Estee Lauder Companies, Inc. (The) (EL)

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The Estée Lauder Companies Inc. (EL)

2013 Consumer Analyst Group of New York Conference

February 22, 2013 9:30 am ET

Executives

Fabrizio Freda - Chief Executive Officer, President and Director

Carl Haney - Executive Vice President of Global Research & Development, Corporate Product Innovation, Package Development

Tracey Thomas Travis - Chief Financial Officer, Executive Vice President, Member of Corporate Risk Management Committee, Member of Fiduciary Investment Committee and Member of Investment Development Committee

Presentation

Operator

Okay, great, we're ready to get started. I just wanted to point out to you that on your tables and on some tables outside the presentation room, there are some surveys that the CAGNY Board would really appreciate you taking a little extra time to fill out. Be honest in your feedback. We take it seriously, and we want to take into account all your thoughts as we try to make this conference as valuable as possible.

Before I introduce Estée Lauder, please join me in thanking the company for sponsoring this morning's break.

I'm pleased to welcome Estée Lauder to CAGNY once again. Over the past few years, Estée Lauder has sharpened its strategic focus and taken a disciplined approach to investing in its prestige cosmetics and skin care businesses. As a result, its sales and profit growth has been among the best in the group. Here to provide an update on the company's strategy is Fabrizio Freda, President and Chief Executive Officer. This is Fabrizio's third CAGNY conference and we're glad to have him back. I'll turn the podium over to Fabrizio, who will introduce his team. Welcome, everyone.

Fabrizio Freda

Thank you. Good morning. So good morning. It's really wonderful to be here again for the third year in a row and update you on some of the exciting opportunities we have in Estée Lauder Companies. I want to remind you that some of our remarks contain forward-looking statements.

Today, we are going to tell the Estée Lauder company story in 3 parts. I will discuss our ongoing commitment to high sales growth, and then, 2 of our newest leaders will take the stage. Carl Haney, our Executive Vice President for Global R&D and Product Innovation will explain our successful innovation process. He will be followed by Tracey Travis, Executive Vice President and Chief Financial Officer, who will discuss our financial results and how we plan to unlock value to support our future growth.

I'm delighted that you will hear from these new members of our executive leadership team. I believe they are among the best in the industry and have added in-depth experience to our team.

Historically, the Estée Lauder Companies has been a high-growth company. This is our strength, and our strategy will continue to leverage this strength going forward. The Estée Lauder Companies is a leader in global prestige beauty, with a share of approximately 16%. The $160 billion industry expanded by 4% in the last decade and is forecasted to rise or, at least then, match over the next 10 years. Our goal is to keep growing at least 1% faster than global prestige beauty and continue to gain share.

In fiscal 2012, our sales climbed 10% equal to twice the rate of prestige beauty growth worldwide. In fiscal '13, we are estimating prestige beauty growth of about 3%, but the industry is expected to accelerate in fiscal '14 and beyond. As we look ahead, we are guided by our 10-year strategic compass, which identifies the biggest and fastest-growing opportunities shaping prestige beauty. We intend to stay ahead of the market by focusing on creativity and our technology on the best opportunities.

Several demographic trends support continued growth. The first comes from emerging markets where more women are entering the middle class and enjoying higher disposable incomes. We have had robust sales gains in many of these markets including China, Brazil and the Middle East. Also as we become more global, we are reaching a larger and more diverse population and generating increased sales by creating products for all ethnicities and women's skin tones. M-A-C, for instance, recently expanded its presence in sub-Sahara Africa by opening stores in Nigeria, Botswana and Zambia. Another factor driving solid growth is the aging of the world population which creates greater demand for many of our products, particularly anti-aging skin care foundation.

There is another important way we are sourcing new consumers from mass channel and brands. Thanks in part to our outstanding new products and effective pool of talent, we have attracted consumers to our counters and contributed to global prestige beauty sales, outpacing us in many global markets including the United States, China, the U.K., France, Italy. Prestige beauty accounts for 30% of total beauty globally, so there is enormous opportunity to win over millions of new consumers from us.

We are the largest global beauty company focused solely on prestige which, as we have shown, is a preferred consumer experience in many global markets. Our creativity delivers high-quality breakthrough products, activational brands and High-Touch services in channels which are fully dedicated to "me" time. Our innovation model leverage technology, creativity and services of education and customization to make technology relevant. Our prestige model includes education, customization and personal experience. When you buy products at M-A-C, a make-up artist also teaches you how to apply them to achieve different looks. This is the ultimate one-to-one education model. In customization, a trained Clinique consultant advises the consumer on the right treatment for her skin concerns. And as an example of pleasurable experience, Origins provide Mini Facials in all its stores. Education and customization services are boosting the technology performance of our products.

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