there's been some slowdown on Smashbox for sure, as you mentioned, and that's obviously a slowdown of the results of growth. But the other brands really in specialty-multi did very, very well, and there is no other sign of slowdown. Actually, I would say, most of them are on a clear accelerating trend. And there is more potential for distribution. Yes, on M•A•C in Ulta, there is more potential for more doors. That is not only about M•A•C. There is more potential for many of our small and medium-sized brands that have the opportunity to further accelerate distribution in this area. And as you know, we had also some distribution in online and flagship doors of brands like Jo Malone and La Mer, which are also performing very well on the high-end consumers that shop in this channel. So overall, we are positive and we believe this story can continue to build over time.

Our next question is from Nik Modi, RBC Capital Markets.

Yeah, thank you. Good morning, everyone. So I just wanted to stick on the topic of innovation. Fabrizio, maybe you can just talk about some of these new product launches you referenced in terms of the personalized skin care product and just some context around if you've tested it, what kind of demographics does it appeal to? And then maybe you can also talk about the Clinique 72-hour moisturizer and kind of how you think about that product relative to how it's maybe tested or your hopes and desires for that franchise? Thank you. Fabrizio Freda - The Estée Lauder Companies, Inc.: Yeah, so on the innovation on Clinique, which is customized to every consumer, I prefer not to comment more. We are in the process of announcing it to the various retailers around the world, and so we'll be soon official and will be launched in December. But basically is the kind of innovation our analytics are giving us, meaning innovation that is not only a great product quality that provide interesting and relevant benefits. But is also proposing to the consumer a new customization idea and so there is responding to new desires, doing it in a way which is unexpected and different. And that's the quality of innovation I'm speaking about. We always had to make quality products. We always had the ability to create interesting benefits. But we are now learning how to do it in a way which is much more customized, more differentiated and anticipate new consumer desires in a world where the consumers is more at the center of the attention and leading the process. In terms of the other innovation, yeah, the Moisture Surge, which is the Clinique 72-hours benefit product you had mentioned is doing very, very well. It's one of…

Our next question is from Linda Bolton Weiser, D.A. Davidson. Linda Bolton Weiser - D.A. Davidson & Co.: Thank you. So, when we talk to investors about your strong trends in growth and innovation and everything, you've been talking about, one of the pushbacks we get is that we are getting potentially close to the end of the cycle. And some investors actually think we will get a recession in the next 18 to 24 months. So, can you talk about – in the past, you had invested quite heavily through the cycle and especially in a downturn you continued to invest behind your brands. Can you talk about – is there anything different in the structure of your business or the mix of your business, this cycle that would potentially mute the decline in your earnings that we saw in past downturns? Thanks. Tracey Thomas Travis - The Estée Lauder Companies, Inc.: Yeah, so, I'll start. One of the big differences quite honestly is Leading Beauty Forward. And so, the efforts that we have taken to take more fixed cost out of the business to structure ourselves differently, to invest behind faster growing areas, we actually have more flexibility in our cost base, which you hear us talk about quite often. And in terms of investing behind when markets are strong and when innovation is strong, but also pulling back when there is a downturn or to your point if a recession were to occur. So, I think structurally the company is much, much stronger today than it was a few years ago, because of all of the work that we've done in programs like Leading Beauty Forward to really reorganize our expense base and invest behind areas that really drive the growth of the business. Fabrizio Freda -…

Our next question comes from Mark Astrachan, Stifel. Mark Stiefel Astrachan - Stifel, Nicolaus & Co., Inc.: Thanks, and good morning, everybody. One housekeeping question, one follow-up on the Clinique line. One, just Tracey, is there any benefit anticipated in the second quarter guidance from sell-in ahead of the tariffs? And then just on Clinique broadly, I guess maybe to put the question in a different way, why has the brand not resonated with consumers in recent years? And, I guess, the question is, the innovation sounds pretty exciting, but from a brand standpoint, how much of it is the brand itself where there's a lot more competition for a dermatologically correct skin care makeup brand today versus maybe 10 years or 15 years ago? And then how do you think about spend or innovation around kind of modernizing it versus just running the business kind of as it is with lesser growth than you have seen in recent years versus history? Tracey Thomas Travis - The Estée Lauder Companies, Inc.: So let me start on the tariff question. We are seeing obviously incredibly strong growth in China, so we have not been building up related to the tariffs. We've really been flowing inventory as we have it to support the slow or the very fast sales trends. So we don't have a big inventory buildup in China where that would cause the moderation or the slowdown that we're speaking about in the second half. As it relates to Clinique, and I'll let Fabrizio add on to this as well, one of the things that we mentioned in the last call that I would just remind you of is, Clinique has been one of the brands that's been disproportionately affected by some of the retailer dislocation that's happened, particularly in…

Our next question is from Erinn Murphy, Piper Jaffray. Erinn E. Murphy - Piper Jaffray & Co.: Great. Thanks. Good morning. And let me add my congratulations. Maybe just a segue from a lot of the comments on Clinique, but when you take a step back and just think about the natural beauty trend, how much of your portfolio today really lends itself to this macro trend? And then going forward, how are you weighing the opportunity to invest behind this trend in your existing portfolio today versus looking at M&A? Fabrizio Freda - The Estée Lauder Companies, Inc.: Yeah, in our portfolio, first of all, the purity concept is actually the Clinique concept. As I said, today it is called in many different ways. It's called clean, natural, et cetera but – so the brand that is now stepping up to leverage this trend in a unique Clinique way is actually Clinique. The other brands are obviously Origins, which is, as I said in my prepared remarks, exactly in the middle of that and in fact is having exciting results. And exciting results because it's leveraging the strength and because it's doing great innovation exactly on that trend, like the very recent launch of Origins lipstick line in the U.S., which is a super exciting flower-based line that leverage even in lipstick the natural trends that personally, I believe, will be very, very interesting for the consumer worldwide. And then we have Aveda. Aveda is in the middle of this since always, since ever. Not only Aveda adds to the natural element to be leveraged, the sustainability element as well that is a very strong preferred Millennials point of view today. So Clinique, Origins, Aveda are the obvious question that we are using these brands to further leverage these trends. And on your question on M&A, we always look at the M&A possibilities around the world, and if there will be opportunity in these areas, obviously we will consider them.

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 PM Eastern Time today through November 14. To hear a recording of the call, please dial 855-859-2056, passcode number 4946739. 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.