The Estée Lauder Companies Inc. (EL) Earnings Call Transcript & Summary

Well, good morning, everyone, and welcome to the UBS Global Consumer & Retail Conference here in New York City. My name is Peter Grom. I'm the U.S. Beverages and Household Analyst here at UBS and we are very excited to have joining us this morning as our keynote, Fabrizio Freda, President and Chief Executive Officer of Estée Lauder. So Fabrizio has been the CEO for more than 13.5 years. And during that time, Estée Lauder has transformed into a company with industry-leading organic revenue growth, best-in-class margins and are really 1 of the best, if not the best, are most attractive growth stories in all global beauty. Despite a strong track record and the likelihood that we're going to return to growth here, there's been a significant amount of volatility in the industry that has impacted both Estée Lauder and just beauty growth more broadly. Before we start in Q&A, I am required to read a legal disclaimer. As a research analyst, I'm required to provide certain disclosures relating to the nature of my own relationship and that of UBS with any company on which I express a view on this call today. These disclosures are available at www.ubs.com/disclosures. Alternatively, please reach out to me, and I can provide them to you after the call.

So Fabrizio, thank you so much again for joining us. I kind of want to start where I just kind of left off. There's just been a lot of volatility in the industry over the last few years, COVID, lockdowns. And I just would love some perspective on how that informs your view on the opportunities for growth in the beauty industry looking ahead.

Yes. So good morning, everybody. And we believe the fundamentals of the beauty category, particularly the luxury and prestige beauty category has not changed. And if anything, they come out reinforced for the long term from the pandemic situation. The key drivers of the industry has been the middle class growth, and this is not changing. We see in the last 3 years over 0.5 billion people, 79 billion potential extra dollar in the industry being developed, particularly in emerging markets like China, India, Brazil but also in the U.S. and in Europe in past. We see the acceleration of the per capita consumption. To give an example, during the pandemic, the per capita consumption of prestige beauty in the U.S. has been 18% up. And in China, 150% up, and there is a lot of space to grow. And when you compare emerging markets to U.S., the opportunity to grow is extraordinary in the next years I suppose. Then there is a -- when you look at beauty as a total, you separate prestige from mass, prestige kept growing also during the pandemic faster than mass globally on average. And this is extraordinary. The growth of prestige as a percentage of total in China has increased dramatically. We -- now we believe it's 46%. It was at below 20% just a few years ago in 2017 when we spoke last time. In the U.S., this is now 51% prestige, was 49% before the COVID. So there is also -- which consumers are going upgrading to high quality. Interestingly, this has not changed as a trend with higher inflation and with risk or recessions around the globe. Again, speaking, global averages on this topic. So that's the fundamental of the market. Then the consumers during COVID started being even more sensitive to beauty. Now obviously, this change by category. In skin care, as you probably know, the consumer became much more familiar with different regimens with wellness as a trend and started using more skin care actually. Same thing happened for fragrance. Fragrances have a tremendous positive trend during the pandemic and is continuing after the pandemic in the markets where the pandemic is finished earlier is actually accelerating. Makeup was the category that was the hardest hit by the pandemic, but we can talk it later, but my makeup obviously is coming back when we see the pandemic going down. And haircare is actually accelerating prestige haircare. Haircare is a very big business being solid as a category since a long time. But prestige luxury haircare is on a strong acceleration. And this is the first year where this is really happening, also because of distribution choices. So in total, the fundamentals are very strong. If anything, as I said, are accelerating. So we see this industry continued the trend over the last 3 years. Probably, as you know, the last 3 years, the industry -- the prestige luxury beauty industry been accelerating north of 5% a year. So 1 of the fastest-growing segments of consumer goods in total. We believe this as -- there are all the elements for this to continue in the next 10 years.

No, that's really helpful. And I kind of want to shift and talk about balance and thinking about top line growth, but also bottom line. And this is a bit more of a conceptual question rather than necessarily how Estée is thinking about the next 18 months. But clearly, both top and bottom line performance have been impacted by a number of external factors, COVID, inflation. And as you think about kind of this return to normal or a more normalized environment, and some of these headwinds become tailwinds, like how do you think about the balance of reinvestment for continued long-term growth versus the potential for outsized margin recovery or earnings growth?

You mean in the next 18 months?

Yes, like more conceptually as inflation comes in and maybe the COVID pressures kind of dissipate. How do you think about the balance, right? Because a lot of these things have impacted your performance and it should become tailwinds. But do you want to let them flow to the bottom line? Or do you kind of say, look, we should step up reinvestment and continue to drive growth?

So we were impacted by many, many different elements, the pandemic, the lockdowns. The different stock levels in -- particularly in travel retail and the skin care being more impacted than other category in our portfolio because the moment you input a lot China, Travel Retail Asia, you input more skin care than other category on average. So all of these, as you said, should bounce back because those are not dependent from consumer fundamentals. They are dependent by the specific situation. So we do believe that part of the recovery of the margin will be driven by normalization of the trend. For example, they come back on the travel retail as a mix -- in the mix between category, they come back of skin care growth, the continued sustained strength of online, particularly the strength of direct-to-consumer businesses for us, which is freestanding stores and brand.com and third-party like Tmall. All these -- China as a region, all these elements are margin accretive. And so the comeback of this part of our business will accelerate the margin recovery. Obviously, there is 1 part of the margin hit, that was currency. This one, I suspend my judgment also depending on how the banking situation evolved between U.S., Europe and the rest, how the currency movement will go. But so far, the currency with the rest will be recovered somehow in part by the mix. Our focus will remain on building market share. That's why your word is correct, it's balanced. We are looking for balance. We want to use the recovery period to build market share. And so we will focus on growth and how investing in advertising, investing -- particularly there are so many new advertising opportunity, which are, frankly, a high return and very efficient like the working well in big talk around the world is having very high returns, working well with the new way to manage creators, influencers, dynamics. We have invested a lot during the pandemic in our ability to produce the right quantity of assets to participate to this new social media boom, which is happening in every country of the world, particularly in emerging markets that require different quality, different quantity of assets produced, a different way to interact between the marketing people of any company and the world of influencers and creators. So all these needed a change in organizations. And frankly, during COVID, we took the time to accelerate and further reinforce. We invested in creative studios in the key markets of the world. We have -- our office have the creative studio inside. So a lot of great evolution. So we are increasing our ability to use this effective social media in every country of the world. So investing into that. We are investing in innovation. Our innovation will continue to grow and will reduce support growth. And during the pandemic, about 25% of our yearly sales have been in new products, many product launched in that year. This will continue. And we have an extraordinary pipeline of innovation for the next year. We will continue to invest in innovations. By the way, those innovations are -- have a very important role in attracting new consumers. So as part of the balanced growth, you want the growth to be in part new consumers that we bring into the brand. Innovation has a big role in doing that. And in part, we want to continue to reinforce our repurchase rate, level of loyalty. That's a very important element because it makes the growth more stable when not done by product, which are so good in performance, the people repurchase them regularly. And we are doing this via investment in research and development, R&D. So during COVID, we invested a lot of new capabilities in many areas. We are much better also in data -- user data in CRM, particularly in Asia, in omnichannel, Mini-Link, the online -- with the omnichannel. This is obviously a completely change of the level of importance during COVID and will foster more growth because the online penetration has increased dramatically, as we discussed already in the past. So the online penetration has increased and now the freestanding stores are coming back roaring in the last quarter. We are growing double digit around the world on freestanding store and now we can connect them with technology, having 1 seamless consumer experience that in the past was not possible. And so this will further accelerate growth. So we will invest in growth with -- in summary, with our key drivers, advertising, innovation, new capabilities in data, CRM and obviously, the continuous distribution increase globally of our brands, so that will continue to increase distribution in every channel of the world, and we can talk more in detail about this in the next part of our conversation. And at the same time, we will benefit from the coming back of the right mix to grow margin. And so we believe we can grow both margin and sales at the same time in this recovery path. The end results of this recovery moment will be that we would like to go back to our normal algorithm. We believe that our historical algorithm of 6% to 8% growth and half a margin point per year with results in double-digit EPS per year, that algorithm then will be our lending space. And then from there, we'll continue to grow on our historical algorithm.

Okay. And then -- that's really helpful. And thinking about this recovery period that you were just alluding to. I would just love to get your perspective on kind of the shape of the recovery, particularly in China. And I guess, we've seen other markets around the world that have -- that are emerging or have already emerged from this -- from the pandemic. So how does that shape your expectations over the next 18 to 24 months?

The shape of the recovery we have seen it where the market has recovered, say, the U.S. or in Europe or in other parts. So the shape of the recovery is that there is -- a consumer goes back to brick-and-mortar, so first by channel. And the online, we see it stabilizing. During the COVID period, the online was accelerating. Obviously, brick-and-mortar were empty. In the recovery, you could expect that or be concerned that online may go down dramatically. It's not happening. Online stock may be growing in percentage of total, a brick-and-mortar comes back, but the online habits stays. And why is that? It is interesting. Before COVID, the younger people were already online. They were already buying online. During COVID is what we call the ageless consumer, so us that went into buying online more and more and more. And we liked it. And so we stayed. We don't go back to buy only in brick-and-mortar. So people that before were buying online continue to buy online. The people that learned how to buy more online during COVID go to a new mix. This new mix is different by country by country and the person, but it's a mix between brick-and-mortar online. So in total, online reinforcement stayed strong. So second, there is an acceleration of sales. We have seen this in every market after recovery. This is particularly true in certain categories. Makeup bounce back in the recovery period out of COVID. You see, for example, the makeup is based on user education. Women use makeup in different occasions, going to work every day or going in the evening to a restaurant or going to a party or weekend moment, depending on the user education, the kind of makeup is very different. And in the -- during COVID, these user educations were different or were absent because there was a period where we are in our homes. So in -- makeup comes back as user education comes back. There is a complete correlation between this. Also makeup has been the hardest category as I was saying, because it's the most sensitive to scale of the sales in every single door because makeup has a lot of services like, take our brand M.A.C, whether it's makeup artists in the store, there are people which are supporting the sale in every aspect. Obviously, if the traffic is very reduced, all these fixed costs become very high. So make up profitability is also the hardest hit during COVID. That's why we expect a comeback of sales, a comeback of -- gradual comeback of profitability also in the makeup category. And this is part of the acceleration. Our M.A.C brands in the last quarter was growing double digit globally, which was super exciting to see the M.A.C brand back. It's a big brand for us. So a very, very important, good news for the future. The last thing I want to say on the shape of the recovery is -- so we sold by channel, we spoke about the category. Sorry, I don't want to forget fragrances. The -- as part of the recovery, fragrances are playing a very important role. And in the fragrance market, it's happening that the high-end fragrances -- to -- the -- what we call artisanal fragrances, collections of fragrances like our brands like Jo Malone, Tom Ford, Le Labo, Frédéric Malle. All these fragrances -- KILIAN, are really accelerated, but double-digit, amazing percentages of growth. The entire fragrance industry is doing well, but the top of the pyramid, the collections, the more sophisticated juice are doing much better. And why is that? First of all, as I said, in the entire beauty industry, people are going from mass experiences to more luxury experiences, but also the number of fragrances in the home of every consumers are increasing. I don't know about you, but I -- my father had 1 fragrance all his life, I still remember it. And then I went to 2, and I was an innovator. But today, my children have 7 fragrances and they use 1 for summer, 1 for winter, 1 for an evening, 1 for going to work. Well, so the portfolio of fragrances has completely changed in the home of the consumers. So this has increased during COVID. These numbers continues to go up. That's why you see all these collection brands growing much better because when was 1 fragrance or 1 designer for many years in my life, the market was done in a certain way. And you were waiting for this fragrance to be discounted to stock it and then you were done. When on the contrary is about collection and penetrating a brand having an experience, the game is changing completely. And this is a very exciting game because in this, what I call the pyramid of fragrances, where at the bottom, there are the every designer is a fragrance, every retailer can discount it kind of market. And at the top, there are more sophisticated seasonal brands. The percentage of profitability is much high at the top. And so the top of this pyramid is doing what I call the inversion of the pyramid, particularly in profitability because the more this part grows, the total profit in the category grows and the profitability of that part of the industry on which today, we have 50% market share. That part of the industry will grow and will continue to take a lot of the profitability of the industry. So the shape of recovery in fragrances is very exciting all over around the world.

That's super helpful. I guess I'm more of a retro guy. I only have 1 fragrance.

You have only 1. Okay.

Only 1. So I guess just sticking with China.

Now, I'm [indiscernible].

Room to grow. But anyway, maybe just sticking with China, and this is kind of a bigger picture multipart question. But I guess, how do you see the category and competitive dynamics evolving in China as you look out over the next 3 to 5 years? And I guess if you were to fast forward 3 to 5 years from now, how would you define success for Estée Lauder in China? What would that look like from a growth perspective? And what would that look like from a share perspective?

Let's start from this point. Success in China for us is to grow market share in a growing market again. So China is a market which is going to come back to growth. And then it could be high single-digit growth in certain moments, will be double-digit growth in other moment, depending on the economy, in the country depending -- but the fundamentals of the demographic fundamentals, the consumption fundamentals will lead China into double-digit growth. And then the economy may create some up and down volatility, but the market potential remains extraordinary for many, many years to come. First is the growth of the middle class. I was saying before the numbers -- the global numbers in China, the number is also very exciting. You can imagine next year probably 300 million new middle class. And most importantly, a continuous elevation within the middle class to the high-end middle class that in China are our biggest customers. And so that part of the middle class is increasing. The second thing, which is very relevant in China is, as I said before, if you make the beauty industry, 100%, the prestige part of the industry that now has reached 46%, 47%, will continue to grow. And we are a pure play in that part of the industry. So in the fastest-growing part of the industry in China. Then the consumption per capita, as I said, just increased 150% during COVID, and there is a lot to go, but still very much below the U.S., obviously. But even below Korea, below other markets in Asia. So the consumption per capita will continue to accelerate. So this fundamental out there. The -- so the market will grow. How are we going to grow market share in this market. First of all, we have an extraordinary portfolio of brands. Estée Lauder is very strong. La Mer in the high luxury. Estée Lauder is composed by prestige part offer, which is we call the blue line, but it's also like Advanced Night Repair, if you are familiar with the brand, but also a high-end line, which is called Re-Nutriv, which is growing enormously is very relevant to the Chinese consumers. Then we have a extraordinary fragrance portfolio because in China, different from the West, the high-end fragrances, what I before was calling the seasonal part of our collection are the biggest part of the market and the fast growing. So brands for us like Jo Malone, Tom Ford, are really doing super well. Then we have -- the beginning of us playing in hair care, where we didn't -- we just launched Aveda in China very recently, and that's a complete new category that we will be able to grow. We have new brands that we will launch in China. In China, we don't have yet brands like Le Labo, which is our fastest-growing brand in the company, in total. By the way, if you have not tried Le Labo fragrances, I really suggest you look at them, they are extraordinary brand. And we don't have The Ordinary or DECIEM company yet in China, which is the highest growth unit brands in this moment in every country where it's been launched. So a lot of new brands portfolio increase. Then cities, our most distributed brand in China is Estée Lauder. Estée Lauder is in 150 cities. That's it. Now each of these cities have millions and millions of inhabitants, but it's 150. We sell online via Tmall, JD and others in 650 cities, Estée Lauder brand. So you have still 500 cities to go in brick-and-mortar distribution before we get really the coverage of the existing consumption, let alone usual growth of consumption. Imagine that in China, if you are in 1 of these 400, 450, 500 cities, where there is the desire of the Lauder brand but there is not yet physical distribution, you can only buy it other traveling, so in travel retail or online. And that's why in China, you see that online is already 50% of the total business. And you see that travel retail is such a booming because frankly, some consumers don't have the alternative. Now to understand this phenomenon because this will be also linked if we will talk emerging markets to other emerging markets, the very interesting phenomena that I want to explain is China is also 1 of the most productive market per store. Now in the world of luxury, the productivity per store is a very important driver of profitability. Why is the most productive market? Because in China, we started online in the cities as was display, 450 city, you buy online or when you travel. There is no brick-and-mortar. And then we opened the brick-and-mortar when our online CRM data tell us that in that city, there is enough demand to justify a very productive store. And then we go and open the store. So the store is productive day 1 and is also very productive. Look at the West. In general, U.S. or even Europe, the way this was built was different. We already built a huge distribution in brick-and-mortar and then online arrived and took out the brick-and-mortar 35% to 40% of the business. The market didn't grow 30%, 40% in the same year. So the reality, the entire brick-and-mortar became less productive. So the arrival of brick-and-mortar first online after make brick-and-mortar less productive. In the emerging markets, online first brick-and-mortar only where you need it, make everything very productive. This simple explanation explain why in our industry, emerging markets tend to be, for sure, after certain years of investment, more profitable than developed markets, which normally many of the industry is the opposite. And so that is why I believe that the opportunity in China in the future remains extraordinary. And by the way, that -- what I call the China model, exported to India, Brazil, Southeast Asia, et cetera, is making all these markets grow profitably rather than having years of investment before becoming profitable. It's basically the phenomenon of the online penetration before the brick-and-mortar penetration. Then the last thing I want to say on China is the excitement of some other things which happened. During COVID, Hainan has become an extraordinary place for sales. Now Hainan is obviously in our travel retail business. And -- but the development of Hainan is here to stay. During COVID, when the Chinese consumer could not travel the world, Hainan has been extraordinary popular, and then more recently, it's been a problem because with the close up and the lockdowns has been very difficult, very high stocks. And so a transition has been difficult, but the future will remain brilliant. And sometimes I get asked the question, but do you think that now that the borders are opening and Chinese will start traveling again, will Hainan go down? And I just want to remind that less than 20% of Chinese have a passport. And so there are still 80%, 85% of people they can only go to Hainan or due -- for having the experience that Hainan provides. And by the way, I'm leaving for Hainan early next week. After 3 years, finally, I'm going back. And any 1 of you that have not seen it, not been there, I was there before COVID, but I've not seen yet the after COVID physically, although my team with the cameras show me since a long time to see exactly what's happening. But if you go, you will see is 1 of the most exciting vacation places of the world, particularly if you -- on top of beautiful beach is a great hotel [indiscernible]. You like shopping as an entertainment is an extraordinary place. And so this is there to stay. And then the development of the online platforms in China is very strong. It will continue, and there is more competition between these online that has been in the past where Tmall was the first very big. Now there is a very competitive environment that however attract more and more consumers every day. And so in summary, when you combine the growth of the fundamentals, middle class, together with the expansion of our portfolio of brands over time, together with the penetration of North cities for sales, together with the creation of internal travel retail business, Hainan, before was not existing. And then you add on all of this, the opening of the borders. And again, the Chinese consumer traveling around the world, that will bring at least in certain destination areas like Tokyo, Paris, London, it's going to be 10% of the total business. It goes back to where it was in '19, et cetera. When you put all these together, the future with Chinese consumers is very exciting. In fact, just to add 1 part of your question, you asked our market share in China, we see this as market share with the Chinese consumers. We internally coordinate and look at what we sell to Chinese consumer in domestic China, what we sell in the travel retail channel and what we sell around the world when they have tourism, and we look internally. We estimate the market share of the Chinese consumers. And this market share will continue to grow, and we will focus on it globally.

No, that's very, very helpful. I mean maybe sticking with the travel retail, which you were just kind of alluding to. I mean, a few months back, Fabrizio, I think you kind of mentioned that you thought travel retail was 1 of the biggest opportunities from a channel perspective. And I guess I just would be curious, and you touched on the Hainan versus international travel intersection. But I mean, I guess, beyond just the traffic component, I mean, how have the channel dynamics change versus pre-COVID?

Yes. Travel retail, what -- first of all, travel was also hit enormously during COVID because the airports were closed for a long time. And the dynamic has been kind of weird because you had a certain moment just when you look to 2020, '21, '22 when the West closed, China reopened. So in May 2020, the airports in the West were closed and we had big travel retail business there. So this was obviously painful. But June, I remember the first week of June 2020, the Chinese government announced that Hainan was declared the duty-free place and made it practically the biggest travel retail places of the world in a few months. And so when the rest was closed, something opened. Now we have seen this coming. We were ready. I remember that when I -- last time I visited there before COVID. I asked my team to be ready with all our brands, at least the ones that were available in China, position because this is going to be amazing. If you go there, you understand what I mean, it is going to be amazing. But frankly, we did anticipate the COVID was arriving and would have been even faster the growth because they would have been the only option for travel. To -- China, in the period June 2020 was open. Our office in New York closed in March 2020. Our office in China reopened every day of the week, May '20 and never closed till the recent lockdown, meaning the recent -- a year ago, March, a year ago now, big lockdown in Shanghai. So the moment the West was closed, China was open in March and that's, frankly, boost our business in a fantastic way during this period and offset it. Now we just come from a year, [indiscernible] apart from inflation, all the other things that happen but the West started reopening and China closed. So the opposite happened. And now we have in front a period that we hope that both will be open. So that could be exciting if we manage this correctly in the next couple of years. And so it's important to look at the timing to understand the dynamics. So travel retail has been very volatile for the reason I just described, but travel retail remain, in my opinion, 1 of the most exciting channels. First is a beautiful trial channel. The larger the -- biggest number of new trials, new customer acquisition happens in travel retail. So the consumer go and try for the first time of product, then they go back home and repurchase this product in their country of origin. That's a big phenomenon. Second is today, the channel where from our data is the biggest equity building. If you go to the airport of you name it, Heathrow, you go to - the airport of Tokyo or you go to Hainan, you see the quality of the -- you see it's just extraordinary. So why the quality -- why all companies -- most companies for sure Estée Lauder -- we have our best counters, our most modern design, our latest design in Hainan or in certain airports around the world, now they are reopening. The answer is the productivity of the stores is so high that allow a change of the investment, the renovation of the countries. If you look in a good airport every year, if you go to Hainan, you could every 2 weeks, for the level of productivity. So you have always the best countries. You're always the best position. You always have a lot of people that serve you because the traffic in these places is extraordinary. So travel retail is great for trial, great for equity building and is 1 of the most productive, just traffic per store places in the world in our industry. As I said before, productivity is the key driver of profitability. That's why travel retail is so accretive because it's an extraordinary product. And so that channel is growing. The number of people traveling are growing. The people interested now to travel after COVID even more. Every 1 of us. I don't know about you, but I'm happy to go to China next week and to travel again and to see our business there and spend time with the team finally. And it is going to be exciting many people will go back. Said this, December international travel was plus 80% versus the year before, but we're still 25% below 2019. So it just started. Still a lot to go and a lot to recover also because there are not enough airplane, that are not in our places, particularly in Asia. So it will be a gradual recovery that will be a long-term recovery of the travel around the world in our opinion. And last thing I want to say on travel retail is travel retail is an industry which is driven by traffic, as we just explained, but also by conversion. Before COVID, 15% of the people travel entering an airport would buy anything, 1-5. This is increasing, particularly now. By the way, this has been increasing when the safety protocols have increased in airports. So we all start spending more time in airports. This has driven the conversion app. Now what is driving the conversion app is what is called pretail, meaning the possibility when you have a ticket to buy online your beauty or whatever, or your alcohol before going to the airport and then finding it in the airport, getting it when you are in the airport, which is mainly today in China and Korea. Now pretail double conversion. So imagine now the next 10 years that this online basically travel retail online, the invention of Travel Retail online, start being available everywhere, U.S., Europe, et cetera. You have the potential to imagine a very big balance of conversion. If the conversion goes from 15% to 30% is like doubling the entire travel retail business with 1 move. So will this happen? I don't know, because for the moment, as I said, pretail is significant only in China and Korea, but there is no reason why these technologies should not travel the world. Definitely, we are going to support it wherever this will be happening. So the travel retail business will be -- traffic will be back and conversion will be increasing and this will drive the industry for a long time and is an accretive. I explain why it's accretive because it's extremely productive, is an accretive part of the business and is a high potential for equity and trial.

Great. And maybe continuing on the regional performance here. I wanted to get some views on the Americas, but specifically the United States. I think you highlighted on the last call some exciting initiatives that you're kind of deploying right now. Can you maybe just talk about those strategies here in the U.S.? And I guess I just would be curious, would holding share be viewed as a success?

In this moment, yes, is -- let me explain what's happening. First of all, we have very high market share still in the market. We still have a very high market share. And we have the brands which are winning in the market. Clinique is still the market leader in skin care. M.A.C is the market leader in makeup. The Ordinary, which is our latest new brand has now become the market leader in skin care in units is still smaller than Clinique in value, but it's an extraordinary brand, which is winning in units all over. Our fragrance portfolio that I was explaining before, Jo Malone, Le Labo, Tom Ford are really doing super. And they will do better and better over time. In fragrance, we have a smaller market share. So our total market -- and sorry, I should say, haircare with Aveda and Bumble is doing well, it's only 2 brands in a very big category. So we are at the beginning of the expansion in this category, but our 2 brands are very strong and particularly Aveda is a very strong brand with critical mass in the U.S., so it's a big brand. So we have a great portfolio of brands. Most of them are #1 or 2 of the category they operate. So very strong fundamentals. We are still readjusting our portfolio coverage of this. Our market share is the biggest in makeup and was the lowest in fragrance. Now we are going to change all of these in the future, but gradually. But when you look at our total market share, that's why I'd say, would be good to hold in a moment where fragrance is growing and makeup was collapsed by the COVID situation and the [indiscernible] recovery that was not helpful to the mix impact on market share. Haircare, which has been getting into prestige very heavily. We are still -- our brand is still a lot of professional haircare in salons. This has been obviously not helpful on the total market share. So there are elements of mix which are not healthy. We are remanaging the mix. We are making the distribution balance. For example, we are growing very well in freestanding stores, again, that were very important for us because we are the company in the U.S. with the biggest amount of freestanding stores. So the comeback of this is helping and will continue to help even more. You don't read this number necessarily in -- the numbers which are official. And the brand.com is going to continue to recover. And together with freestanding stores, we'll give to the U.S. a very unique position where we will have probably 25% of our business direct to consumer where we control everything, including the data and all these trends that will continue to accelerate. So our goal in the U.S. is to go back to a regular, sustainable market share growth. We are -- for the moment, we are improving the gap, meaning we are, every time growing closer to market, but we are not yet ahead of market, but that's the aim and are gradually getting there. By the way, the last thing I want to say, we have an extraordinary innovation pipeline. That's the other big driver, which will help us going back to growth or market share. That's the goal and we will get there. Gradually, but we'll get there.

Okay. Well, we have about a minute left. So why don't we just leave it there. Fabrizio, on behalf of UBS, those in the audience and those listening, thank you so much for being with us today. I wish you nothing but the best of luck moving forward.

Thank you very much. Thank you.